Buying services from a foreign company
If you are a Finnish-based company or a foreign company with a permanent establishment and you pay a foreign company for work done in Finland, you must withhold tax at source on your payments to that company. “Foreign companies” means enterprises that have a foreign location as their residence or domicile for tax purposes. A foreign company may have a Finnish Business ID.
However, you do not have to withhold tax if the foreign company:
- is registered for prepayment in Finland or
- shows you a zero-rate tax card for tax at source or
presents documentation establishing that it has no permanent establishment in Finland. This requires that the company's country of tax residence is a country that has signed a tax treaty with Finland.
The party who ordered the work is not required to withhold tax at source if the foreign company can present an account proving that it is not considered to have a permanent establishment in Finland. However, this requires that the company’s country of tax residence has signed a tax treaty with Finland.
The recipient of the payment must present a tax-at-source card which states that the payor does not withhold tax at source if the work in question is one of the following:
- construction of buildings, earthmoving, water works or other construction activities
- installation or assembly
- cleaning, caregiving or nursing work.
The same rules apply to leased employees working in these sectors as well as to situations where the company’s country of tax residence does not have a tax treaty with Finland.
The withholding rates of source tax are:
- 13% on payments of trade income going to companies that are similar to Finnish limited-liability companies or partnerships.
- 35% on payments of trade income going to self-employed individuals who operate a trade or business.
You must pay the amounts on to the Tax Administration.
Changes were made at the beginning of 2019 to the reporting routines relating to trade income paid out:
- If paid on or after 1 January 2019: Reports must be filed to the Incomes Register in 5 days after payday. Read more about how to submit payroll information to the Incomes Register.
- If paid in 2018 or earlier: You are required to report the amount of withholding on your tax return for employer's contributions and then file an employer payroll report. The final year for employer payroll reports is 2018.
In addition, you must provide a receipt to the foreign company proving that you have withheld Finnish tax at source on the payments it receives.
If a foreign company selling services or work to Finnish customers wishes not to have taxes withheld, it should apply to register for prepayment in Finland or get zero-rate a tax-at-source card from a Finnish tax office.
Refunds of withheld tax
You may be shown a retroactive zero-rate card by a foreign company, the effect of which is to show that no tax should have been withheld at source on payments to it. If this is the case and it is still the same calendar year as when you withheld the tax, you may refund it to the foreign company.
Then you must also submit a corrected tax return for employer's contributions to the Tax Administration, if the year of payment had been 2018. Regarding payments made on 1 January 2019 or later, you are expected to send all corrections to the Incomes Register.
However, it is not an adequate reason for refunding if the foreign company has been entered in the Prepayment Register later. If you can no longer refund the amount during the calendar year of payment, the foreign company can make an appeal to the Tax Administration to ask for refund.