Finnish employee posted overseas
If you send your employee – a Finnish resident for purposes of taxation – on a foreign assignment, you must find out whether the foreign country will treat them as a taxpayer of income tax 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
Short periods of work abroad are usually simple from a taxation perspective. If an employee from Finland works in a foreign country for a Finnish employer, their pay is taxed in Finland if they stay abroad for less than six months. The employer withholds tax according to the tax rate on the employee’s Finnish tax card, pays the social insurance contributions and reports the pay to the Incomes Register as normal. The country where the employee works does not usually have the right to tax the pay. However, if the Finnish company is treated as having a permanent establishment in the other country, the country may be entitled to tax the employee’s pay, even if their stay is short.
If the country where the employee works is Norway, Sweden, Denmark or Iceland, the employer must submit the NT1 form in order to inform the authorities that the Finnish employer continues to withhold tax in Finland. This information is reported to the Incomes Register on the earnings payment report. The due date for reporting is the fifth day counting from the first date of wage payment to the employee working abroad. This is to ensure that the other Nordic country will not demand tax prepayments from the employee.
If the work abroad lasts for 6 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.
The wages you pay to your Finnish employee is not taxed in Finland if the following requirements are met:
- 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.
If the employer determines that the six-month rule applies to the employee, tax withholding does not need to be conducted in Finland (unless minimum withholding is required, as described below under the header “Social security”). It is the employer's responsibility to apply the six-month rule correctly.
If no tax is withheld in Finland, the employer must report foreign work to the Incomes Register (NT2 information). The information must be reported on the earnings payment report by the fifth day after the date on which wages were paid without withholding for the first time.
When withholding is not conducted based on the six-month rule, the employer must also report to the Incomes Register the periods during which the employee has stayed in Finland. The information is reported to the Incomes Register using the form “Employer's report of periods of stay in Finland”. The details on the periods of stay in Finland must be filed by the end of January of the year following the year of payment.
If the employee works in another Nordic country, NT2 information must also be reported in cases where no tax is withheld because the other Nordic country has the right to tax the income and Finland therefore utilises the exemption method. The employee must first request these circumstances to be taken into account in their tax card before the employer can decide to not withhold tax.
Social security
We recommend that you contact the Finnish Centre for Pensions or the Social Insurance Institution (Kela) before sending your employee to the foreign country. They will tell you whether your employee remains covered by the Finnish social security system during the assignment. If yes, you must continue to pay the contributions in Finland.
If the six-month rule is applied, the base of the health insurance contribution is the amount confirmed by the social insurance institutions for this purpose (called vakuutuspalkka; försäkringslön). To cover the insured person’s health insurance contribution, you must withhold an amount known as the “minimum withholding” on your employee's pay.
Social insurance contributions
Taxes abroad
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.
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 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.
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