Taxation of students and trainees in international situations
- Date of issue
- 1/1/2021 - Until further notice
This guide contains information about taxes on the income earned by students and trainees coming to Finland. It also discusses the income taxes of those who leave Finland to pursue studies or training elsewhere. The guide also discusses the impact of tax-treaty provisions on the processes of assessment and matters relating to international double taxation.
We have edited a number of older references to various treaties and added some details to various chapters below. Along with these updates and re-edits, we deleted the entire chapter that focused on teachers and researchers: a new, specific guide on this subject has been released by the Tax Administration – Taxation of people working for higher education institutions – international situations.
Correspondingly, section 5.2 was updated because another guide released by the Tax Administration covers its subject matter – Elimination of international double taxation.
The taxation of students and trainees coming to Finland and those who leave Finland in order to pursue studies or training elsewhere largely depends on the tax treaties that Finland has signed. In general, the destination country where the student or trainee is staying on a temporary basis cannot tax their income when that income is sourced to countries other than the destination country itself. However, the destination country has full taxing rights over the income earned from work done in that country. Some of Finland’s tax treaties contain provisions under which this income, as well, is tax-exempt in the destination country, either completely or in part.
The instructions below will briefly cover the concepts of tax residency and non-residency, the impact of treaty provisions on the taxation of students and trainees and the impact of national legislation on how the income received by students and trainees coming to Finland is taxed, and correspondingly, on how the income of those going to other countries is taxed.
2 Tax residency and nonresidency
2.1 Tax residency
Under § 9, subsection 1.1 of the act on income tax (Tuloverolaki 1535/1992), natural persons living in Finland are also tax residents of Finland. Separate provisions of the act define 'living in Finland'. Under § 11, subsection 1 of the act, an individual is considered to live in Finland if he or she has their permanent home (and “abode”) in Finland. An individual who stays in Finland for a continuous period of more than six months is also treated as a resident.
A Finnish citizen who leaves the country is still a tax resident of Finland for the year of relocation and for the three following years. At the same time, citizens of foreign countries, and persons who have no citizenship, cease to be Finnish tax residents on the day when they leave Finland. For more information, see Tax residency, nonresidency and residency in accordance with a tax treaty – natural persons.
The general provisions referred to above also apply to students and trainees. The reason for coming to Finland is not the factor that determines an individual’s tax residency status. A student or a trainee is a Finnish tax resident if he or she has their permanent home in Finland or if he or she is present in Finland for a continuous period of more than six months.
Residents are under the obligation to pay Finnish tax on income sourced in Finland and other countries (§ 9, subsection 1.1 of the act on income tax). Finnish tax residents must usually also pay taxes on their foreign-sourced income in Finland even if they had already paid taxes on them in the country of source. There are, however, exceptions to this rule in Finland’s national legislation. For example, employment income, from work done in a foreign country, may be tax-exempt in Finland if the requirements for the “six-month rule” are met (§ 77 of the act on income tax). Tax treaties may additionally restrict Finland’s rights of taxation under Finland's national legislation.
2.2 Tax non-residency
People who have not lived in Finland during the tax year are treated as nonresident taxpayers, having a limited liability to tax (§ 9, subsection 1.2 of the act on income tax). In this context, “living in Finland” is defined in the same manner as above, i.e. the same as for the provisions in § 11, subsection 1 of the act on income tax. Foreign citizens living outside Finland are considered tax nonresidents in Finland. Foreign citizens living outside Finland will remain tax non-residents if they stay here for a maximum of six months.
Finnish citizens who have moved away from the country and have stayed in a foreign country for at least three years or who have demonstrated before the expiration of the three-year limit that they did not have any substantial ties with Finland during the tax year are also considered nonresidents. For more information, see Tax residency, nonresidency and residency in accordance with a tax treaty – natural persons.
Students and trainees arriving in Finland are nonresidents if they can be considered residents of a foreign country and only intend to stay for a shorter time than six months.
The applicable Finnish legal statute is the act on the taxation of nonresidents' income (Laki rajoitetusti verovelvollisen tulon verottamisesta 627/1978, abbreviated as LähdeVL). Nonresident individuals are only liable to pay tax in Finland on Finnish-sourced income (§ 9, subsection 1.1 of the act on income tax).
The types of Finnish-sourced income are listed in § 10 of the act on income tax. However, the list is not exhaustive, as it does not include such income as grants and scholarships. Under § 10, earned income received from a Finnish public sector body or other salary from work that has mainly been performed in Finland for a Finnish-based employer is considered Finnish-sourced income. Nevertheless, the tax treaties that Finland has signed with other countries may restrict Finland’s taxing rights.
2.3 The three-year rule
When a citizen of Finland moves away to another country, he or she will still be regarded as a resident of Finland during the year when they move away and during the three following years. However, if he or she presents evidence that they no longer have substantial ties with Finland (within the meaning of §11, Income Tax Act), they may already, prior to the end of the third year, be treated as a nonresident. For more information on the three-year rule and the tie-break, see Tax residency, nonresidency and residency in accordance with a tax treaty – natural persons.
The main requirement for breaking of the ties is that the individual is leaving Finland on a permanent basis. A Finnish citizen moving to a foreign country on a temporary basis still has the substantial ties even if he or she no longer has their main “abode” and home in Finland. For example, an individual is treated as having substantial ties if he or she is staying in a foreign country for the purpose of studying and not for any other purpose.
Substantial ties can be severed if the reason for staying in a foreign country changes on account of family ties, personal relations or work, and as a result, the individual’s presence in the foreign country is no longer exclusively for the purpose of studying. Severance of the ties additionally requires that the individual’s other links with Finland, such as being covered by the Finnish social security, must also be severed. The practice in tax assessment has been that if someone is covered by the Finnish social security, it is treated as one of the substantial ties.
3 Tax treaties
3.1 General information about the “student article”
Many of the tax treaties between Finland and other countries contain provisions on the taxation of students and trainees going abroad and those coming to Finland. Finland has treaties on income taxes with more than 70 countries (list of tax treaties). Under the treaties, the countries have agreed on the sharing of the rights of taxation, and on the elimination of double taxation, in situations where a natural or legal person resident in the other country receives income from the other country.
Nearly all tax treaties between Finland and other countries have an article containing provisions on students and trainees. This Article contains provisions that restrict the taxing rights of the country of temporary presence (i.e. the country of study). This means that in most cases, the country of study cannot tax the students’ and trainees’ income that is sourced to countries outside the country of study. At the same time, however, the country of study has the right to tax the income earned from work performed in the country of study. Some of Finland’s treaties contain provisions under which this income, too, is fully or partially tax-exempt.
The treaty provisions that grant various forms of relief only apply to the students and trainees that are resident or have, immediately before coming to the country of study, been residents for treaty purposes in the other country.
Example 1: A French student is coming to Finland for the purpose of studying. Before coming to Finland, he pursued studies in Belgium for 3 years. The treaty between France and Finland contains a tax-relief provision that applies to income earned from work performed in the country of study. However, the France–Finland treaty can only be applied if the student can show that France still considers him a tax resident of France in the manner referred to in the treaty. Under the circumstances, it may be necessary for the student to present a Certificate of fiscal residence issued by the country where he or she is a tax resident.
The practice in Finland has been that the “student article” is applicable on postgraduate students’ and researchers’ income on the condition that they pursue studies. For purposes of this rule, acceptable studies pursued by postgraduate students and researchers also includes academic research work as a Licentiate. However, the postgraduates who work on their doctoral dissertations are considered researchers. However, in several other countries, they are considered students. The difference between students and research staff is not always clear. Priority is given to the definitions of ‘researcher’ and ‘student’ that prevail in the country of study. For more information about the tax relief granted to teaching and research staff, see Taxation of people working for higher education institutions – international situations.
The relief accorded to students also extends to trainees. For purposes of this relief, a trainee is an individual who is receiving vocational training in their own country that includes acquisition of practical experience by working, such as apprenticeship training.
3.2 Income earned from sources outside the country of study
Normally, the country of study cannot tax the student's/trainee's income received from sources outside the country of study. Most of the treaties contain provisions within the treaty's “student article” laying down that the money received by a student or a trainee for livelihood, education or practical training is not taxed in the country of study if the money comes from sources outside the country of study. For example, any academic grants and allowances received by students from their home countries cannot be taxed in the country of study.
Example 2: A student, a tax resident of Finland, is studying in Sweden. He receives assistance from Finland in the form of study grants. Under Article 20 of the treaty between the Nordic countries, study-grant income is not taxed in Sweden. Instead, it is earned income, subject to tax in Finland.
Most of the tax treaties between Finland and other countries are based on the Model Tax Convention of the OECD. The Model Tax Convention contains an article on students and trainees. Under Article 20 of the Model Tax Convention,
“... payments which a student or business apprentice who is, or was immediately before visiting a Contracting State, a resident of the other Contracting State, and who is present in the first-mentioned State solely for the purpose of his education or training, receives for the purpose of his maintenance, education or training, shall not be taxed in that State, provided that such payments arise from sources outside that State.”
Provisions identical or almost identical to Article 20 of the Model Tax Convention are found in the treaties between Finland and the following countries:
Argentina, Armenia, Australia, Austria, Azerbaijan, Barbados, Belarus, Belgium, Bermuda, Bosnia and Herzegovina (treaty with Yugoslavia), Brazil, Bulgaria, Canada, Cayman Islands, China, Croatia (treaty with Yugoslavia), Cyprus, Czech Republic, Egypt, Estonia, France, Georgia, Germany, Greece, Guernsey, Hungary, India, Indonesia, Ireland, Isle of Man, Israel, Italy, Japan, Jersey, Kazakhstan, Kyrgyzstan, Kosovo (treaty with Yugoslavia), Latvia, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Mexico, Moldova, Montenegro (treaty with Yugoslavia), Morocco, Netherlands, New Zealand, Nordic countries, Pakistan, Philippines, Poland, Republic of Korea, Romania, Russia, Serbia (treaty with Yugoslavia), Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Switzerland, Tajikistan, Tanzania, Thailand, Turkey, Turkmenistan, Ukraine, United Arab Emirates, United States of America, United Kingdom, Uruguay, Uzbekistan, Vietnam and Zambia.
As noted above, the wording of the student article is not always identical with that of the Model Tax Convention. For example, along with “business apprentices”, the article's provisions may also apply to such groups as trainees in industrial corporations, trainees in agriculture and in forestry. It is advisable to check the exact content of the article from the relevant treaty.
In addition to the relief regarding the income earned outside the country of study, some of the tax treaties also contain a provision on the income earned in the country of study, making that income relieved from taxation as well.
3.3 Income earned from work performed in the country of study
The country of study usually has the rights to tax the income earned by a student or trainee from work performed in that particular country. The student tax relief usually only applies to income received from sources outside of the country of study. In such cases, the treaty article that should be applied on the issue of income from employment in the country of study is the treaty article on employment, either in the private sector or in the public sector.
Some of Finland’s treaties contain provisions that restrict the country’s taxing rights, so even the income earned from employment in the country of study is fully or partially tax-exempt.
The tax relief concerning the income from work performed in the country of study only applies if the student is studying in a university or other institute of higher education in the student’s home country. “Institute of higher education” means institutions similar to Finnish universities and universities of applied sciences. Because this provision also applies to most trainees, it also covers other education taking place in the home country if that program of education contains periods of training aimed for providing the student with practical experience. If so, the work may be considered practical training as referred to by the treaty.
The relief can only be applied on income from work performed in the country of study if the student’s presence and work in the country is connected with his or her studies and practical training in the home country. The only exception is the provision found in the treaty with France, under which the work does not have to be connected with studies or practical training. The tax treaties between Finland and all other countries listed below require that the work is connected with studies or practical training. The case-law, emanating from decisions of courts of law, indicates that it is enough if the student proves the study-related nature of the work by presenting documentation from the home country, which shows that his or her university (institute) accepts the work as practical training (the Finnish Supreme Administrative Court’s ruling, 19 June 1996, document no 2063).
Further requirements for the tax relief include various restrictions concerning the period of presence in the other country. Again, the tax treaty between Finland and France is an exception because it does not contain any restrictions concerning presence. The relief accorded to students may apply on the entire income, part of it, or only to amounts necessary for livelihood. If no exact amount of the relief is set out by the treaty, the relief level, stated in § 6, subsection 1 of the act on the taxation of nonresidents’ income (€510 per month or €17 a day) is applied in Finland.
For example, under the student article of the treaty between Finland and Germany, the size of the relief can only reach the amount necessary for livelihood, earned from working in the country of study, and the relief is only available if the student stays in the country of study for a maximum of 183 days each calendar year. An additional requirement is that the student pursues studies in a university, an institute of higher education or a comparable institute, or he or she is an apprentice or a trainee in business, industries, agriculture or forestry. The work must be closely related to the studies or practical training.
Under the treaties between Finland and the following countries, the tax relief accorded to students reflects the amount of money required for livelihood (in Finland, €510 per month or €17 a day) provided that the student’s presence in the country of study does not exceed 183 days per calendar year:
Belgium, Bosnia and Herzegovina (treaty with Yugoslavia), Bulgaria, Hungary, Indonesia, Kosovo (treaty with Yugoslavia), Croatia (treaty with Yugoslavia), Greece, Luxembourg, Montenegro (treaty with Yugoslavia), Serbia (treaty with Yugoslavia), Tanzania and Thailand.
Under the treaties between Finland and the countries below, the relief also reflects amounts required for livelihood (in Finland, €510 euros per month or €17 a day) provided that presence in the country of study does not exceed 183 days (the count of days is not tied to the calendar year):
Argentina, Austria, Barbados, Brazil, Czech Republic, Georgia, Germany, India, Israel, Netherlands, Pakistan, Romania, Russia, Sri Lanka,Turkey, Ukraine, United Arab Emirates and Vietnam.
Additionally, the treaties below have a provision on relief accorded to students' income from employment in the country of study. However, the requirements and amounts are substantially different from what is provided in the other tax treaties listed in this chapter. Accordingly, we recommend that they are checked from the treaty in effect at the time (list of tax treaties).
Egypt, Faroe Islands, France, Iceland, Japan, Malaysia, Philippines, Republic of Korea, United Kingdom and Zambia.
The treaty provisions that were agreed with Faroe Islands and Iceland, which differ from those applying to other Nordic countries, are contained in the Nordic Tax Treaty’s appended Protocol, paragraph IX).
3.4 Grants and scholarships received from the country of study
In some of the treaties, the provisions on the right to tax the grants and scholarships received from the country of study are contained in the student article (for example, in Article 21 of the tax treaty between Finland and the United Kingdom). If there are no references in the student article to the taxing rights with respect to grants and scholarships, the rights are determined on the basis of the treaty's article on other income (normally, treaty article 21).
Under the “other income” article, income is generally only taxed in the country, which for treaty purposes is the natural person’s country of residence.
Example 3: A student, a tax resident of Finland, is studying in Sweden. She receives, from a Swedish source, an academic grant for studies. Under Article 22 of the Nordic Tax Treaty, grants are only taxed in the student’s country of residence for treaty purposes – in this case, in Finland.
However, under the treaties between Finland and the countries listed below, the other income may also be taxed in the country of source, in which case the double taxation is eliminated in the manner specified in each tax treaty:
Argentina, Australia, Azerbaijan, Barbados, Brazil, Canada, China, Estonia, India, Indonesia, Latvia, Lithuania, Malaysia, Mexico, Morocco, New Zealand, Pakistan, Philippines, Singapore, Thailand, Turkey, Uruguay, Vietnam and Zambia.
Under the treaty with Egypt, income classified as other income is only subject to tax in the country of source.
4 Taxation of students coming to Finland
The tax treatment of a foreign student’s or a trainee’s income largely depends on whether the he or she is considered a Finnish tax resident or a nonresident. The treatment often also depends on whether their employer is treated as being a Finnish employer or as a foreign employer. Finnish tax residents are liable to pay tax on their worldwide income. Correspondingly, nonresidents are only liable to pay taxes on the income they receive from sources in Finland. “Income from a Finnish source” includes the income listed in § 10 of the act on income tax.
However, wages are not considered income from a Finnish source and are not taxed in Finland if the nonresident works in Finland for a foreign employer (§ 10, subsection 1.4 of the act on income tax).
Income in the hands of a Finnish resident is subject to taxation in the manner laid down in the act on assessment procedure. In addition, the tax assessment in Finland may be carried out as provided in the act on assessment procedure also for the income earned by a nonresident taxpayer. To receive tax treatment under the act on assessment procedure, the nonresident taxpayer must either submit an application for a tax card, for handing the card over to the employer or other payor, or complete and submit a “claim for progressive taxation”, which is an enclosure to the income tax return for the year.
When a student’s or trainee’s taxes are assessed in accordance with the act on assessment procedure, the tax relief can be granted that the student or trainee is entitled to under the relevant tax treaty. The relief amounts to €510 per month or €17 per day unless otherwise provided in the treaty.
In most cases, the worldwide income earned by a student or trainee coming to Finland is taxed by their country of residence in accordance with its national legislation. As a result, the income earned in Finland may also be taxed in the student’s or trainee’s country of residence. However, the country being the country of residence for treaty purposes will eliminate double taxation in accordance with the treaty.
The only difference between the taxation of students and trainees coming to Finland and employees coming to Finland is that a student or trainee may be entitled to the tax relief based on a tax treaty as described in section 3.3 above.
The provisions of the act on the taxation of nonresidents' income govern the treatment of the income of a student or trainee when that income is earned from working for a Finnish employer in Finland.
4.2 The tax-at-source deduction
Students and trainees arriving in Finland for no longer than six months are considered nonresidents in Finland. If a nonresident has not submitted an application for a nonresident’s tax card, the employer or other payor is required to withhold tax at source on the amount. The tax at source is a final tax and amounts to 35% of the wages. The total wage income subject to taxation at source is inclusive of any employer-provided fringe benefits. For tax purposes, fringe benefits are valuated in accordance with a decision issued by the Finnish Tax Administration (§ 3, subsection 1 and § 7, line 1 of the act on the taxation of nonresidents' income).
Payments of wages and the provision of benefits are subject to a special deduction called the “source tax deduction” (lähdeverovähennys; källskatteavdrag). The payor is entitled to carry out the deduction from the gross amount before withholding the tax. The legal rules on this deduction are found in § 6 of the act on the taxation of nonresidents' income. The deduction amounts to €510 per month. If the employee does not earn the wages for the entire month, the deduction is €17 per day. The source-tax deduction already covers the tax relief that may be accorded to the student. The base amount for employer’s health insurance contribution and the insured party’s health insurance contribution, if applicable, is the gross amount from which the deduction has not yet been made.
Example 4: An individual who is a nonresident taxpayer in Finland has an employment contract lasting for one month. She receives €1,000 in wages. Her Finnish employer withholds tax on the amount from which the “source” deduction has already been made. The source-tax withholding is 35 per cent × (€1,000 - €510) = €171.50. The deduction can only be made if there is an appropriate reference to that effect on the employee’s tax-at-source card. The tax withheld at source is a final tax. Because the individual employee in this example is a nonresident, she does not need to submit a tax return to Finland when the tax year has ended.
Example 5: An individual who is a nonresident in Finland works under an employment contract lasting for 1.5 months for which he receives a salary of €1,500. Her Finnish employer withholds tax on the amount from which the “source” deduction has already been made. The source-tax withholding is 35 per cent × (€1,500 - €510 - €255 (=15 days, €17 per day)) = €257.25. The deduction can only be made if there is an appropriate reference to that effect on the employee’s tax-at-source card. The tax withheld at source is a final tax. Because the individual employee in this example is a nonresident, she does not need to submit a tax return to Finland when the tax year has ended.
4.3 Progressive taxation
If you are a nonresident individual, you can demand tax treatment of your earnings under the progressive income-tax scheme instead of source taxation. When treatment under the progressive scheme is granted, your tax assessment is similar to that of Finnish residents living in Finland on a permanent basis.
Progressive taxation is usually a more favourable alternative for students and trainees than taxation at source. However, under the progressive scheme, you are no longer entitled to the tax-at-source deduction because your taxes are assessed in accordance with the act on assessment procedure. However, being a student or trainee, you may be entitled to student tax relief based on a tax treaty in the same manner as residents. The relief amounts to €510 per month or €17 a day, unless otherwise provided in the tax treaty between your country and Finland.
More information on the progressive taxation of a nonresident taxpayer can be found in section 2.4 of the Taxation of employees from other countries guide.
5 Taxation of Finnish students going abroad
As a rule, the taxation of the income earned abroad by Finnish students and trainees is determined in accordance with provisions normally applied to wages. As described in section 3.3 above, the tax treaties that Finland has signed with other countries contain provisions under which students and trainees are entitled to tax relief. The employment income earned from work done in the country of study may be fully or partially tax-exempt in the country of study. However, students or trainees who are tax residents of Finland may be taxed in Finland, and the above does not impose a restriction on your taxation in Finland.
When a Finnish tax resident is working outside Finland, the income earned from this work is subject to Finnish tax under our national legislation (§ 9, subsection 1.1. of the act on income tax), unless there are specific legal provisions making the income tax-exempt. The income may also be taxed in the country of study in accordance with that country’s legislation. If your presence in a foreign country, which arises from the performance of work there, lasts for at least six months, the wages received from that work may be tax-exempt in Finland under the six-month rule.
If the six-month rule cannot be applied to the wages you received for working in the foreign country, the tax authorities must, when assessing your taxes for the year, first determine whether the relevant tax treaty’s provisions give the country of study the rights to tax your wages. If the country of study has the rights, any double taxation that may result will be relieved in Finland. Your wages will only be taxed in Finland if the treaty provisions do not give the country of study the rights to tax them.
5.2 Elimination of double taxation
In principle, the employment income earned by Finnish tax residents from working in a foreign country is subject to Finnish taxes. The income may also be taxed in the country of study in accordance with that country’s national legislation. If the individual employee is working in a country that has a tax treaty with Finland, Finland must eliminate double taxation if Finland is the country of residence for treaty purposes, and if, under the tax treaty, the country of study has the taxing rights over the income. Double taxation may also be relieved this way in situations where people work in a country with no tax treaty with Finland.
Finland has a legal act that governs the way double taxes must be eliminated – the Act on the methods to be used when granting relief (Laki kaksinkertaisen verotuksen poistamisesta (1552/95), “menetelmälaki”). The provisions of this act are applied even if there is no tax treaty between Finland and the country of study. In this case, the authorities only implement the credit method when eliminating the resulting double taxation.
The taxpayer must demand elimination of double taxation and provide an account on the taxes he or she paid to the other country including the basis for the taxes. It is possible for taxpayers to demand elimination already when they ask for their prepayment calculation for the current year. Another possibility is to fill in the demand on the year's tax return.
For more information on how double taxation is relieved, see Relief for international double taxation.
5.3 The six-month rule
Income earned from work outside Finland is tax-exempt in Finland (§ 77 of the act on income tax (Tuloverolaki 1535/1992))
- if the stay in a foreign country arises from that work, and
- lasts for a continuous period of at least six months, and
- the country where the person works has, under the relevant tax treaty, the right to tax the said income; if there is an income tax treaty between Finland and that country.
The provision only applies to salaries, which means that social benefits, non-wage compensations and royalty-type payments are not considered tax-exempt income under this provision. The tax exemption does not apply to salaries paid by a Finnish public sector body, Business Finland Oy or work performed in a Finnish aircraft or vessel.
The six-month rule can only be applied if the stay outside Finland arises from work. The six-month rule may be applied to a student, if the student works in the country of study continuously, and on a regular basis, for at least six months.
Example 6: A student works three or four days each week for more than six months during his studies in a foreign country. The six-month rule may be applicable on his income-tax treatment because he works continuously and on a regular basis for at least six months during a stay outside Finland.
It must additionally be noted that the six-month rule also requires that the country where the person works has the right to tax the income. Some of Finland’s tax treaties contain provisions that restrict the right of the country of study to tax the income of students and trainees. These tax relief arrangements are detailed in section 3.3 above. In the case of graduate students, it is also worth noting that the definitions of 'researcher' and 'student' may vary from country to country. For example, the country of study may consider a Finnish researcher a student and vice versa. Priority is given to the definitions of ‘researcher’ and ‘student’ in the country of study.
Example 7: A student who is a tax resident of Finland is on an internship in France, working there. He stays in France for more than six months. Under Article 20 of the tax treaty between Finland and France (the “student” article of the treaty), France may not tax the salary he receives as a student in training. The salary is not tax-exempt in Finland under the six-month rule because the country of work (France) does not have the right to tax the income