Taxation of key employees Detailed guidance

This is an unofficial translation. The official instruction is drafted in Finnish (Avainhenkilöiden verotus, VH/7327/00.01.00/2025 ) and Swedish (Beskattning av nyckelpersoner, VH/7327/00.01.00/2025 ).

These instructions concern the taxation of individuals coming to work in Finland in circumstances where the Act on Key Employees (1551/1995) applies to the assessment of these individuals’ income taxes.

Amended tax rules coming into force on 1 January 2026 are included in this version of the guidance. This version additionally contains several smaller updates providing more precise information, and statement of the Tax Administration’s opinion regarding a situation where a key employee moves on to another job.

For more information on the taxation of employees outside the scope of the Act on Key Employees, see Taxation of employees from other countries.

1 Introduction

The general rule is that when you come to work in Finland, you must pay taxes on your earnings in Finland. The way in which these earnings are taxed depends on the length of your stay and on whether your employer is regarded as Finnish or as an employer based in another country. Additionally, the provisions of international treaties on taxation may restrict Finland’s taxing rights.

An individual who comes to work in Finland is treated either as a resident taxpayer (with full liability to pay tax), or as a nonresident taxpayer (with restricted liability to pay tax). Under section 9 of the Act on income taxation (Tuloverolaki (1535/1992)), individuals who reside in Finland and individuals who live in other countries but stay in Finland for more than six months are considered resident taxpayers. Individuals who reside abroad and individuals who stay in Finland for less than six months are nonresidents (section 11, subsection of the Act). For more information on residency and nonresidency, see Tax residency, non-residency and residency in accordance with a tax treaty – natural persons.

The income earned by resident taxpayers is taxed in accordance with the Act on assessment procedure (Laki verotusmenettelystä (1558/1995)) and the taxation is based on a progressive schedule. However, in the case of an individual treated as a key employee, the income earned can be subjected to collection of a final tax at source, even if the individual has become a Finnish tax resident, fully liable to tax.

2 Foreign key employees

2.1 Applicable legislation and prerequisites for application

Taxation of foreign key employees is governed by the Act on source tax of foreign key employees (Laki ulkomailta tulevan palkansaajan lähdeverosta (1551/1995); hereafter referred to as the Act on Key Employees). In some situations, foreign individuals who obtain the status of a resident of Finland and who come to Finland for periods longer than six months, are treated as foreign key employees paying 25% of source tax on their wages. Before 2026, the tax-at-source rate for key employees was 32%.

Starting in 2026, if an employee coming to Finland must pay municipal income tax to a municipality in the Province of Åland, the rate of tax at source is 7.3 percent. In addition to the tax withheld at source on wages, key employees residing in Åland must also pay municipal income tax under the Act on income taxation and under the Municipal income tax act of Åland (ÅFS – Ålands författnings­samling 119/2011).

For years prior to 2026, fiscal treatment of an individual as a key employee was not available to citizens of Finland – even if the citizen had lived in other countries for a long time and had therefore become a nonresident taxpayer in Finland. In accordance with the amended tax rules in force as of 1 January 2026, the requirements set out by the Act on Key Employees are equally applicable on Finnish citizens and citizens of other countries. As a result, a citizen of Finland can submit – subject to the other conditions of the Act – an application for treatment as a key employee for income-tax purposes if he or she has a history of being a nonresident at least for the 5 calendar years that go before the year when the employment begins. 

However, the lengths of time when the Act on Key Employees can continue to be applicable are different for Finnish citizens – 60 months – and foreign citizens – 84 months. The new rules on application of the Act on Key Employees on Finnish citizens are effective on the condition that 1 January 2026 or a later date is the start date of work as referred to in the Act.

Overall, starting 1 January 2026, the conditions for applying the provisions of the Act (section 2 of the Act on Key Employees) are as follows:

1. The individual becomes a tax resident of Finland when starting work within the meaning of the Act;
2. He or she is paid at least €5,800 per month for this employment for the entire period of working;
3. He or she works in tasks requiring special expertise, and
4. During the 5 calendar years preceding the year when work begins, he or she was not a tax resident of Finland at any time.

If the individual employee who comes to Finland from abroad works as a teacher in a Finnish university, or other institution of higher education, or conducts scientific research for the common good and not for the benefit of a specific individual or organisation, the Act on Key Employees can be applied even if the requirement on €5,800 of monthly pay is not fulfilled. In the case of teachers and researchers, the Act on Key Employees is applicable even if the requirement on special expertise is not fulfilled (section 2, subsection 2 of the Act).

The Act on Key Employees can only be applied if the individual in question becomes a tax resident of Finland. This means that he or she must have a permanent residence and home in Finland, or stay here for a continuous period of more than six months (section 11 of the Act on income taxation). The period of stay can be considered continuous even if the individual is temporarily absent from Finland.

The Act on Key Employees only applies to individuals who achieve the resident taxpayer status in Finland as they start work as employees, satisfying the conditions set out by the Act on Key Employees.  Accordingly, the Act cannot be applied on individuals who have become residents of Finland as a result of such factors as frequent work-related trips to Finland, even if they would later be employed in tasks that would otherwise fulfil the conditions set out by the Act.

In contradistinction with the above, it is not an obstacle for applying the Act on Key Employees if the individual had worked in Finland in the past as a nonresident. An example of work performed here previously is a situation where an individual, before moving to Finland to live, had been present for 1 or 2 days per week here, and the location of his or her permanent residence and home was not in Finland during that time.

Based on established tax-assessment practices, however, the Act on Key Employees can be applied if the individual arrives in Finland a short time before the start of work and becomes a resident of Finland already on their arrival. Such a situation often arises when an individual moves to Finland one or two weeks before the start of the employment so they can finalise all practical arrangements before starting work.

The purpose of the Act on Key Employees is to promote the employment of persons with special expertise in Finland. The concept of special expertise is not defined by law. According to the preparatory work before the enactment of the Act, special expertise refers to persons whose knowledge or skills are important for developing production, trade and industry, or research in Finland (Finance Committee Report 45/1995).

In taxation, athletes have usually not been considered special experts as referred to in the Act on Key Employees. If the other requirements are fulfilled, however, sports coaches can be deemed to be acting in special expertise tasks. More information about income from sports is available in the Tax Administration instructions Taxation of income received from sports in international situations.

2.2 Wage income under the Act on Key Employees

The provisions of the Act on Key Employees apply to pay that is defined in the Act on income taxation as income earned in Finland. This requires that at least most of the work is performed in Finland for an employer based in Finland (section 10, paragraph 4 of the Act on income taxation). However, in the following situations, the income is considered income earned in Finland even if most of the work had been performed outside Finland:

• Wages were paid by the State of Finland, a Finnish municipality or by another body governed by public law (section 10, paragraph 3 of the Act on income taxation)
• Remuneration was paid to an individual who is a member of the Board of Directors or other similar governing body of a Finnish corporate entity (section 10, paragraph 4a of the Act on income taxation)
• Wage income was paid by a foreign employer for work performed in Finland when the foreign employer had leased out the worker to a service recipient in Finland under an employee-leasing contract (section 10, paragraph 4c of the Act on income taxation)

Whether or not the key employee worked mainly in Finland is examined for every tax year one by one. Because key employees are residents, they are also liable to pay tax on any income they receive for work performed outside Finland.  For this reason, the review period with regard to the question of whether work is done here mainly is different from the one used for nonresidents, because a series of pay periods, as ruled by the Supreme Administrative Court, must be the base for evaluations of whether a nonresident individual worked in Finland mainly (for more information, see section 2.1 of Taxation of employees from other countries.

When the provisions of the Act on Key Employees are applied, the concept of an “employer based in Finland” extends to employers that are Finnish, to Finland-located permanent establishments of a foreign employer, and to corporate entities that have a place of effective management here, within the meaning of section 9 of the Act on income taxation. Under current case-law (ruling no 2943 of the Supreme Administrative Court of 11 November 2005), the provisions of the Act, where they refer to an “employer based in Finland”, also apply to wage payments and source-tax withholdings effected by a Finnish service provider on a foreign employer's behalf. (Typically "a Finnish service provider" is an accounting firm.)

When a key employee works for a multinational enterprise group, it may be that the true payor of net wages is a foreign member company of the enterprise group. In these circumstances there would be a regular billing, to make the wages charged to the Finnish subsidiary that becomes the bearer of the cost, accounted on the subsidiary’s books as an additional business cost. The routine of wage payments would additionally involve a shadow payroll account, a setup where the Finnish subsidiary sends the Tax Administration the amounts withheld at source on the wages paid to the key employee, and submits the payroll reports to the Incomes Register in the Finnish subsidiary’s name, even if the true payor is a foreign member company of the enterprise group.

3 Taxation at source of key employees in practice

3.1 Applying for a tax-at-source card of a key employee

A key employee must submit an application to the Tax Administration for a tax-at-source card designed for key employees within 90 days of the date when the work referred to in the Act on Key Employees started.

The maximum period of work allowed by the Act was extended to 84 months as of 2024. The 84‑month period concerns individuals who started work in Finland, within the meaning of the Act, on 1 January 2024 or later. Another group of people whom the 84-month period concerns are the key employees who worked here already on 1 January 2024 and whose 48-month maximum period – set out by the legal provisions previously in force –  would have ended on 31 December 2023 or later.

If work, within the meaning of the Act, continues for longer than planned and the validity period of the key employee's tax card is shorter than 84 months, the card’s validity can be extended. The application for extension must be submitted in writing within 30 days of the end date of the validity of the previous card. A new card can be issued for up to 84 months counting from the start date of the original period of work.

The maximum period of applicability is 60 months for a citizen of Finland, which is different from the maximum applicability of the Act on foreign citizens coming to Finland to work. 

It is permissible to keep applying the provisions of the Act for as long as the key employee’s working here is treated as continuous. There may be circumstances involving a key employee moving on to work for another employer in Finland, so that the Act on Key Employees can become applicable on the wages from his or her new job. In accordance with the text of the Government proposal (HE76/1995), a situation described above would occur when the first contract of the key employee would be terminated and within one month from its end date, he or she would sign a new contract of employment, for performing work that satisfies the conditions laid down by the Act. Because the Tax Administration issues the tax-at-source cards designed for key employees expressly for wages and salaries coming from a certain named employer, a need would arise for requesting a new card.

3.2 The system of withholding the tax at source on the income paid to a key employee

The tax at source is a final tax: the employer withholds its amount on the wages paid, and remits it on to the Finnish Tax Administration. No health insurance contribution of the insured individual is collected from the employee.

Up to 31 December 2025, and relating to wages paid up to that date, the tax-at-source rate for key employees was 32%. From 1 January 2026 on, correspondingly, the tax-at-source rate stands at 25%. It is possible for an employer to take the initiative to start withholding at the new rate of 25% when the employer makes wage payments to key employees on 1 January 2026 or later. There is no need for the key employee to submit a request for a new tax-at-source card.

A key employee’s tax-at-source card has an effect only on the collection of the final tax and of the employee’s health insurance contribution. Other statutory social insurance contributions must be paid according to the rules that are applicable. For example, the employer must pay the health insurance, pension insurance and other insurance contributions normally unless the foreign key employee presents an A1 certificate or a similar document.

In some circumstances, no tax had been withheld at source at the time of wage payment. When this has occurred, the tax must be imposed separately. An example is a granting of employee stock options to a key employee before they arrived in Finland, followed by the key employee exercising the options when still working for a foreign employer. Although income was received, the Finnish employer had not been obliged to withhold tax on it. If no tax was withheld at source upon wage payments to the key employee, the employee (individual taxpayer) must declare the wage income on their tax return so that the source tax can be imposed (the Tax Administration’s official decision on information to be reported on a tax return).

For more information on the taxation of employee stock options granted to a key employee, see section 3.5 of the Tax Administration’s guidance Taxation of employee stock options and employee offerings in cross-border circumstances. For more information on imposing the tax at source, see the instructions Tax at source procedure applied to a non-resident taxpayer’s income and a key employee’s wage income.

3.3 Taxation of key employee’s other earned income

The other earned income paid to an individual receiving wages within the meaning of the Act on Key Employees is taxed in Finland on a progressive basis, as laid down in the Act on assessment procedure. Wage income paid under the Act on Key Employees is considered for the same period in accordance with the exemption method so that the key employee’s wage income increases the progression of other earned income (section 6, subsection 1 of the Act on Key Employees).

If the individual only received wage income in accordance with the Act on Key Employees during the early part of the year and all other earned income was received when the Act on Key Employees no longer applied, the key-employee income exerts no impact on the tax rate on the other income earned during the year.

If the tax provisions of the Act on Key Employees only applied to the individual during the early part of the year and he or she also received other earned income during the same period and the individual will stay in Finland for the rest of the year, the other income earned during the early part of the year will impact the progression of the income during the rest of the year. At the same time, the wage income earned during the early part of the year and taxed in accordance with the Act on Key Employees does not impact the progression of the earned income during the rest of the year.

A foreign resident coming to Finland for a stay of more than six months becomes a resident of Finland on account of the length of stay. For this reason, the tax authorities will send a Pre-completed tax return the employees who had been taxed under the foreign key employees' tax scheme during the year that ended. The receive the pre-completed return to their home address in the spring of the following year. Individuals who, in addition to wage income taxed in accordance with the Act on Key Employees, also had other earned income during the tax year, must also declare the earned income subject to tax at source on their tax return (section 6, subsection 2 of the Act on Key Employees).

The earnings of key employees are taxed at source, which means no expenses for the production of income can be deducted from the wage income falling under the scope of the Act on Key Employees (natural deductions). Furthermore, expenses paid in order to produce or gain the wages within the meaning of the Act on Key Employees cannot be deducted from any other income, earned by the key employee, i.e. from income taxed in accordance with the Act on assessment procedure. However, deductions other than the expenses for the production of income (such as obligatory pension insurance contributions and interest on loans for the production of income) can be deducted from the income taxed in accordance with the Act on assessment procedure that the key employee has earned as a resident taxpayer. 

3.4 Absence of the prerequisites laid down in the Act on Key Employees

If the employer withheld a key employee’s tax at source on the basis of the card even though the above prerequisites remained unfulfilled, the taxpayer is taxed in accordance with the general provisions on income taxation for the entire period of work (section 5 of the Act on Key Employees). However, the time limits regarding adjustments to tax assessment are taken into account (section 56 of the Act on assessment procedure). In that case, the tax withheld at source will be adjusted to the taxpayer’s benefit as ordinary withholding, referred to in the Act on tax prepayments (Ennakko­perintälaki (1118/1996)) or as tax at source referred to in the Act on the taxation of nonresidents’ income.

The Act on Key Employees applies to income that, under the Act on income taxation, is income earned in (sourced to) Finland. In the situation referred to in section 10, paragraph 4 of the Act on income taxation, an individual can only be taxed as a key employee if he or she mainly works in Finland during the tax year.  There are no provisions in the Act on Key Employees under which the matter could be judged differently because of the COVID-19 pandemic or other such factors. If the payor continues to collect the key employee’s tax at source even if the employee in question mostly works outside Finland during the tax year, the taxation can be adjusted under section 5 of the Act on Key Employees in the manner described above.

If an individual becomes a nonresident during the validity of their key employee’s card, the provisions of the Act on the taxation of nonresidents’ income will apply to him or her as of the date when the taxpayer status changed. In that case, no changes are made to the taxes paid by the individual in accordance with the Act on Key Employees during his or her status as a tax resident of Finland, if the prerequisites given in the Act on Key Employees were fulfilled during this period. If an individual whose status changed into nonresidency later returns to work in Finland, he or she does not have any right to be taxed as a key employee if he or she had been a resident of Finland in a manner referred to in section 2, subsection 1, paragraph 4 of the Act on Key Employees at any time during the five years prior to starting work.

3.5 Cancelling key employee status

Applying for a key employee’s tax at source card is the taxpayer’s responsibility. An individual to whom a tax-at-source card is issued under the provisions of the Act on Key Employees may cancel his or her status as a key employee by reporting his or her income for assessment in accordance with the Act on assessment procedure as follows:

• At the pre-assessment stage, by submitting a new application for an ordinary tax card under the Act on assessment procedure, or
• by reporting his or her income on a tax return before the end of the tax assessment procedure in the first tax year.

An individual can only be taxed as a key employee if he or she becomes a resident of Finland when starting to work in accordance with the Act on Key Employees. Thus, you cannot request to be taxed in accordance with the Act on Key Employees from the tax year following the first tax year.

Based on the above, a taxpayer can no longer change the procedure that he or she had selected after the end of the first tax year. Thus, you can only cancel your key employee taxpayer status during the first tax year at the pre-assessment stage, or before the end of the tax assessment procedure. As for the tax years that will follow, the income received by the key employee will be taxed in the same manner as in the first tax year. If the tax at source referred to in the Act on Key Employees had been collected, that amount becomes creditable to the taxpayer, and treatable as an ordinary amount withheld under the Act on tax prepayments, if assessment of income tax is now to be conducted in accordance with the Act on assessment procedure.

3.6 Appeal procedure

If the application for a key employee’s tax at source card has been rejected in full or in part, the individual in question can appeal against the decision. For more information, please see the instructions Tax-at-source procedure applied to a non-resident taxpayer’s income and a key employee’s wage income.

3.7 Requesting a preliminary ruling

A taxpayer may request a preliminary ruling referred to in section 85 of the Act on assessment procedure or in section 45 of the Act on tax prepayments. A preliminary ruling referred to in section 45 of the Act on tax prepayments may be requested by the employer as well. For more information on how to request a preliminary ruling, please see the instructions Tax-at-source procedure applied to a non-resident taxpayer’s income and a key employee’s wage income and the guidance on requesting preliminary rulings (available in Finnish and Swedish, link to Finnish).

3.8 Refunding the tax at source of a key employee

A key employee can request the refund of excessively withheld tax at source from the Finnish Tax Administration. The requirement for the tax refund is that the party liable to withhold tax has not adjusted the tax overpayment (section 8 of the Act on Key Employees, and section 22 of the Act on tax prepayments).

The provisions of chapter 4 of the Act on assessment procedure, on adjusting tax to the benefit or detriment of the taxpayer, are applied to the adjustment of decisions on refunding a key employee’s tax at source (section 8 of the Act on Key Employees and section 22, subsection 4 of the Act on tax prepayments).

For more information on refunding the tax at source and on the appeal procedure regarding decisions on refunding the tax at source, see the instructions Tax-at-source procedure applied to a non-resident taxpayer’s income and a key employee’s wage income and guidance on appealing from a Tax Administration’s decision (available in Finnish and Swedish, link to Finnish).

3.9 Imposing tax at source

Obligations related to the withholding and payment of a tax at source on a key employee’s wage income concern the payor. As a rule, the payor has, therefore, the primary responsibility to withhold tax at source at the correct amount (section 8 of the Act on Key Employees, and section 9, subsection 1 of the Act on tax prepayments). Uncollected tax at source on a key employee’s wage income can be imposed on the taxpayer, however, even if the tax was left uncollected due to the payor’s neglect (section 9 of the Act on Key Employees).

For more information on imposing the tax at source, see Tax at source procedure applied to a non-resident taxpayer’s income and a key employee’s wage income.