Refunds of tax withheld at source
Foreign businesses must pay income tax on their receipts of income from Finnish sources. Payers must withhold tax at source. The rate of withholding depends on the provisions of the applicable bilateral tax treaty between Finland and the country of residence of the foreign company. If too much tax has been withheld at source, the foreign company is entitled to ask for a refund either from the Finnish Tax Administration or, in certain circumstances, directly from the payer.
When to withhold tax on trade income
When foreign companies receive trade income from Finland, the income normally falls outside the taxing rights of the Finnish Tax Administration, unless the foreign company has a permanent establishment. The payer may have to withhold tax at source on the amount if the foreign company is not entered in the Prepayment Register, or has not presented a tax-at-source card for zero-rate withholding.
If tax has been withheld although the foreign company is not treated as having a permanent establishment in Finland, the company is entitled to request a refund.
If the foreign company has a permanent establishment in Finland, the company must withhold tax at source on any trade income they pay to another foreign company, if the work is done in Finland. The same applies to Finnish companies that pay trade income to a foreign company for work done in Finland.
How to get a tax-at-source card
A tax-at-source card is issued for a limited time and for a specific assignment. A foreign company can get a tax-at-source card with a withholding rate of 0% if the company’s activities in Finland do not give rise to a permanent establishment or if Finland does not have a valid tax treaty with the company’s country of residence. A foreign company can apply for a tax-at-source card by filing Form 6202e.
The application form must include the following enclosures:
- A foreign trade register extract or an equivalent document
- A photocopy of the business agreement signed with the payor
Send the application to the address stated on the form or deliver it to any Tax Administration office.
You must request a tax-at-source card separately for each assignment. If your company has multiple assignments, you can request to be entered in the prepayment register.
Your company should register for prepayment before the assignment begins, or at the latest before you start invoicing in Finland. If your customer pays you trade income before your company has been issued a tax-at-source card or has been registered for prepayment, they will have to withhold tax at source on their payment.
Read more about requesting entry to the prepayment register
Two methods of refunding tax withheld at source
1. Finnish payer effecting the withholding refunds it to the foreign company
The foreign company may present the payer a zero-rate tax card for tax at source, with retroactive validity. In this case, the payer can refund any tax that it had withheld previously. The refund must take place in the same year when the compensation for work was paid. After paying such a refund, the payer must file appropriate reports to Finnish authorities containing the necessary corrections to its previously filed information on payment and withholding.
Note the new routines for reporting the 2019 employer's contributions and making corrections to them:
- If you paid a refund in 2018, you must submit corrected tax returns for employer's contributions, with corresponding corrections of withheld amounts for the months when too much tax had been withheld.
- Regarding payments made on 1 January 2019 or later, you are expected to send all corrections to the Incomes Register. If refunding the withheld amount is not possible within the same calendar year when you paid the trade income, the foreign company must file a refund request to the Tax Administration.
However, it is not an adequate reason for refunding if the foreign company has been entered in the Prepayment Register later.
2. Foreign company requests refund of the Tax Administration
Foreign companies may request their tax at source to be refunded.
- The appropriate form is Application for refund of Finnish withholding tax - non-individual (6163e and 6165e).
Enclose the pay slip from the payer, stating the amount of compensation paid and the tax withheld on it. If the form is filed during the same calendar year when the compensation was paid, it is also necessary to enclose a declaration from the payer confirming that no direct refund to the foreign company has been made. Further mandatory enclosures:
- certificate corresponding to the Finnish Trade Register Extract from the trade register of the country of tax residence
- if applicable, a photocopy of the assignment or contract or agreement stating the grounds for the trade income that was paid to the foreign company.
Withheld tax cannot always be refunded
When tax has been withheld at source, it cannot be refunded if the income of the foreign company is regarded as falling within the taxing rights of Finland. The Finnish Tax Administration is entitled to collect tax on income if the foreign company is treated as having a permanent establishment in Finland and in some other situations. This requires that the company file an income tax return, and when its Finnish income taxes are assessed, the paid-in tax that had been withheld is then included as a received prepayment. It is mandatory to enclose a certificate from the payer proving that tax was withheld.
Dividend, interest and royalties are subject to tax at source
When Finnish payers pay dividend, interest or royalties to foreign companies, they must withhold 20% or 30% at source unless the applicable bilateral tax treaty provides for a lower rate or provides that the type of income being paid is exempted from tax at source.
In such a case the beneficiary of the income must present the payer a document that proves that exemption is applicable (as is the case with some dividends in the European Economic Area) or that they meet the requirements of the bilateral tax treaty. The beneficiary of income must also give sufficient details to the payer in order to facilitate beneficiary identification.
If too much tax has been withheld, it can later be adjusted. However, too much tax withheld on dividends can only be adjusted by the same bank that had handled the paying out of the distributed dividends of a Finnish corporation. If such adjustment is not made during the year of payment, the beneficiary of dividends can file a request to the Tax Administration. The appropriate form is Application for refund of Finnish withholding tax. As for other types of income (than dividends), beneficiaries may file a request to the Tax Administration already during the year of payment.
You can also apply for a tax-at-source card from the Finnish Tax Administration during the year of payment. The entity can present the card to the Finnish payor before the income is paid, allowing the payor to withhold the correct amount of tax-at-source when the payment is made. In cases where the payment has already been made, and too much tax was withheld upon payment, the holder of a tax-at-source card can apply for a quick refund from their custodian bank, but only during the payment year itself. A foreign company can apply for a tax-at-source card by filing Form 6211e.