Operating a business abroad

If you are a Finnish-based business and you start operations in a foreign country, you may have to pay tax there, too. However, the Finnish Tax Administration will act to eliminate any double taxation when assessing your Finnish corporate income tax.

Your tax will be assessed according to Finnish legislation and that of the foreign country where you have operations; however, the rights of each country to actually charge tax may be limited by one of the bilateral tax treaties Finland has agreed with some 70 countries to avoid double taxation of income and capital. If you are a corporate taxpayer, you should contact the local tax authorities well before starting up a business abroad.

The right of a foreign country to tax you largely depends on whether you are considered to have a permanent establishment there or not.  For some classes of income (such as royalties) you may be taxed in the source country even if you are not considered as having a permanent establishment there.

If circumstances give rise to a permanent establishment being formed in a foreign country, all income attributable to it will be taxed there, subject to the domestic tax and accounting rules of that country.

If you are a Finnish company, you must always report any foreign-sourced income when you submit your Finnish income tax returns.  If you have a permanent establishment abroad, enclose Form 75 to report income attributable to it.  Income derived from foreign sources is taxed under the provisions of Finnish tax legislation, and accounting must be in accordance with the Finnish Accounting Act.

Relief for double taxation

When you operate a business abroad you run the risk of double taxation if your income is subject to taxation under the tax rules of both the source country and Finland.  The Finnish Tax Administration primarily uses the credit method for relief of double taxation, with the exemption method used for the small number of foreign countries whose bilateral tax treaties provide for it.  When relief is being given, certain types of income may require the credit method, others the exemption method.  There is a lot of variation in how foreign countries classify different types of income.  For this reason, we recommend that you contact the local tax authorities in advance in order to clarify how the types of income relevant to your business are going to be treated.

More information: Relief for double taxation

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