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Income taxation of foreign self-employed individuals

Date of issue
3/29/2019
Validity
3/29/2019 - Until further notice

This is an unofficial translation. The official instructions is drafted in Finnish and Swedish languages.

1 Introduction

The subject of this guidance is the income tax treatment of foreign self-employed individuals in Finland. “Self-employed individuals” and “operators of a trade or business” means natural persons who perform services of independent character in Finland and who either live in another country or have arrived in Finland for a temporary period.

This guidance discusses the categories and types of income derived from business profits and derived from work, including independent (professional) personal services. The tax treatment of other categories of income is discussed in other guidance. Correspondingly, guidance on matters relating to VAT can be found in other guidance.

The present guidance contains a number of examples. The purpose of the various examples is merely to illustrate the conclusions to be drawn. Because they are just examples, they are not to be considered an exact description of the tax assessment process that would be applied in the circumstances outlined in any example. In reality, when the tax authorities make decisions affecting a taxpayer’s assessment, each case must be addressed separately and all the tax rules must be considered that have an impact on the case at hand.

2 Important factors affecting taxation

2.1 Introduction

The income taxation of foreign self-employed individuals is greatly affected by whether they are considered residents or nonresidents of Finland and especially whether they must be treated as residents of Finland for purposes of an applicable tax treaty.  Another important factor is whether they receive income from business – or other types of income such as employment income (wages). The first chapters below will address these factors briefly.

2.2 Tax residency and nonresidency

Section 9, subsection 1 of the Finnish Income Tax Act (Tuloverolaki, Inkomstskattelagen 1535/1992, sometimes referred to as 'TVL') provides that natural persons in Finland can either be residents — having full liability to pay tax, or nonresidents — having a restricted or limited liability to pay tax. Residents pay Finnish taxes on their incomes sourced in Finland and other countries. Nonresidents pay Finnish taxes on their Finnish-sourced income only. Income derived from business or trade in Finland is among the categories of income that are deemed received from a source in Finland (§ 10.2 of the act on income tax). Moreover, nonresidents who receive income are liable to pay tax on the entire amount received if the income is attributable to a permanent establishment they have in Finland (§ 9.3 of the act on income tax).

Individuals living in Finland are fully liable to tax i.e. tax residents. If an individual has his or her permanent home in Finland, he or she is treated as a Finnish tax resident. Additionally, people who stay in Finland for longer than six months on an ongoing basis are also treated as Finnish tax residents. The counting of time towards the six-month period is not interrupted if the individual travels away from Finland on short trips (§ 11.1 of the act on income tax).

Example 1: An Estonian tradesman stays in Finland from 1 May 2018 to 31 August 2018, and then takes a trip back to Estonia for 1 September 2018 — 14 October 2018 to have a vacation. When his vacation is over, he comes back to Finland and is present from 15 October 2018 all the way to 31 January 2019. After this, he goes back to Estonia and does not come back during 2019 at all. Conclusion: he must be regarded as having stayed longer than six months in Finland on a permanent basis and treated as a Finnish tax resident for the entire period that started on 1 May 2018 and ended on 31 January 2019.

Individuals residing in other countries are regarded as Finnish tax nonresidents. They remain nonresidents if they stay in Finland for a shorter period than six months and have not obtained a permanent home (§ 11.1 of the act on income tax). In other words, individuals who cannot be regarded as resident taxpayers are regarded as nonresident taxpayers.

Example 2: A tradesman, a citizen of Sweden, stays in Finland from 1 October 2018 to 31 January 2019. Then he returns to Sweden. His presence is shorter than six months, so he must be regarded as a nonresident taxpayer before he started his work in Finland, during his work in Finland, as well, and also when the work has ended.

However, citizens of Finland who have moved away to start living in another country continue to be regarded as Finnish tax residents during the calendar year when they move away and during the three subsequent years after that, unless they demonstrate that they have severed their substantial ties with Finland, and no longer have such ties, during the tax year (§ 11.1 of the act on income tax). But if they still operate a trade or business, they are invariably considered to have substantial ties to Finland by virtue of the very operation of a trade or business in Finland.

For more information, see the Tax Administration’s guidance on Tax residency and tax nonresidency.

2.3 Tax treaties

Finland has made not only bilateral but also multilateral tax treaties with other countries. They are agreements on the distribution of the taxing rights between Finland and other Contracting States. Almost all our treaties are formulated in accordance with the Model Convention with respect to Taxes on Income and Capital of the OECD. This means that the Commentary of the Model Convention can offer important assistance when questions of interpretation arise.

Our treaties contain provisions that primarily define the country where the individual taxpayer lives as the taxing state in the case of income from the operation of a trade or business. If self-employed individuals operate a trade or business in the other Contracting State through a permanent establishment or through a fixed base, the income can be taxed by the Contracting State where the said permanent establishments or fixed bases are located (Articles 7 and 14 of the Model Tax Convention of the OECD). Under some of the tax treaties that Finland has made with other countries, the country where a self-employed individual operating a trade or business is present for more than 183 days during a straight 12-month period can collect tax on the income that he or she has received. When such a tax treaty is in force, it is not necessary that the country where he or she operates and stays were the country of residence for treaty purposes, and it is not necessary that he or she be treated as having a permanent establishment or fixed base there.

The treaties contain express provisions on the question of which one of the Contracting States is seen as an individual's country of residence when applying the treaty. These provisions are usually found in the fourth article of the treaty text. Under tax treaties, the basic assumption is that individuals should be regarded as tax residents of the Contracting State where they are living – within the meaning of the internal legislation of that Contracting State.

However, the internal legislations of two countries may, at the same time, provide that an individual is living in both of them (situations of dual residency). Tax treaties have special provisions that address the question of dual residency, and the question of which one of the Contracting States should be the country of tax residence when applying a treaty.

It is important to remember that the treaty provisions on residency only control the way the question of which one of the Contracting States is the country of residence should be answered for purposes of the treaty itself. This being the case, the provisions of a treaty have no impact on whether or not an individual is fully liable to tax (a tax resident) or partly liable to tax (a nonresident) in Finland.

Example 3: A German self-employed tradesman stays in Finland 1 June 2018 – 30 June 2019. He has rented an apartment that he uses for living during his stay. He is considered a Finnish tax resident, fully liable to tax during the period of his presence in Finland.

Additionally, he has kept an apartment in Germany that he can use for living and where his family members live during the period of his presence in Finland. Conclusion: the German tradesman’s centre of vital interests is Germany, and as a result, he is regarded as a tax resident of Germany for treaty purposes.

Finland has signed tax treaties, also known as 'DTTs', 'double tax treaties' or 'conventions' and 'tax conventions’, with 70 countries of the world. The treaty provisions on the taxation of operators of a trade or business (personal services in an independent capacity) are different from treaty to treaty. For this reason, the treaty in force with the other Contracting State must be studied carefully as it has an important impact on the taxation of income. The Tax Administration’s tax.fi site contains a list of Finland's tax treaties in force. Another website where they are posted is Finlex.

If you operate a trade or business as a self-employed individual and you come from a country that does not have a tax treaty with Finland, your tax assessment will depend on the provisions of Finnish internal legislation only.

2.4 Income from business and trade vs. employment income

2.4.1 On the significance of income classification

The tax treatment of any Finland-sourced income derived from trade/business is affected by its classification as 'business income' or as falling into some other income type. This classification determines the national tax rules and tax-treaty provisions that must be applied. In the case of compensation for work, labour or personal services, it is crucial to distinguish between trade/business income and employment income.

2.4.2 Income from business and from trade

This general category of income is the kind of income that has been described in the act on the taxation of business income (Laki elinkeinotulon verottamisesta 360/1968). Business is operated for profit, and its characterisation includes planning in advance, either an ongoing or a predetermined period of operation, and a relatively high number of recipients of goods or services i.e. many customers or buyers. Other important markers are an outlay of capital to finance the business and the presence of risks associated with the operation. To operate a trade has some resemblance with business but it is characterised by a smaller scale, and its success mostly hinges on the self-employed individuals' professional ability and skills. The outlay of capital is generally more modest than in business, so the operation of a trade carries lower risks. Both business income and trade income can be received from the selling of goods and services or from an activity that involves investments. In cases where the income is compensation received from the performance of work, it is viewed as trade income (such compensation is called työkorvaus in Finnish; arbetsersättning in Swedish) within the meaning of § 25.1 of the Prepayment Act (Ennakkoperintälaki 1118/1996).

2.4.3 Employment income (wages, pay)

The definition of 'employment income' (palkka in Finnish, lön in Swedish) in § 13.1 of the Prepayment Act covers all types of benefits such as wages, salaries, pay and compensation received in an employer–employee relationship. In addition to the above, employment income is in question when fees are received for attending a meeting, for giving lectures or speeches, for being a member of a board of directors or other similar bodies, for work as a Managing Director, in the case of received amounts of money as a partner in a partnership, and in the case of compensation received for acting in a position of trust (luottamustoimi in Finnish, förtroendeuppdrag in Swedish). The above amounts are treated as employment income (=wages) in the hands of the beneficiary, even if no employer–employee relationship exists.

Finnish law is the only applicable legislation that controls the question of whether fees received for a completed job, assignment or service should be classified as employment income for Finnish tax purposes. This means that if foreign residents receive payments from Finland, and under Finnish law, the payments are employment income, it is not important from the viewpoint of Finnish taxes whether the foreign residents being the beneficiaries have a business tax status in their country of tax residence, or whether the payments they receive are treated as wages in the country of tax residence. One situation where this problem arises is when foreign individuals have given lectures for which they receive personal fees from Finnish payors. In many countries, fees for lectures are not taxed as employment income. Nevertheless, Finnish tax rules define them as employment income, i.e. wages. For this reason, the treaty provisions that govern the taxation of wages and salaries must be applied.

Example 4: Resident in Country X, a professor who is a non-resident taxpayer in Finland gives a two-week series of lectures in a Finnish university in order to inform students of the latest results of his scientific research. The Finnish university pays him fees, which the tax authorities in Country X treat as part of the business income that the professor regularly receives.  However, the fees must be treated as employment income for Finnish tax purposes because they were paid for his personal performance as a lecturer. The Finnish university must withhold tax at source, and additionally pay the employer's health insurance contribution in case the professor is covered by the Finnish social insurance scheme. The Finnish university must submit reports to the Incomes Register as well. The applicable provisions of the bilateral tax treaty between Finland and Country X that control the taxing rights are the treaty provisions on the taxation of wages and salaries.

To answer the question of whether the professor is to be treated as receiving a wage or treated as receiving trade income, all the facts and circumstances must be accounted for. The Tax Administration’s "Giving assignments to people" guidance contains a list of a number of principles that apply.

3 Permanent establishments and fixed bases

3.1 Relations between the Finnish act on income tax and bilateral tax treaties

Under the act on income tax, individuals operating a trade or business as resident taxpayers must pay tax in Finland on their income sourced in Finland and other countries. In contradistinction with the above, nonresident individuals only must pay tax in Finland on their income derived from Finnish sources. However, if nonresidents operate their trade or business through a permanent establishment in Finland, they must pay tax in Finland on all the income attributable to that permanent establishment. This way, both Finland-sourced and foreign-sourced income are within the charge of Finnish tax when the income is attributable to a permanent establishment. An example to demonstrate income attributability is a situation where the operator of a trade or business is present in a place that is viewed as their permanent establishment in order to deliver goods or services to a customer.

The legal definition of the permanent establishment concept is found in § 13 a of the act on income tax: It is a place where special facilities are present for the purpose of business operation or a place where special arrangements have been made. Examples mentioned in § 13 a include the place where the management of the business is located, a branch office, or other offices, industrial plants, other facilities for manufacturing or production, workshops, retail outlets or other locations that are considered non-temporary and have been set up for the purposes of purchasing or sales. In the construction industry where building contracts are taken on by various operators of the sector, permanent establishments are formed in places where such construction activities have been going on in a large scale.

However, Finland's bilateral tax treaties with other countries may include important restrictions to Finland's taxing rights that may diminish Finnish taxation when compared with the provisions of the Finnish act on income tax. In the case of income from trade or business, the taxing rights are divided between the other Contracting State and Finland, as this division is controlled either by the treaty article on self-employed professions, or by the treaty article on business income. This way, if the tax treaty has a provision on independent operation of a trade (also called “personal services in an independent capacity”) and on the taxation of the income derived from it (Article 14 of the OECD model), the taxing rights must be divided accordingly (see 3.2 below).

However, if the tax treaty does not have a provision on the operation of a trade (also called “personal services in an independent capacity”), the taxing rights must be divided as provided by the treaty article on business income (see 3.3 below).

3.2 Using a fixed base for the operation of a trade as a self-employed individual

3.2.1 Independent operation of a trade – self-employment

Most Finland's tax treaties include provisions on the taxation of income derived from personal services in an independent capacity – often called “working as a self-employed individual”. These provisions are generally found in the 14th article of the treaty. Under the tax treaties, the general rule is that an individual who is a resident of a Contracting State and who receives income from a trade, in an independent capacity, must pay tax on that income only in the Contracting State where the tax treaty has determined him or her to be a resident for treaty purposes. The income may be taxed in the other Contracting State only if the work is done there and the income is attributable to a fixed base that is regularly available to the individual in that other Contracting State for the purpose of doing the work.

The tax-treaty definition of the above activity covers independent scientific, literary and artistic activities, teaching, childrearing, and the independent professional work performed by doctors, lawyers, attorneys, engineers, architects, dentists and auditors. However, the treaties do not contain a full definition – instead, the concept of “income from the operation of a trade (personal services in an independent capacity)” is designed to refer to many kinds of income that individual receive from work done when they are self-employed. For this reason, when tax authorities apply the provisions of tax treaties, the above concept covers the operation of many different trades and other activities by individuals (see passage 2.4.2 above). The individual must work in an independent capacity, and from this follows that any work must be excluded for which the compensation is 'employment income' i.e. wages or salaries within the meaning of § 13 of the Prepayment Act.

3.2.2 The definition of fixed base

The treaties that Finland has signed with other countries do not contain provisions that would give an exact definition of a fixed base. For this reason, the existence of a fixed base is, as a rule, determined on the same basis as the existence of a permanent establishment (for more information, see 3.3). The general characteristic that marks the existence of a fixed base is that the activities are of permanent nature, both geographically and in terms of time. Examples of fixed bases include a workspace, such as an office of an attorney, the studio of an artist, or the rooms at a doctor's office where a patient can be medically examined. If an individual has a living accommodation in Finland, it may also be regarded as his or her fixed base.

Example 5: An attorney-at-law is a resident of France and practises law both in Finland and in France. For the most part of her time, she works in her office located in France. She also has offices in Finland permitting her to practise law. She works every fourth week in Finland on a semi-regular basis, and during these weeks, she also stays and is present in Finland. She spends the balance of the time in France. Conclusion: the office located in Finland is viewed as her fixed base in Finland.

Fixed bases may be created elsewhere as well, i.e. not always inside the office spaces of the self-employed individuals concerned. This situation may arise when independent personal services are rendered to a client using the client's premises or office spaces only.

Example 6: An IT consultant is a U.S. resident and he performs a programming assignment for a Finnish software firm. The assignment is physically set up in such a way that the major part of his programming work must be performed in the firm's offices in Tampere, Finland. Its duration is 15 months. When the work is done, he goes back to the United States to move on to other assignments or jobs. Conclusion: his country of tax residence, for purposes of the U.S – Finnish tax treaty, is the United States during his entire presence in Finland.

However, he is treated as having a fixed base in Finland available to him at the Finnish software firm's office space because that office must be viewed as geographically and temporally stable and as a place through which he has operated his trade in Finland.

It should additionally be noted that with Estonia, Latvia, Lithuania and some other countries, Finland has signed treaties providing that individuals from the other Contracting State will become treated as having a fixed base because of their presence in Finland for 183 days in a straight 12-month period. For example, an Estonian subcontractor who operates building machinery in Finland can have a fixed base in Finland if his stay and activities go on for 183 days.

Example 7: The owner-operator of an excavator is an Estonian resident and has excavating jobs not only in Estonia but also in Finland. His presence in Finland during the period 1 July 2018 – 1 July 2019 amounts to 220 days in total. He works with his excavator on many building contracts, changing from one building site to the next. He spends his days off in Estonia with his family. Conclusion: under the circumstances, the Finnish tax authorities treat him an Estonian resident for purposes of the Estonian – Finnish treaty if the Estonian tax authorities also agree with the view that his country of residence for treaty purposes is Estonia.

The question whether Finland has the taxing rights in respect of his income must be resolved in accordance with article 14 of the treaty. Article 14 says he is treated as having a fixed base in Finland simply because of his 183-day presence during a period of 12 straight months. As a result, Finland has the taxing rights in respect of the income attributable to this fixed base.

The Finnish act on income tax and other Finnish legislation do not contain provisions on the fixed base concept. However, this is of no significance because the permanent establishment referred to in § 13 a of the act on income tax is created on similar grounds and sometimes on lesser grounds as the fixed base in the provisions of tax treaties. In other words, if a fixed base is created in Finland for purposes of an applicable tax treaty, from that follows that a permanent establishment is also created for purposes of Finnish national legislation.

3.2.3 Taxing rights dependent on presence

Some of Finland's tax treaties include provisions to the effect that Finland has the taxing rights whenever a tax resident of the other Contracting State received income from operating a trade in Finland, also in cases where the individual stays in Finland for longer than 183 days in the course of a 12-month period. Finland can then collect tax on the income from trade even if no permanent establishment or fixed base has started to exist. The individual's presence does not have to be continuous. Examples of these treaties include the Nordic multilateral treaty and the bilateral treaties with Azerbaidzhan, Egypt and the Czech Republic. Under the circumstances, Finnish tax is collected on the income as described below in 4.2.1.

Example 8: A physician is a Norwegian resident and he sees patients not only in Norway but also in Finland. He works in many private medical centers in several regions of Finland. The dates of his presence in Finland are 1 Sept 2018 – 22 Dec 2018, 1 March 2019 – 31 March 2019 and 1 June 2019 – 31 July 2019.  This means an accumulation of 214 days during the period that started 1 September 2018 and ended 31 July 2019.

The question whether Finland has the taxing rights in respect of his income (resulting from an operation that has been run in Finland) must be resolved in accordance with the 14th article of the treaty, i.e. the article that addresses the operation of a trade or personal services in an independent capacity. In accordance with the provisions of the 14th article, the above circumstances do not give rise to a fixed base in Finland. However, under the other provisions in the 14th article, Finland has the taxing rights in respect of the income from this physician’s practice of the medical profession because his presence is longer than 183 days in the course of a straight 12-month period.

3.3 Taxation of business profits and the “permanent establishment” concept

3.3.1 Taxation of income from business

Not all Finland's tax treaties contain specific provisions on the taxation of income from an operation of a trade i.e. of personal services in an independent capacity. Then the income received by a natural person from business, and the income he or she receives from a trade, must be divided between the Contracting States as provided in the treaty article governing the taxation of business profits. Almost always, this article is article no 7.

Under article 7, the country that collects tax can only be the Contracting State where the business operator is resident, except in cases where the operation of the business in the other Contracting State is done through a permanent establishment located there. If the business entity conducts is operation through a permanent establishment, the income can be taxed in the other Contracting State but only to the extent that it is considered attributable to that permanent establishment (Article 7 of the OECD Model).

The fifth article is the standard article in tax treaties that contains the definition of 'permanent establishment'. While there is some variation in the definitions, there is almost no variation as to the principles that apply on how to answer the question of whether a permanent establishment has been formed. In Finland’s tax treaties with other countries, the main principles in the definition of permanent establishment are linked to the individual's use of a 'space' or 'place' for the operation in the other Contracting State, and to how long a construction or installation project lasts in the other Contracting State. In addition, certain non-independent representatives can be treated as having a permanent establishment in Finland.

The following chapter discusses the rules that determine the existence of permanent establishments. The tax authorities apply these rules when testing whether an operator of a trade must be treated as having a fixed place in Finland as referred to in the relevant tax treaty, as well (see 3.2 above).  For more information, see "Income taxation of foreign corporate entities”.

3.3.2 Fixed places of business

The tax treaties that Finland has signed with other countries additionally provide that operators of a trade or business are considered to have a permanent establishment in Finland if they conduct business through a fixed place or space. This can be an office, workshop or other space (Article 5, sections 1 and 2 of the OECD Model). In addition, it can be the house or apartment where the operator lives, if this actually is the place through which he or she operates the trade or business. It is not necessary for the place or space to be owned or rented – it is sufficient that the operator uses it.

Moreover, to be a permanent establishment, it must be "fixed'' in a physical or geographical sense and in terms of time, i.e. it must be foreseeable that the operator's use of the space will be more than temporary. In other words, to have stability in terms of 'geography' means that the place of business must be located in a definite area. Correspondingly, to have stability in terms of time means that if the use of the space is very short-lived, it does not give rise to a permanent establishment.

However, the operation of a business does not have to be continuous. For example, in fairs and conventions, there may be single stands where goods are sold during the convention. In this case, because it is a temporary stand, it does not give rise to a permanent establishment. Instead, long-term sales stands located in a town market or inside a shopping centre may give rise to a permanent establishment.

Example 9: A few years in a row, a market stand is set up every summer by a Swedish businessman at a marketplace in Helsinki where he sells goods to customers from the beginning of June to the end of August. He does not spend time in Finland or operate a trade here during the other months of the year. Sweden is his country of tax residence for the purposes of the tax treaty.

The question whether Finland has the taxing rights in respect of his income must be settled as provided in Article 14 of the treaty. Under the provisions in that article, Finland has the taxing rights in respect of the income derived from an operation of a trade by a Swedish resident if a fixed base in Finland is regularly available to him or her. However, the treaty does not lay down any further provisions on how fixed bases are created.

Consequently, we must apply the rules that govern permanent establishments to the question of fixed bases. The sales stand in the market has the characteristics of a stable place of business in terms of time and space — consequently, it must be regarded as a permanent establishment.

Another important marker is that the individual concerned actually operates his trade or business through it. In general, any business is usually operated so that the individual himself, or his employee, works in the fixed base. Nevertheless, this is not always necessary and not deemed as an absolute requirement. For example, even a Web server and a website may mean that an individual operator is treated as having a permanent establishment.

The place of management of a business will invariably make up a permanent establishment. Examples of places of management include a house or apartment located in Finland if the individual actually uses it when he manages the business. Fixed bases may be created elsewhere, as well, in other words, not always inside the office spaces of the individuals concerned. It is very common to have a fixed base in the office of a client company.

However, operations of preparatory and auxiliary character do not give rise to a permanent establishment even if a fixed place of business is the place where such operations are run. For example, activities such as advertising and supply of information are 'preparatory and ancillary' (Article 5, section 4 of the OECD Model).  However, if activities are offered as a service to outside buyers or if the activities are closely related to the essential business operations of the enterprise, they cannot be considered preparatory and ancillary. Example: an individual's specialized line of business is market research. When this individual engages in the supply of information, it cannot be considered preparatory and ancillary because he offers it as a service to his clients.

3.3.3 Construction and installation projects

Self-employed operators of a trade or business are treated as having a permanent establishment in Finland if they work on a construction or installation project and its duration is longer than the threshold referred to in the treaty between Finland and the other Contracting State (Article 5, section 3 of the OECD Model).  The thresholds vary from 6, 9, 12 to 18 months among the tax treaties that Finland has signed with other countries. The majority of the treaties lays down a 12-month threshold.

Example 10: Two building contractors, one a resident of Moldova, the other a resident of Estonia, both take on Finnish projects that last for 10 months. Both of them stay in Finland through the entire project. The Moldovan contractor is considered a Moldovan tax resident under the Moldova – Finland tax treaty, and similarly, the Estonian contractor is considered an Estonian tax resident under the Estonia – Finland treaty.

Because the Moldova – Finland tax treaty contains no provisions on the taxation of income from the operation of a trade, the taxing rights in respect of this income must be divided as provided in Article 7 of the treaty. Based on the provisions of that article, Finland has the taxing rights in respect of the income derived from business if a permanent establishment in Finland is created. Article 5 also provides that work within the construction sector gives rise a permanent establishment if the site, building project, etc. continues for more than twelve months. In the example of the Moldovan and Estonian contractors, the building job in Finland is shorter than the twelve-month threshold, which means that no permanent establishment is formed.

In accordance with the Estonia – Finland tax treaty, the specific provisions in the 14th treaty article address the operation of a trade, i.e. of personal services in an independent capacity. These provisions determine Finland's taxing rights in this case. Finland has the taxing rights in respect of income derived from a trade if a fixed base in Finland exists. As provided in the Estonia – Finland treaty, an individual's presence alone that lasts for 183 days within a 12-month period will give rise to a fixed base. As a result, the Estonian contractor is treated as having a fixed base in Finland.

The threshold applies separately to each building site or project. In other words, each one of them must continue longer than the threshold agreed in the treaty, and this will give rise to a permanent establishment. If a series of contracts or projects by a contractor are interdependent, both commercially and geographically, they can be treated as a single building project for purposes of applying the 12-month threshold. Correspondingly, if an artificial separation of the parts of one single project has been attempted, the threshold must be applied to the total length of time.

Example 11: Subcontracts in the construction industry are carried out by a Slovenian resident for a large Finnish company at a site located in Finland. Each job lasts for one to three months, and the aggregate total duration of the jobs is some 18 months. All the jobs are executed on the same building site and for the same Finnish construction company. The contractor is regarded as a Slovenian resident within the meaning of the tax treaty.

This is a series of contracts by a contractor that are interdependent both commercially and geographically, so they must be treated as one single project for purposes of applying the threshold. Article 5 of the Slovenia – Finland tax treaty provides that work within the construction sector gives rise to a permanent establishment if the building site, project, etc. continues for more than 12 months.  As a result, the Slovenian contractor is treated as having a permanent establishment in Finland.

We must apply the same rules that govern permanent establishments to the question of fixed bases. From this follows that we must apply the same thresholds that are in force in the construction sector, according to the tax treaty, also in order to answer the question of whether a building contractor should be treated as having a fixed base in Finland, unless there is a treaty article on “personal services in an independent capacity” that contains thresholds that are different.

Example 12: An installation specialist is a resident of Ukraine and arrives in Finland to work at a building site for 15 months. He fulfills a subcontract carrying out an installation project for a Polish firm. He is present in Finland and working at the same site, where a nuclear power plant is under construction, through the entire 15-month period.

The question whether Finland has the taxing rights in respect of his income must be settled as provided in the 14th article of the treaty. In accordance with that article, Finland has the taxing rights in respect of the income from trade, received by an Ukranian resident, if a fixed base in Finland is regularly available to him or her. However, the treaty does not contain any more precise provisions on how fixed bases are created.

Consequently, we must apply the rules that govern permanent establishments on the question of fixed bases. Article 5 of the Ukraine – Finland tax treaty provides that work within the installation sector will lead to the existence of a permanent establishment if the site, project, etc. continues for more than 12 months. As a result, the Ukrainian specialist must be treated as having a fixed base in Finland.

In cases where self-employed individuals have many ongoing projects or contracts, they usually stay for longer periods and become Finnish tax residents, fully liable to pay taxes, and they also become residents of Finland within the meaning of the applicable treaty (see 2.2 and 2.3 above).  If this happens, it is no longer important in terms of Finnish taxation whether the project passes the 12-month threshold and a permanent establishment starts to exist because the taxing rights have been given to Finland in any case.

Example 13: A subcontractor is a resident of the Russian Federation and he works in Finland in the course of many years, doing building construction work at a number of residential housing sites. When houses are constructed, his projects last from one to three months. This contractor is treated as a tax resident of Finland, and the provisions of the tax treaty also make him a resident of Finland for treaty purposes, as well. Article 14 of the Russia – Finland treaty provides that Finland has the taxing rights in respect of income from a trade operated by him, not only when the income is sourced in Finland, but also if the source is in any other country worldwide.

3.4 Relations between the treaty article on Independent Personal Services and the Business Profits article

Almost always, regardless of whether the treaty article on Independent Personal Services or the treaty article on Business Profits is applied, the taxing rights on income from independent personal services, i.e. from a trade, are divided between the Contracting States in the same way. For this reason, since 2000, the OECD Model Tax Convention has no longer included a 14th article. It should additionally be noted that the more recent Finnish treaties contain no provisions on the taxation of income from independent personal services i.e. from a trade. Then the income derived from business, and the income from a trade (independent personal services), must be divided between the Contracting States as provided in the treaty article governing the taxation of business profits.

4 Computation of nonresidents' taxable annual gross income

4.1 Permanent establishments or fixed bases in Finland

Nonresident operators of a trade or business are liable to pay tax on all the income attributable to a permanent establishment or a fixed base they may have in Finland (§ 9 of the act on income tax). The applicable Finnish legal statute is the act on the taxation of nonresidents' income (Laki rajoitetusti verovelvollisen tulon verottamisesta 627/1978, abbreviated as LähdeVL).

Section 13.5 of the act on the taxation of nonresidents’ income provides that the Finnish act on assessment procedure must be applied on the taxation of income attributable to a permanent establishment or to a fixed base. If the nonresident taxpayer were to receive other Finnish-sourced income in addition, the assessment process of his or her taxes would follow the rules set out by the act on the taxation of nonresidents' income or the act on assessment procedure, depending on the type(s) of income concerned.

Example 14: A consultant works in Finland. He lives in Denmark and is treated as a tax nonresident in Finland. Under the tax treaty, his work makes him treated as having a fixed base in Finland. In addition to his consultancy fees, he also receives fees for giving lectures – which under the Finnish tax rules are employment income i.e. wages.

Conclusion: the consultancy fees, which are regarded as attributable to the fixed base, must be taxed as provided in the Finnish act on assessment procedure.  At the same time, the Danish consultant receives fees for lectures, and the payors of those fees are treated as paying wages, so they must withhold tax at source.

The taxation of a permanent establishment or fixed base of a nonresident operator of a trade or business is carried out in the same way as the taxation of a Finnish resident who operates a trade or business. This means that the income subject to tax, derived from business, and attributable to such a permanent establishment or fixed base, is computed according to the rules laid down by the act on the taxation of business income, and tax is then assessed on the income as provided in the act on income tax (in reference to § 13a.1 of the act on the taxation of nonresidents' income).

The income tax return submitted by the taxpayer is the basis of the calculations to arrive at the taxable income of a permanent establishment or fixed base (§ 7 of the act on assessment procedure). Due to the above, all operators of a trade or business must submit income tax returns (for more information, see chapter 8 of this guidance below).

The taxes depend on the net taxable income attributable to their permanent establishment or fixed base. All the income attributable to those is taxed, regardless of whether it has been sourced to Finland or to other countries. The business income attributable to the permanent establishment or fixed base is adjusted by deductions of expenses and interest, as the case may be, if such outlays of money have been made for the production of income. If the permanent establishment or fixed base has had losses during its earlier years of operation, the business income can be further adjusted by deductions of allowable losses.

If any dividends, interest and royalties were received from Finnish sources by the operator of a trade or business, and they are attributable to the permanent establishment or fixed base, they will be part of the taxable income. In these circumstances, the taxing rights with respect to receipts of dividends, interest and royalties are not conferred on the Contracting States as provided by the treaty articles that address the taxation of dividend, interest and royalty income. Instead, the treaty provisions on income from business profits and independent personal services will apply.

Example 15: A self-employed individual is a resident of Slovenia and she owns stock in a Finnish company. This holding is part of the business assets of her permanent establishment in Finland. She receives dividends on the company stock. Under the article governing dividends of the tax treaty, 15 percent tax must be withheld in the source country. However, the dividends that are attributable to a permanent establishment are not within the scope of application of the treaty article on dividends, so the tax on the dividends she receives is not limited to 15 percent.

Instead, the income attributable to a permanent establishment or fixed base must be divided into earned income and capital (investment) income as required by § 38 of the act on income tax, depending on the value of permanent establishment’s net worth. The net worth of its business is calculated as laid down in the act governing the valuation of assets for tax purposes (Arvostamislaki 1142/2005). Only the business assets and liabilities of the permanent establishment are included in the calculation. This includes any assets (and liabilities) located in other countries if they are linked to the business of the permanent establishment or fixed base in Finland.

Example 16: A provider of house-cleaning services is a resident of Norway. She works in Finland. She has a rented office in Finland through which she operates her trade. She also has activities in Norway. She owns two vans that she uses for trade purposes. She uses one of the vans exclusively in Finland, and the other van exclusively in Norway.

Conclusion: the valuation of the business net worth of the permanent establishment must only include the Finnish van. She has not used the other van for her trade in Finland so it cannot be treated as connected with the permanent establishment in Finland.

For the entire tax year, nonresident operators of trade or business must pay income tax, on the part treated as earned income, at the combined rate consisting of the average rate of municipal tax (in Finnish: keskimääräinen kunnallisveroprosentti) and of the progressively determined rate of State tax. However, in cases where such nonresidents are treated as Finnish tax residents for one part of the year, they must pay municipal tax as determined by the local district where their registered domicile is located, under the provisions of § 5, act on assessment procedure (in reference to § 15.2 of the act on the taxation of nonresidents’ income).

The part of business income treated as capital income is taxed at the rate of 30 percent. The rate goes up to 34 percent if the capital income, as defined by act on assessment procedure, exceeds €30,000 for the calendar year. The amount in excess is then assessed at the 34-percent rate.

The only types of income that have an effect on the size of the tax rates of foreign operators of a trade or business are the types that are taxable as provided by the act on assessment procedure and are within Finland's taxing rights for purposes of the applicable tax treaty. Any Finnish-source income subject to tax withholding at source, and any foreign-source income, have no impact on the size of the tax rates (§ 13a.2 of the act on the taxation of nonresidents’ income). However, in cases where foreign operators have been treated as Finnish tax residents for part of the year, all the earned income received during the time when he or she was a nonresident – and also received when a resident – have an impact on the progressive tax rate.

Example 17: A tradesman is treated as being a Finnish tax resident for the period 31 May 2018 – 31 March 2019. He is a nonresident for the balance of the time. He is treated as having a permanent establishment in Finland due to his operation of a trade.

He receives Finnish-source income in 2018 of which the capital-income portion is €10,000 and the earned-income portion is €5,000. He also receives a Finnish-source pension (related to previous employment) of €1,000 per month and €3,000 of Finnish-source rental income. He does not have any tax-deductible expenses connected with the above income.

Conclusion: his trade income, his pension and rental income are taxed as provided in the act on assessment procedure. In his 2018 tax assessment, his taxable capital income is €46,000 and his taxable earned income – €17,000.

If the operation of a permanent establishment or fixed base shows a loss, the tax authorities will confirm an amount of allowable tax loss for the operator of a trade or business, and the loss can then be carried forward to the next ten tax years as a deduction against any taxable business income. As an alternative, the operator also has the option, under § 59 of the act on income tax, to demand the Finnish Tax Administration to give deductions for the loss of the permanent establishment or fixed base against his or her capital income, if that capital income is taxable in Finland as provided in act on assessment procedure. If the loss is greater than the capital income, the situation gives rise to a deficit of capital income, which may (under certain conditions) be credited against the operator's income taxes on earned income.

Example 18: The permanent establishment of a self-employed businessman, a foreign resident, operates at a loss. For the 2018 taxable year, the loss was €5,000. The businessman receives €12,000 in Finnish-source pension taxable as earned income, and additionally €1,200 in Finnish-source pension taxable as capital income. His tax on the pension taxable as earned income equals €640. He files a letter to the tax office in which he demands that the permanent establishment’s loss be deducted against his personal capital income.

Conclusion: a €1,200-portion of the loss is deducted from the businessman’s capital income and the remainder – €3,800 – gives rise to a deficit in capital income and becomes a tax credit, subtracted from his taxes on earned income. The exact amount of the tax credit is (30% × €3,800 =) €1,140.

The amount of the tax credit is greater than the amount of the tax on earned income (€1,140 - €640) and therefore he receives an official confirmation of an allowable loss, amounting to (€1,140 - €640 / 30% =) €1,666.67 and concerning the capital-income category. The allowable loss is deductible in the future, from any capital income the businessman will have, in the course of the next 10 years.

The rules governing spouses, found in the act on income tax, apply to Finnish tax residents only (§ 7.2 of the act). As a result, the rules governing spouses (= couples) who conduct a self-employed business together are not applicable to nonresidents (for more information, see the provisions of § 14.2 and § 38.1 of the act).

4.2 If no permanent establishment or fixed base in Finland exists

4.2.1 Residents of countries with a tax treaty with Finland

If there is a treaty between Finland and the country of tax residence of the operator of a trade or business, Finland does generally not have the taxing rights on the income from the trade or business, unless a permanent establishment or fixed base is formed. However, in exceptional situations, treaty provisions also give Finland the taxing rights on the income derived from a trade or business when the operator is present in Finland for a period of, or periods aggregating to, more than 183 days within 12 months (see 3.2 above).

When such nonresident operators have no permanent establishment or fixed base, but Finland has the treaty-based taxing rights that depend on the operator’s presence, their trade income sourced to Finland is subject to tax at source, withheld by the payor, at the rate of 35 percent (§ 3 and § 7.1 of the act on the taxation of nonresidents' income). If the operator is not on the prepayment register, the Finnish payor must withhold the tax. If the operator is registered in the prepayment register, the Finnish Tax Administration will impose the tax (§ 16 of the act on the taxation of nonresidents' income).

Example 19: A physician is a Norwegian resident and he sees patients not only in Norway but also in Finland. He is a nonresident taxpayer in Finland and also treated as not having a fixed base. His presence is 205 days within the 1 March 2017 – 31 January 2018 period. He is not on the prepayment register.

Conclusion: Finland has the taxing rights in respect of his income from the medical profession because of his presence that exceeds 183 days in the course of a continuous 12-month period. Those who pay him fees in Finland must withhold 35 percent tax on the amounts they pay him.

If he is to receive other types of business income that is not subject to tax at source, such as profits on the selling of goods, Finland will collect income tax on it as provided in the act on assessment procedure (§ 13.1, line 1, act on the taxation of nonresidents' income).

Example 20: A self-employed businessman who sells furniture is a resident of Sweden and he not only sells the furniture in Sweden but also in Finland. He is a nonresident taxpayer in Finland; and treated as not having a permanent establishment. The length of his presence in Finland is 195 days, from 1 October 2018 to 25 September 2019.

Conclusion: Finland has the taxing rights in respect of his trade income because of his presence that exceeds 183 days in the course of a continuous 12-month period. Finland will tax his income derived from sales of furniture as provided in the act on assessment procedure.

If the businessman were to receive other types of Finnish-sourced income such as dividends, interest or royalties, these classes of income would be subject to tax separately, not taxed in the same process as his trade income is taxed (compare this treatment with 4.1 above). The article in the tax treaty, containing the provisions on these types of income, will then determine whether or not Finland will have the taxing rights. The income is subject to tax at source in cases where the treaty does not prevent Finland from imposing tax on it. The withholding at source on receipts of dividends, interest and royalties is 30 percent unless the treaty provides for a lower rate (§ 7.1 of the act on the taxation of nonresidents' income).

For more information on the withholding of tax at source and tax collection processes, see 7.3 below.

4.2.2 Self-employed people who are residents of countries with no tax treaty

Nonresident operators of a trade or business whose country of tax residence does not have a treaty with Finland must pay tax at source in all circumstances, even if he or she is treated as having no permanent establishment or fixed base in Finland. Such an operator of a trade or business must pay Finnish tax on the portion of the business income or trade income that is effectively connected with his operations in Finland (§ 83 of the act on assessment procedure). Examples of 'effectively connected' business and trade incomes include the receipt of nonwage compensation for work done in Finland.

The taxation of effectively connected income depends on its general class of income, i.e. whether it is nonwage trade income, other income for which withholding is mandatory (under the Prepayment Act), or some other type of income. If it is one of the types of income on which withholding is required under the Prepayment Act, Finnish payors must withhold tax when making any payments to such an operator. Finland will collect tax on any other trade income and business income in accordance with the provisions of the act on assessment procedure. The Tax Administration will officially calculate a prepayment amount that the nonresident operator must pay regularly in the course of the year.

Example 21: A consultant who is a resident of Chile works in Finland for 5 months, being present during the entire period. He does some consultancy projects for Finnish companies. Conclusion: the amounts paid to him for the consultancy work are classified as trade income (in Finnish: työkorvaus, in Swedish: arbetsersättning). The Finnish companies paying must withhold 35 percent tax at source.

The statute rate of tax at source on trade income is 35 percent. If the Chilean consultant is to receive other types of income from sources in Finland, such as dividends, interest or royalties, that income will be subject to tax separately, not taxed in the same process as his trade income is taxed. The provisions of the act on the taxation of nonresidents' income determine the tax treatment.

4.3 Elimination of double taxation

It is normal that the countries of tax residence of nonresident operators of a trade or business collect tax on the operator’s worldwide income. The majority of Finland’s tax treaties with other countries have laid down the rule that it is the country of tax residence that must remove any double taxation that may arise. This means that if a nonresident is being taxed in both Finland and in their own country, it is usually the latter that must arrange for the elimination of any double taxation after the Finnish taxation process, in accordance with the provisions of the treaty, is completed.

5 Computation of nonresidents' annual gross income within the charge of Finnish tax

5.1 Introduction

If a self-employed individual who operates a trade of business has become a Finnish tax resident, he or she is liable to pay tax on both Finland-sourced and worldwide income (§ 9.1 of the act on income tax). The tax procedures in Finland will then be carried out as provided in the act on assessment procedure. This means that the amount within the charge of Finnish tax is computed in accordance with the act on the taxation of business income (Laki elinkeinotulon verottamisesta 360/1968), and the result of that computation is the income on which tax is collected as provided in the act on income tax (Tuloverolaki 1535/1992). The method of payment of advance tax is either through regular, invoiced prepayments – or in the form of withholding by payors (see 7.2 below).

However, the treaties in force may restrict Finland's taxing rights with respect to income received by a Finnish-resident operator of a trade or business. This is because some of the treaties define the Finnish-resident operator as a resident of the other Contracting State for treaty purposes. Further restriction of Finland's taxing rights may be included in other treaty provisions, especially those governing the taxation of income sourced worldwide.

5.2 Operators of a trade or business whom the treaties define as residents of Finland

If an individual's residency in Finland is true – not only by definition of Finnish law but also by the tax treaty – no provisions of the relevant tax treaty will restrict Finland's taxing rights. If under the circumstances, an individual operating a trade or business receives the kind of income sourced in the other Contracting State that the other Contracting State may also collect taxes on, Finland will be the country that must eliminate any resulting double taxation.

Example 22: A self-employed tradesman who has been a resident of Austria decides to leave Austria and settle down in Finland. He is immediately treated as a tax resident of Finland, and the provisions of the tax treaty also make him a resident of Finland for purposes of the treaty. When living in Finland, he operates his trade in Austria, Germany and Hungary. He is treated as having a permanent establishment in Austria but not in Germany and Hungary.

Conclusion: his trade income sourced in Austria, Germany and Hungary is within the charge of Finnish tax. Any tax he pays to Austria will be credited in his Finnish tax assessment.

However, when citizens of Finland move away to start living in another country, the provision of § 11.1 of the act on income tax requires that they must still be treated as Finnish tax residents.

Example 23: A management consultant who has been a resident of Finland decides to leave for Spain. She is a Finnish citizen. She will keep having the office space in Finland that she has used in the consultancy work and through which she sometimes still works in Finland for her clients even after she moved away. Moreover, from time to time, she does some management consultancy work in other Nordic countries as well. She has not presented to the Finnish tax office any Tax Residency Certificate that would be issued by the authorities in Spain and prove a residency status there.

Conclusion: she is treated as a citizen who has left Finland but is still a Finnish tax resident, fully liable to tax, during the calendar year of relocation and the three subsequent years, unless she shows proof that she no longer maintains “substantial ties” with Finland. Because no reliable proof is shown to Finnish tax authorities that would make her treated as a tax resident of Spain, she must be treated as a tax resident of Finland for treaty purposes. As a result, Finland will tax her income from the consultancy operation. The sources of that income is Finland as well as other countries.

5.3 Operators whom the treaties define as residents of the Other Contracting State

When a Finnish tax resident who operates a trade or business is – for treaty purposes – resident of another country, the provisions of the treaty prevent Finland from taxing his or her income unless the Finnish-resident operator is treated – again for treaty purposes – as having a permanent establishment or fixed base in Finland. The test of whether a permanent establishment or fixed base exists follows the principles discussed above in 3.2 and 3.3.

Example 24: A building contractor is a resident of the Russian Federation. He takes on a single construction job in Finland. He is present starting 11 December 2018 and ending 12 July 2019. He spends the balance of the time in Russia. The Federal Tax Service of the Russian Federation treats him as a Russian tax resident for treaty purposes.

Conclusion: because of his presence that exceeds six months, he is a tax resident of Finland, fully liable to tax. However, for treaty purposes he is regarded as a Russian resident and not treated as having a fixed base in Finland. Finland does not collect taxes on his Finnish-source income derived from the operation of a trade.

When a permanent establishment or fixed base exists, the operator of a trade or business must pay tax only on the income attributable to it, and additionally on any other Finnish-source income he or she might have. The rules that control the taxation of the income within the charge of Finnish tax are in this case the rules on the tax assessment of Finnish residents. The provisions of the treaty pertaining to each one of the types of income concerned are followed when determining which one of the countries has the taxing rights in respect of any other income that is not attributable to his permanent establishment or fixed base.

Example 25: An installation specialist is a resident of Estonia and he works primarily in Finland and from time to time, also in Sweden, Norway, Denmark and Iceland. His presence in Finland equals 190 days during the period from 1 December 2018 to 30 November 2019. Conclusion: he is treated as a Finnish tax resident, fully liable to tax. However, for treaty purposes, his country of residence is Estonia.

Due to his presence, he is treated as having a fixed base in Finland. Because a fixed base has been formed, Finland can collect tax on the income he receives from the operation of his trade in Finland. However, Finland cannot tax the income derived from the operation of a trade or business if its source is in other Nordic countries because the Estonian specialist is not a Finnish resident for purposes of the tax treaty, and because such income is not attributable to the fixed base that he has in Finland.

However, in exceptional situations, treaty provisions give Finland the taxing rights over income derived from trade or business simply because of the operator's presence, even if no permanent establishment or fixed base is created (see 3.2 above).  In other words, the operator’s income from a trade or business can be within the charge of Finnish tax only inasmuch the income is coming from Finnish sources.

In these situations, the country that for treaty purposes is viewed as the operator’s country of residence must eliminate any double taxation.

6 Prepayment register and other tax registrations

6.1 How to apply for registrations

In some circumstances, foreign self-employed operators of a trade or business must apply for various registrations. Examples of registers where registration is often required include the VAT register and the Register of employers. Although some of the registrations are required, most taxpayer registers are open for entry on a voluntary basis. In addition to the above, foreign self-employed individuals who operate a trade or business can ask for entry in the Prepayment Register. Operators active in the construction industry must have their individual tax numbers listed in the public register of tax numbers (for more information, see chapter 13 below).

The electronic BIS service on ytj.fi contains a feature where registrations can be applied for. Alternatively, a paper form can be filled out and submitted. In general, operators of a trade or business, being individuals i.e. natural persons must first have a Finnish personal identity code.

Besides the official registers maintained by the Tax Administration, it may also be that the foreign operator of a trade or business must be on the Trade Register, which is maintained by the National Board of Patents and Registration (PRH). The same 'Y' series forms must be used. For more information, visit the website of the National Board of Patents and Registration.

As an operator of a trade or business, you must report the Finnish authorities of any changes to your registered information, making sure that it is updated. This means that if your circumstances have changed, and this affects your registered information, you must submit an update. Such changes can be reported electronically through the BIS service, or by filling out a paper form. If you ever go out of business in Finland, you must fill in the appropriate form to inform the authorities of it, either electronically through BIS or on a paper form.

For more information, see Starting up business in Finland.

6.2 The prepayment register

Foreign self-employed operators of a trade or business are free to voluntarily apply for Prepayment registration (in Finnish: ennakkoperintärekisteri, in Swedish: förskottsinnehållningsregister). This is worthwhile for everyone with more than just a few assignments, jobs, etc., because the customers paying you would always have to withhold tax when they settle your invoices. If you are on the prepayment register, your payors do not have to withhold tax on any compensation, royalty payments, or trade income that they pay to you. However, the fact that you are on the prepayment register has no impact on how the Finnish authorities should treat you as a person liable to pay income tax.

Any operator who has become a Finnish tax resident can be registered. No importance is attached to what his or her country of tax residence (for treaty purposes) is.

Nonresident operators can be registered on the condition that they have a permanent establishment or fixed base in Finland, or on the condition that their country of tax residence is a country that has a tax treaty with Finland. Registration of a nonresident taxpayer is not permitted if the above requirements are not met (under § 25.3 of the Prepayment Act).

The Tax Administration will automatically cancel the registration of any operator of a trade or business when they terminate their operation in Finland (§ 26 of the Prepayment Act). For this reason, it is required that the operators who go out of business inform the authorities of it. This is either done electronically over the BIS site or alternatively by completing the appropriate paper form.

It should be noted that the Tax Administration may cancel the registration of any operator if he or she has been guilty of omissions (§ 26 of the Prepayment Act).  Cancellation or refusal of requested registration may be the consequence of non-payment of taxes, failure to submit the required tax returns and reports, failure to keep books, or failure to meet other requirements relating to taxes. In some circumstances, Finnish authorities may become aware of a history of non-compliance in the foreign country where the operator has conducted business earlier, and this may become a reason for cancelling the operator's registration.

6.3 The VAT Register

Foreign self-employed operators of a trade or business who are liable to pay VAT must become registered for VAT in Finland if their operation gives rise to a fixed establishment for VAT purposes. If no fixed establishment for VAT purposes is formed in Finland, the general rule is that the buyer must pay any VAT that becomes chargeable (under the reverse-charge VAT scheme). However, certain circumstances will always require that the foreign operator must apply for VAT registration in any case.

Section 11 of the VAT Act (Arvonlisäverolaki; Mervärdesskattelagen 1501/1992, abbreviated as AVL) defines “fixed establishment” as a place of business through which the operation of an enterprise is wholly or partly carried on. The VAT rules on construction or installation activities provide that a building site constitutes a fixed establishment for the contractor if the duration of a single project – or a series of projects put together – is longer than 9 months. There are similarities between the VAT rules that determine whether a VAT fixed establishment exists and the rules applied in income taxation on permanent establishments. However, it is important to be aware that the facts and circumstances that give rise to a permanent establishment for purposes of income tax are not the same as those referred to in the VAT rules. For this reason, it is possible for a foreign operator to have a fixed establishment for purposes of VAT, but to not have a permanent establishment for purposes of income taxation; and vice versa.

For more information, see “VAT registration of foreigners”.

6.4 The Tax Administration’s register of employers

This register is intended for all employers making regular wage payments to people on their payroll (§ 31 of the Prepayment Act). If a foreign operator of a trade or business has employed someone and is treated as having a permanent establishment or fixed base in Finland, his or her obligations as an employer are the same as those of a Finnish employer. You must be registered as an employer if you pay wages or salaries in Finland to at least two employees on a regular basis. In the same way, if you pay wages to at least six employees whose contracts are in force for a shorter time than one calendar year, you must be registered.

However, if you do not have a permanent establishment or fixed base in Finland, there is no requirement to apply for registration. However, registration as an employer is permitted on a voluntary basis.

For more information on employer obligations, see chapters 11 and 12 below.

6.5 Checking the validity of registrations

Anyone has the right to make enquiries to the competent authorities in order to find out whether a foreign operator is on the prepayment register or other tax registers. One way to check the registrations is to visit www.ytj.fi, the Business Information System website.

7 The system of advance payments – prepayments – of tax on income within the charge of Finnish tax

7.1 Pre-collection

Prepayments are the primary way for residents and nonresidents alike to pay income taxes (cf. the examples in 4.2 above) on receipts of business income. This means that the Tax Administration has sent invoices to the operator of a trade or business, for one or more advance installments, that must be paid to the bank account of the Tax Administration by their due date or dates (in accordance with the provisions of § 23 of the Prepayment Act).

7.2 Operators of a trade or business who are Finnish tax residents

The Tax Administration collects prepayments from resident operators of a trade or business if their income falls into such a category that is taxable in Finland and the applicable tax treaty. It is additionally required that the operator is a resident of Finland for treaty purposes or – if the operator is a resident of the other Contracting State – that the income is attributable to a permanent establishment or fixed base in Finland.

If the operator is a Finnish tax resident but does not have a registration in the prepayment register, any Finnish payors paying money to him or her must withhold tax. Under § 3, of the government ordinance on preassessment (Ennakkoperintäasetus 1124/1996, abbreviated as EPA) the rate of withholding is either 60 percent, or the percentage printed on the tax card (withholding allowance certificate) that the Finnish tax authority has issued to the beneficiary. The net amount without VAT (to be paid to the operator of a trade or business) is the base on which the withholding rate is applied (§ 15.4, government ordinance on preassessment). If the payor has withheld tax from an amount going to the operator (as compensation for work, i.e. as trade income), it is not necessary to make tax prepayments on such an amount.

The Tax Administration gives credit in the annual assessment of the operator's taxes for all the paid-in amounts – either invoiced by the Tax Administration as prepayments or withheld by Finnish payors – making their the remaining tax liability smaller (§ 34 of the act on assessment procedure).

7.3 Nonresident operators of a trade or business

Prepayments are also the primary way for nonresidents to pay income tax on their business income. Their prepayments are collected as provided in the Prepayment Act (§ 16 of the act on the taxation of nonresidents' income). Prepayments are collected on business income, including any income attributable to a permanent establishment held by the nonresident operator of a trade or business.

If such an operator is on the prepayment register, the Finnish payors do not have to withhold tax. Vice versa, if he or she is not on the prepayment register, the Finnish payors must withhold tax at source (in accordance with § 3 of the act on the taxation of nonresidents’ income). The rate of withholding is 35 percent, the base being the net amount without VAT (§ 7.1 and § 8 of the act on the taxation of nonresidents' income). Before withholding, the Finnish payor can adjust the base by a subtraction of €510 for each month of accrual of the amount, fee, other compensation (=the trade income), etc., or if the period of accrual has been shorter than one month, subtract €17 per day. This requires that the recipient of the trade income has shown the payor a tax-at-source card (§ 6 of the act on the taxation of nonresidents' income).

A situation where no tax at source must be withheld on payments of trade income to nonresident operators is that the recipient has shown the payor a tax-at-source card or other documentation to prove that the applicable tax treaty prevents Finland from taxing the income (§ 10e.1 of the act on the taxation of nonresidents' income). Treaties prevent Finland from taxing the income if, within the meaning of the treaty, no permanent establishment or fixed base exists, and if the treaty has not given Finland the taxing rights by virtue of the self-employed operator’s presence in Finland. If the self-employed operator of a trade or business presents a document, other than a tax-at-source card, to prove that the applicable tax treaty prevents Finland from taxing his or her income, such a document must contain the operator’s name, address in the country of tax residence, date of birth and Tax Identification Number (TIN) issued in the country of tax residence (§ 10 of the act on the taxation of nonresidents' income).

However, any amounts paid for construction work, assembly or installation work, on a project carried out in Finland or primarily in Finland, for transportation services, and for work related to cleaning, nurse service or medical treatment are subject to withholding of tax at source by the payor, unless the recipient is on the prepayment register, or unless the recipient shows a tax-at-source card (§ 10 e, subsection 2, Act on the Taxation of Nonresidents' Income).

When assessing a self-employed operator's taxes for the year, the Tax Administration gives credit for the imposed prepayments that he or she has paid during the year. The provisions of the act on assessment procedure control the way the paid-in prepayments can be used (§ 16 of the act on the taxation of nonresidents' income).

Example 26: A consultant from Denmark, who is a non-resident taxpayer for purposes of Finnish taxation, has a fixed base in Finland. He has applied for registration in the prepayment register, and the registration is currently in force. The tax authority has issued him a set of prepayment invoices relating to the income attributable to his fixed base.

Conclusion: the Danish consultant's Finnish clients do not have to withhold tax (no domestic withholding, no withholding of tax at source) when they settle his invoices, paying him money that is classified as trade income. The prepayments he makes in the course of the year will be included in his tax assessment calculation after the end of the year.

If amounts have been withheld at source on payments, to nonresident beneficiaries, of income that is taxable as provided in the act on assessment procedure, these amounts are similarly given credit for when the Tax Administration assesses their taxes for the year. This situation commonly arises when payors have withheld tax at source on the amounts that they have paid to someone, and these payments are regarded as “trade income” attributable to a permanent establishment or fixed base located in Finland. To facilitate crediting of the tax withheld at source in connection with the assessment of the nonresident taxpayer’s income taxes for the year, it is additionally required that the gross amount of income, and the amounts withheld on it, were reported to the Incomes Register, or that the nonresident operator of a trade or business presents a document, as referred to in § 5 of the Ordinance on the taxation of nonresidents' income (Rajoitetusti verovelvollisen tulon verottamisesta annettu asetus 1228/2005), that indicates both the gross amount and the withheld amount.

Example 27: A building contractor is a resident of Estonia. He works in Finland in 2019, completing a number of jobs and projects. He does not have a prepayment registration in Finland, so his Finnish customers have withheld 35 percent tax at source on their payments to him, and later they have reported the amounts to the Incomes Register, listing the gross amounts of trade income and the taxes that were withheld at source. The total withheld equals €7,000. The building contractor received no other income from Finland.

When assessing his 2019 taxes, the tax authority notices that his presence in Finland has exceeded 183 days in the course of a solid 12-month period. As a result, he must be treated as having a fixed base. The assessment further reveals that the actual income tax to be paid on the income attributable to the fixed base is only €5,000.

Conclusion: all the paid-in amounts are included in the 2019 assessment, and the building contractor’s customers have withheld more tax-at-source than is necessary for him to pay (€7,000 - €5,000), so he will be refunded €2,000. 

Tax-at-source cards issued to nonresident operators of a trade or business usually instruct the payors to withhold 35 percent, which is a percentage that approximately matches their actual tax liability. However, in cases where it is likely that the nonresident taxpayer is to be treated as having a permanent establishment or fixed base, the Tax Administration can issue him or her a card that instructs the payors to withhold tax at a lower rate based on an estimate of taxable income for the current year. This is a way to adjust the amounts going to the tax authority in advance, so as to have them reflect the nonresident’s actual income tax liability better (in accordance with the provisions of the act on assessment procedure). Cards with a lower withholding rate as described above can only be issued if the nonresident taxpayer has asked for it.

8 Tax returns

The tax assessment procedure relies on the information, given by the foreign self-employed operators of a trade or business themselves, on the income tax return that they submit (§ 7 of the act on assessment procedure). The extent of the information on tax returns has been defined in Chapter 2 of the act on assessment procedure and in the Official Decision of the Tax Administration on information-reporting requirements.

The Tax Administration sends blank tax returns, and pre-completed forms, to all self-employed residents and nonresidents who operate a trade or business according to the database of the Tax Administration. The return forms are the same for both resident and nonresident operators.

The Business Income Tax Return must always be completed and submitted for every year (§ 7.3 of the act on assessment procedure, § 16 of the act on the taxation of nonresidents' income). The required facts to be reported on tax returns include business income within the charge of Finnish tax, assets and liabilities connected with the business operated here, and other information deemed necessary for the carrying out of the assessment. The requirement to file a business income tax return is also in force in situations where Finland does not have the taxing rights with respect to an operator's income. The operator of a trade or business is then expected to write up an account that describes his or her circumstances and shows evidence that Finland does not have the taxing rights.

When an operator of a trade or business has received a Finnish pre-completed tax return, he or she must check the amounts and information printed on it. If there are errors and omissions, he or she must submit a tax return by giving the missing and corrected information to the Finnish Tax Administration (§7.3 of the act on assessment procedure, § 16 of the act on the taxation of nonresidents' income). The business tax return can be filed electronically. However, completed paper forms can be sent to the tax office by post, to the address stated on the form that the operator had received or delivered to another unit of the Tax Administration.

9 Accounting

Accounting is the source of information for determining the taxable income attributable to a permanent establishment. To keep books is therefore required of foreign self-employed operators of a trade or business as provided by Accounting Act (Kirjanpitolaki 1336/1997). The revenue and expenditure and other business transactions of the permanent establishment must be recorded (§ 1:1.1 of the Accounting Act).  If an operator has failed to maintain an system of accounting books, or if other circumstances make it difficult to ascertain the amount of income attributable to a permanent establishment, tax authorities may assess it by estimation (§ 27 of the act on assessment procedure). Under § 3.1 of the act on assessment procedure, taxes must be paid on the income received during the tax year. Further, the 2nd subsection provides that the tax year is the calendar year – or if the taxpayer's accounting period is a non-calendar year – any accounting year or years that have ended during the calendar year.

Operators may be required to keep books not only in Finland but also in other countries. The Finnish Board of Accounting has released a statement on foreign businesses, indicating that the start and end dates of an accounting year in another country is not of importance when deciding on the start and end dates of an accounting year of the same foreigner's Finnish operation (KILA 1375/1996). However, it is generally recommended that operators have the same accounting period in their Finnish accounting system as in the accounting system that they maintain in another country. This facilitates the action carried out in order to eliminate double taxation.

10 Social insurance contributions

If the individual who operates a trade or business is deemed insured in Finland under (chapter 5, § 1.1 of) the Sickness Insurance Act (1224/2004), he or she must not only pay taxes but also the health insurance contribution (consisting of two parts, the daily allowance contribution and the medical expenses contribution) to Finnish authorities. The base of the health insurance contributions is the annual gross income (yrittäjän työtulo in Finnish) for purposes of social insurance (Chapter 18, § 14.2 and Chapter 18, §15.3 of Sickness Insurance Act).

Individuals from EU/EEA, Switzerland or other countries that have a social security convention with Finland are concerned by the Social Security Regulations of the EU and by the conventions. Generally, operators of a trade or business must primarily only be covered by the legislation on social security in the country where they work in the EU. However, exceptions are made when someone comes from those countries to operate a business temporarily in Finland and has a certificate (such as an 'A1' or 'E101' Certificate) proving that the legislation of the country where he or she comes from still continues to be applicable in matters of social security. Individuals from countries other than the above who arrive in Finland to operate a trade or business are subject to the provisions of the social security laws of Finland.

Under Chapter 1, § 4.9 of Sickness Insurance Act, a 'business operator' (in Finnish: yrittäjä, in Swedish: företagare) is defined as an individual who must carry a pension insurance designed for entrepreneurs within the meaning of § 1.2 of the act governing entrepreneurs' pensions (Yrittäjän eläkelaki 1272/2006, abbreviated as YEL). The provisions of § 1 of the act governing entrepreneurs' pensions require that business operators sign the necessary contracts for old-age pension insurance, disability and life insurance. However, the provisions do not require that a business operator must live in Finland permanently if the country where he or she lives is an EU or EEA country.

In addition to the health insurance contribution, the operator of a trade or business must also pay a pension insurance premium as provided in the YEL act in the circumstances described above. The premiums are paid to a pension insurance institution. However, foreign self-employed individuals do not have a legal obligation to pay accident insurance and unemployment insurance premiums (under the Finnish Workers’ Compensation Act (459/2015) and § 12 and § 15 of the act governing the financing of unemployment relief (Laki työttömyysetuuksien rahoituksesta (555/1998)).

11 The requirements relating to having employed someone

Foreign operators of a trade or business may become employers, paying wages or salaries to people on their payroll. All the usual employer obligations under Finnish law will concern the operators if they are Finnish tax residents. For example, the paid-out wages in Finland, as they are subject to taxation, must have an amount withheld on them, and information must be submitted to the Incomes Register (see section 12 of this guidance). In addition, operators of a trade or business must pay the social security contribution collected from employers if wages have been paid to employees insured in Finland for purposes of the Sickness Insurance Act, who are not holders of certificates that prove that they are insured elsewhere.

In general, the employer obligations that have been outlined above do not concern nonresident operators of a trade or business. If a permanent establishment or fixed base exists, it means that the operator has the same rights and obligations as a Finnish employer. For this reason, although the operator of a trade or business were a nonresident individual, if a permanent establishment or fixed base exists, the obligations are the same as for all Finnish employers in accordance with the legislation of Finland. Correspondingly, any foreign operator who has signed up for the Tax Administration register of employers voluntarily is also concerned by the obligations of an employer.

Example 28: A tradesman from Slovenia works on an installation project and is treated as having a permanent establishment in Finland. He has two mechanics from Croatia on his payroll and both of them work in Finland so that the permanent establishment is their employer. One of them stays five months in Finland (remaining nonresident), the other stays 8 ½ months (reaching the status of a resident individual taxpayer).

The wages paid to both mechanics are taxable in Finland. Conclusion: the Slovenian tradesman must fulfil the normal tax obligations of employers in Finland. He must withhold tax on all paid wages (either as domestic withholding or as tax withheld at source (on payments made to nonresident taxpayers)), submit reports on them to the Incomes Register and pay the employers' social security contribution.

For more information, see “Foreign company in Finland – obligations of an employer”. In the case of employee leasing, foreign employers and foreign leased employees have a number of special obligations. For more information, see “Leased employees from other countries”. Another article on Tax.fi with guidance for employers is Starting up business in Finland.

Foreign operators in the role of an employer may additionally have other obligations that are not connected to the provisions of tax legislation. Foreign employers may have to buy insurance for their workers, including pension insurance as defined in the Finnish act on pensions based on employment: accident insurance, unemployment insurance, and group life insurance. Then the operator will also have to pay the premiums and meet any other insurance obligations. Insurance policies are purchased from insurance companies. The types of insurance listed above are each governed by relevant legal norms that also contain provisions defining the circumstances where employers must arrange for insurance. However, tax-related facts and circumstances, including the tax residency or nonresidency of the foreign operator of a trade or business, are not important for purposes of determining whether he or she must buy insurance for the workers.

12 Submitting the required payroll reports to the Incomes Register

Some payments made by foreign operators give rise to the requirement to submit reports on them to the Incomes Register. The extent of the information-reporting requirement has been defined in Chapter 3 of the act on assessment procedure and in § 6 and § 8 of the act on the incomes information system (Laki tulotietojärjestelmästä (53/2018). The foreign operators who are treated as tax resident individuals in Finland have different obligations from the obligations that concern nonresidents; and those who have a permanent establishment have different obligations from those who are treated as not having a permanent establishment. Furthermore, the information-reporting requirement is additionally affected by whether or not the operator is on the Tax Administration’s register of employers. Not all types of payments to third parties must be reported.

Resident operators of a trade or business must report all the payments that are treated as taxable income in the hands of beneficiaries – the most common type of payment falling into this category is wages and salaries (§ 15.1 and § 15a of the act on assessment procedure). If an operator pays trade income (= nonwage compensation for work) to a beneficiary who is prepayment-registered, it is not a reportable transaction. An exception from this rule are payments (of trade income/nonwage compensation) to a natural person who is a nonresident taxpayer. Such a payment invariably gives rise to the necessity to submit a report.

When a permanent establishment or fixed base exists, the operator of a trade or business – although a nonresident – will be treated the same way as a payor who is a Finnish tax resident. In the same way, if a voluntary registration is in force in the register of employers, the operator will be treated as a Finnish tax resident payor. This means that all payments attributable to the operator’s permanent establishment or fixed base in Finland are reportable to the Incomes Register. This, of course, includes any wages paid to workers who have done work at the permanent establishment. However, if the place where the work is done is in a foreign country, the operator is not required to submit a report on paid wages even if it were linked with a permanent establishment located in Finland.

Nonresident operators also have to submit reports for all paid wages for work done in Finland if the beneficiary is a Finnish tax resident even if no permanent establishment or fixed base exists. In addition, they must submit payroll reports on any wages paid to an employee whom he or she has leased out to a Finnish service recipient (a customer company in an employee-leasing contract), unless the applicable tax treaty prevents Finland from taxing the wages (§ 15a of the act on assessment procedure). Furthermore, if the employee is insured in Finland, the reports must be submitted in all circumstances.

Example 29: A self-employed tradesman is a resident of the Czech Republic, and he has made employee-leasing contracts with a number of Finnish companies. He sends some employees to work in Finland. Some of them are treated as nonresidents, and others as residents when they work in Finland. No Finnish fixed base exists for the Czech tradesman. However, the tradesman must submit reports on all his leased employees to the Incomes Register in Finland on a regular basis.

For more information on the information-reporting requirement relating to the Finnish Incomes Register: Reporting data to the Incomes Register: international situations

13 Individual tax numbers and the required registration of the tax number in the construction industry

Operators of a trade or business in the construction sector must wear a name tag to gain access to the worksite, as defined in § 52a, Occupational Safety and Health Act (738/2002). The name tag contains the tax number – a number issued to every natural person. In the construction sector, it is required that the tax numbers of active workers are entered in a special register. All individuals are issued tax numbers if their personal data is in the Tax Administration's database (§ 2.1 of the act governing tax numbers (Veronumerolaki 1231/2011)). If an operator of a trade or business is not on the database, he or she must first visit the tax office to request entry in it and be registered as a taxpayer. At this time, he or she will also receive an official calculation for tax prepayments or be issued a tax card (= a withholding allowance certificate).

If foreign operators have employed any construction workers to assist them on the site, these construction workers, too, must have the name tags and tax numbers. This means that they must first be entered in the database and then be registered as workers on a construction site with mandatory individual tax numbers.

For more information, see Individual tax numbers and the public Tax Number Register

14 Special considerations

14.1 Deductions for business travel, and the additional cost deduction

If you travel in business, you have tax-deductible expenses (§ 7 of the act on the taxation of business income). The prices of travel tickets and hotel accommodation are typical expenses for travel in business. The portion of car expenses is also deductible that relates to business travel if the car is owned by the company or if the car is part of the individual operator’s business source of income. All the above expenses are deductible in tax assessment as they have been entered in the accounting system as actual outlays of cash. However, individuals who operate a trade or business also qualify for increased deductions as provided in § 55 of the act on the taxation of business income.

Section 55.1 of the act provides that the difference between the per diem amount (as defined in the Official Decision on tax-exempt allowances for travel) and the added living expenses due to business travel is deductible. The trips that you make to an area or region that is located outside of your usual district where you operate are “travelling in business”. The usual district where you operate is defined as such, i.e. your usual area or region where you conduct a trade or business.

Under § 55.1.2 of the act on the taxation of business income, also the difference between the maximum tax-exempt kilometre allowance and the actual driving costs for an operator's privately owned car is deductible. However, no deduction is granted for the daily commuting costs from home to work and back; i.e. for the commute between the place where the operator of a trade or business lives and the operator’s permanent establishment. To receive a deduction for your business kilometres, you must keep a driver's log or record your kilometres in some other reliable manner. This is a condition for getting the right to deduction.

The act on assessment procedure provides that the above additional deductions pertaining to business travel are also available to foreign operators of a trade or business. This means that you are eligible for the above deductions if you are a tax resident in Finland, and if you are a nonresident receiving any type of Finland-sourced income that is taxable under the act on assessment procedure, such as income attributable to a permanent establishment or attributable to a fixed base.

Under § 72a of the act on income tax, full-time work in the same place for a maximum period of three years is still considered a “temporary period of working”.  This time limit for tax purposes is applicable not only to Finnish but also foreign operators of a trade or business, regardless of whether you are a resident or a nonresident.

Example 30: A tradesman from Poland works 18 months on a construction project and returns to Poland. His accommodation is a rented flat. He additionally owns his Polish home, as before, where his family members continue to live during his 18-month period of working in Finland. He travels back to Poland on many weekends and all his vacations to spend time with his family.

Under the Poland-Finland tax treaty, he is a resident of Poland (for treaty purposes). However, he is treated as having a fixed base in Finland because in accordance with the treaty, construction projects lasting longer than twelve months give rise to a permanent establishment.

His work on the Finnish construction project is regarded as working outside of his usual district for a temporary period. He drives his privately-owned car for the daily commute from his rented flat to the construction site. Daily commuting is in this case is treated as travelling in a business context. Because the construction site is not a permanent establishment, the Polish tradesman can deduct the difference between maximum permissible tax-exempt allowance (the per diem as defined in the Official Cost Allowance Decision) and his actual living expenses, if they stay below the maximum per diem level.

Under § 72.4 of the act on income tax, it is not regarded as 'business travel' to commute from home to work and also not to make a weekend trip between a special place of work and the taxpayer's home during an assignment or job. However, the expenses are deductible in the same way as usual commuting costs if the deductions reflect the least expensive means of transportation (§ 93.3 of the act on income tax).

The above rule not only applies to Finnish but also to foreign operators of a trade or business. As a result, they are eligible for deducting the costs – figured as if the least expensive means of transportation were used – for visiting their home country during their assignment on a Finnish site. It should be noted that flying may sometimes be the least expensive means. No additional deductions are available for the visits to the home country. However, as an exception, the additional deduction is available when the individual operator of a trade makes the trips when work begins and ends. The additional deduction is also available if the operator must interrupt his or her work because of a legal holiday, sickness or similar reasons. 

14.2 Artists

Income may be regarded either as employment income or as trade income if it is derived from personal services performed by artists. The tax rules that apply on the treatment of artists who are independent operators of their craft are partly different from the tax rules applied on other operators of a trade. There are restrictions and other differences in the Articles of tax treaties and in the provisions of the national legislation of Finland.

When they are Finnish tax residents, artists must pay Finnish taxes on their Finland-sourced and worldwide income, regardless of whether it is income derived from personal services performed – or other type of income (§ 9 of the act on income tax). However, tax treaties may restrict Finland's taxing rights. Artists who are nonresidents must pay Finnish taxes on their income derived from personal services performed either in Finland or on board a Finnish ship (§ 9 and § 10.4 (b) of the act on income tax). This means that Finland's taxing rights do not depend on the payor being a resident of Finland. If other type of income is in question (i.e. income received by virtue of other activity than a personal performance), the treaty articles that apply to that category of income will determine the taxes on it.

For income to be “derived from personal services performed”, it must be income relating to giving performances, etc., in Finland. As a result, income from personal services performed includes remuneration for giving a performance, and participating in various events. However, it does not include the income derived from royalty contracts or comparable arrangements because it is not closely related to the personal services performed.

Finland's tax treaties contain separate articles that apply on artists who receive income derived from personal services performed. The Article where they are usually included in the treaty text is Article no 17. These Articles take precedence over the "business profits" and "independent personal services" articles of the treaties.

In accordance with the treaties, the income derived from an artist’s personal activity is taxed by their country of residence. However, it can also be taxed in the Contracting State where the personal activity is exercised (Article 17 of the OECD Model Convention). In other words, the tax treaties signed by Finland with other countries provide for taxation by Finland – when it is the country where a performance is given, or where a similar activity is carried out – of the remuneration paid to artists who are residents of foreign countries. The taxing rights do not depend on the existence of a permanent establishment or fixed base, or on the artist’s personal presence in the country for a set period.

Tax at source must be withheld on the amounts paid to nonresident artists, regardless of whether it is considered wages and regardless of whether the payment goes directly to the artist or to someone else, e.g. to the artist’s agent (§ 3, act on the taxation of nonresidents' income). The rate is 15 percent of the gross amount paid. No deductions can be made against the tax at source to be withheld in this case. This includes the deduction referred to in § 6, act on the taxation of nonresidents' income (as provided in § 6 and § 7.5 of the act on the taxation of nonresidents' income).

An exception from the above rule is a situation where an artist who is a tax resident of an EU or EEA country submits a request that he or she be given the right to deduct the costs directly connected with the personal activity in Finland. Then the 15-percent withholding rule is not applied, and the income is subject to the tax at source defined in § 15 of the act on the taxation of nonresidents' income. To have the right to deduct direct costs, the artist must ask for it when submitting his or her application for a tax-at-source card, or when submitting an appeal in accordance with § 11.2 of the act on the taxation of nonresidents' income. The first alternative would involve a reduced rate of tax at source to reflect the direct costs, and the second alternative — a refund of the excess withholding to be paid back to the artist by the Finnish Tax Administration later. It should be noted that the payor is not authorised – without a permission received in response to the artist’s request to that effect – to simply reduce the rate of the tax at source that the payor is going to withhold (as an effort to help meet the direct costs).

Because of the provisions in the act on the taxation of nonresidents' income, requiring all payors to withhold tax at source, the tax must be withheld even if the artist had a registration in force in the Prepayment Register in Finland. Because the artist’s being on the Prepayment Register does not relieve the payor's obligation to withhold tax at source, the practice of the Tax Administration has been to refrain from granting registration to nonresident artists. However, artists who additionally operate some other form of business or trade in Finland have been allowed to enter the prepayment register due to the other business or trade.