Expanding your business operations to other countries

If you plan to expand your business operations to other countries, it is important to know in advance which countries will have the right to tax your income and how the income you receive from abroad will be taxed. 

Finnish companies may be liable for income tax on business operations conducted in another country both in Finland and in the other country. Income received from abroad is taxed in Finland in accordance with Finnish tax legislation.

Take into account the other country's tax legislation

• When a Finnish company expands its operations abroad, the company's tax assessment depends on what kinds of operations the company conducts in the other countries. In most situations, companies either establish a subsidiary or a branch office or they start conducting business operations directly, for example by working with local sales representatives.
• Know the other country’s tax rules: Each country has its own tax laws that are applied to the tax assessment of companies. The Finnish Tax Administration does not provide guidance on how the tax rules of other countries should be applied. Please contact the tax authority of the country in question for further information and instructions. See a list of links to the national tax websites of EU countries (eropa.eu)
• Interpretation of tax treaties: If you are unsure how to interpret a tax treaty between Finland and another country, the Tax Administration can present their view based on Finnish tax assessment. However, please note that this interpretation is not binding to the tax authorities of the other country. See the electronic versions of Finland's tax treaties 

Establishing a subsidiary or conducting business in another country

• A subsidiary is an independent company. If you expand your operations abroad by establishing a subsidiary in another country, the business income received by the subsidiary will generally be taxed only in the country where it was established or where it is registered.
• The prices set for purchases and other business transactions between the subsidiary and the Finnish parent company must be based on the arm’s length principle, i.e. they must follow market pricing. Transactions between a parent company and its subsidiaries are subject to the regulations on transfer pricing. Most commonly, profit distribution from a subsidiary to the parent company takes place in the form of dividends.
• If you do not establish a subsidiary entity in another country, you may be treated as having a permanent establishment in the other country. For example, if you have a sales representative or a branch office in another country, the tax authorities of the other country are likely to consider this a permanent establishment.
• Income received by a permanent establishment may be subject to tax in both the country the establishment is located in and in Finland. In Finland, income received from abroad is taxed as part of the Finnish company’s overall income. The part of the company’s business income that is considered to be derived from a permanent establishment is taxed as the permanent establishment’s income.
• The country where the permanent establishment is located may have the right to tax the income. The taxation rights are determined by the country’s legislation and the tax treaty between the country and Finland.
• If you are unsure whether your company will be treated as having a permanent establishment in another country, contact the tax authority of the country in question. Finland and the other country may disagree on whether or not the business activities give rise to a permanent establishment. The company can request the countries’ tax authorities to resolve the matter by a mutual agreement procedure. 

Elimination of double taxation

• Finnish companies must pay tax in Finland on their income from both Finnish and foreign sources. Foreign-sourced income may also be treated as taxable income in the country of source. If you were to pay tax on the same income both in Finland and in a foreign country, it would be double taxation. The Finnish Tax Administration eliminates any double taxation when assessing your taxes in Finland.
• Double taxation can be eliminated in two ways; by subtraction or exemption, and in principle it is done in the country of residence. The removal method is the method specified in the tax treaty between the states. See the electronic versions of Finland´s tax treaties
• The main method is the credit method. In the credit method, Finland generally taxes the income received by the taxable entity from abroad but deducts the tax paid abroad from the tax paid to Finland.
• The exemption method is applied to income received from a foreign country only if Finland has waived its right to tax in a tax treaty. Waiver of the right to tax according to the exemption method means that Finland generally does not tax the income received by the taxable entity from abroad. The exemption method is used only if the bilateral tax treaty between Finland and the other country requires it.
• Read more about the elimination of double taxation in Finland 

Requesting the elimination of double taxation on an income tax return

• You can request the elimination of double taxation on your income tax return. Fill in the foreign income you have received, the amount of tax you paid on it abroad, the type of the income (dividends, salary, etc.), and the name of the country of source.
• Corporate entities, partnerships or self-employed individuals: Request the elimination of double taxation on Form 70.
• You can also submit the request after the year’s tax assessment process has ended.
• As an alternative, you can prevent double taxation in advance by reducing your tax withholding or prepayments. This requires that you present evidence that you are going to receive income from a foreign country and that you are going to pay tax on it abroad. The tax office can take this into account and reduce your payment amounts accordingly. You must still report the foreign-sourced income and foreign-paid tax on your tax return.