Employees posted overseas
If you send a Finnish-resident employee on a foreign assignment, you must find out whether the foreign country will treat them as an income tax payer there, and if yes, you must establish whether income tax must also be paid to Finland. You and your employee may benefit from a six-month rule granting exemption from Finnish taxation. Additionally, you must establish whether your employee is going to be covered by the Finnish social security system.
Working less than six months
Shorter assignments are usually simple. If an employee from Finland works in a foreign country for a Finnish employer, their tax treatment remains as before: their pay is taxed in Finland if they don't stay longer than six months. You must withhold tax at the rate printed on the employee's tax card in the usual way, pay social security and file the usual Employer Payroll Report in Finland after the end of the calendar year. The country where your employee works has no taxing rights. However, if you are treated as having a permanent establishment in that country, it may be that income tax on your employee's pay must be paid there.
If the country is Norway, Sweden, Denmark or Iceland, we recommend that you fill out the NT1 form and file it with the Finnish Tax Administration. This form is used to ensure that the Nordic country in question will not demand advance payments of income taxes from your employee.
Working six months or longer
The six-month rule
If you are a Finnish company sending a Finnish resident to work in another country, the principle known as the six-month rule may affect your tax treatment. If you conclude that the six-month rule applies to you, no or only minimal Finnish withholding is necessary (details under "Social security" below). You as employer must interpret the six-month rule correctly in each case. If you do not withhold tax on what you pay to your employee, you must complete Form NT2 ("notice of non-withholding" — Ilmoitus ennakonpidätyksen toimittamatta jättämisestä Suomessa – ulkomaantyö) to inform the Tax Administration of the foreign assignment.
Situations to which the six-month rule applies
Employment income is not taxed in Finland if:
- Provisions of the bilateral tax treaty do not restrict the taxing rights of the country where your employee works (or alternatively, no bilateral tax treaty exists)
- The assignment is for at least 6 months without interruption
- Your employee does not come back to Finland for more than six days per month,
counting the average number of days of presence per months worked.
We recommend that you contact the Finnish Centre for Pensions or the Social Insurance Institution (Kela) before sending your employee abroad. They will look tell you whether your employee remains covered by Finnish social security during the assignment. If yes, you must continue to pay social security contributions to Finland.
If the six-month rule is applied, the base for the social security contribution is the amount confirmed by the social insurance institutions for this purpose (called vakuutuspalkka; försäkringslön). To cover the healthcare contribution payment, you must withhold an amount called the minimum withholding on your employee's pay (at the rate of 2.1% (2015)).
We recommend that you contact the tax authorities of the foreign country where your employee works. This may be especially useful in the case of building and construction work, and for any long-term contracts or assignments abroad.
Usually there are no standard tax-related employer obligations for you to fulfil; however, the authorities of the country can give you more guidance and tell you exactly whether there are any or not. For this reason, it is a good idea to contact them. If you are deemed to have a permanent establishment in the country, it usually means that standard employer obligations will apply to you, i.e. you will have to withhold tax and file reports. We recommend that you contact the foreign tax authorities early, and take care of any obligations that may arise. This will help you avoid unexpected additional expenses in the form of penalty charges that you may have to pay if you neglect to file reports etc.