Taxation of students and trainees in international situations

Date of issue
12/27/2016
Validity
In force until further notice

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

This instruction contains information about the tax treatment of the income earned by students and trainees coming to Finland and those going abroad in individual taxation and tax prepayment. The instruction also contains information about the impacts of tax treaties on taxation and about the elimination of double taxation, social security and insurance.

1 Introduction

The taxation of students and trainees coming to Finland and those going abroad often depends on the tax treaties that Finland has concluded with other countries.  In most cases, the country in which the student or trainee is staying on a temporary basis may not tax their foreign-sourced income. At the same time, however, the country in which the individual is staying has, as a rule, the right to tax the income earned from work performed in that country.  Some of the tax treaties contain provisions under which this income too is fully or partially tax-exempt in the country in which the individual in question is staying.

This instruction briefly covers the concepts of tax residency and tax non-residency, the impact of tax treaties on the taxation of students and trainees and the impacts of national legislation on the taxation of students and trainees coming to Finland and those going abroad.  The instruction also covers, as applicable, social security and insurance and the procedures of employees and employers in individual taxation and tax prepayment.

2 Tax residency and tax non-residency

2.1 Tax residency

Under section 9(1)(1) of the Income Tax Act (1535/1992), natural persons living in Finland are also tax residents of Finland. Living in Finland is separately defined in the Income Tax Act.  Under section 11(1) of the Income Tax Act, an individual is considered to live in Finland if they have their permanent dwelling and home in Finland. An individual who stays in Finland for a continuous period of more than six months is also a tax resident of Finland.

A Finnish citizen moving abroad will, as a rule, remain a tax resident of Finland for the year of relocation and for the three following years.  In most cases, foreign citizens and stateless persons cease to be Finnish tax residents on the day on which they leave Finland. For more information, see the instruction ”Yleinen ja rajoitettu verovelvollisuus” (in Finnish and Swedish).

The general provisions referred to above also apply to students and trainees.  The reason for coming to Finland is not the factor determining an individual’s tax residency status. A student or a trainee is a Finnish tax resident if they have their permanent dwelling and home in Finland or stay in Finland for a continuous period of more than six months.

A Finnish tax resident is liable to pay tax on Finnish-sourced and foreign-sourced income (section 9(1)(1) of the Income Tax Act). 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, the income from work earned abroad may be tax-exempt in Finland if the prerequisites for the six-month rule are met (section 77 of the Income Tax Act). Tax treaties may also restrict Finland’s right of taxation under its national legislation.

2.2 Tax non-residency

An individual who has not lived in Finland during the tax year, is a tax non-resident in Finland (section 9(1)(2) of the Income Tax Act).  In this context, “living in Finland” is defined in the same manner as in section 11(1) of the Income Tax Act referred to above.  Foreign citizens living outside Finland are considered tax non-residents in Finland.  Foreign citizens living outside Finland will remain tax non-residents if they stay here for a maximum of six months.

In addition, Finnish citizens that have moved to a foreign country are considered as tax non-residents if three years have elapsed since the year when the move took place. Before three years Finnish citizens can be regarded as tax non-residents if they have shown explicit evidence that they no longer have any close ties connecting them with Finland. For more information, see the instruction ”Yleinen ja rajoitettu verovelvollisuus” (in Finnish and Swedish).

As a rule, students and trainees coming to Finland are tax non-residents in Finland if they can be considered residents of a foreign country and they intend to stay in Finland for a maximum of six months.

Provisions on the taxation of non-residents are contained in the Act on Taxation of Non-Residents’ Income and Capital (627/1978), which is also known as the Tax at Source Act. Tax non-residents are only liable to pay tax in Finland on Finnish-sourced income (section 9(1)(2) of the Income Tax Act). The types of Finnish-sourced income are listed in section 10 of the Income Tax Act. However, the list is not exhaustive as it does not include such income as grants and scholarships. Under section 10 of the Income Tax Act, 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. Tax treaties may, however, restrict Finland’s right of taxation in this respect.

2.3 Three-year rule

Under the Income Tax Act, a Finnish citizen moving abroad is usually considered to be a resident of Finland in the year of the move and for the following three years. However, the individual in question may be considered a tax non-resident before the end of the third year if they are able to show that they have not maintained close ties with Finland after the move to the foreign country (section 11(1) of the Income Tax Act). For more information about the three-year rule and the definition of the close ties, see the instruction ”Yleinen ja rajoitettu verovelvollisuus” (in Finnish and Swedish).

The main requirement for the breaking of the close ties is that the individual in question is permanently leaving Finland. A Finnish citizen moving to a foreign country on a temporary basis still has close ties with Finland even if they no longer had their permanent dwelling or home in Finland.  An individual is considered to have close ties with Finland if they are only staying in a foreign country for the purpose of studying.

The close ties with Finland may be ceased if the reason for staying in a foreign country changes on account of family ties, personal relations or work and as a result the stay in the foreign country is no longer exclusively for the purpose of studying.  Moreover, the other close ties, such as being covered by the Finnish social security, must also be ceased.  In taxation practice, being covered by the Finnish social security has been considered a close tie with Finland.

3 Tax treaties

3.1 General information about the student article in the tax treaties

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 an income taxation treaty with more than 70 countries (Valid tax treaties). Under the tax treaties, the countries concerned have agreed on the sharing of the right of taxation and the elimination of double taxation in situations where a natural or legal person living 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 that restrict the taxation right of the country of temporary residence (country of study). This means that in most cases, the country of study may not tax students’ and trainees’ foreign-sourced income. At the same time, however, the country of study has, as a rule, the right to tax the income earned from work performed in the country of study. Some of the tax treaties contain provisions under which this income too is fully or partially tax-exempt.

The student tax relief provisions of the tax treaties only apply to students and trainees that are living or have, immediately before coming to the country of study, lived in the other country in the manner referred to in the treaty.

Example 1: A French student is coming to Finland for the purpose of studying.  Before coming to Finland, he studied three years in Belgium. The tax treaty between Finland and France contains a tax relief provision that applies to income earned from work performed in the country of study. However, the tax treaty between Finland and France can only be applied if the student in question can show that France considers him as a resident of France in the manner referred to in the tax treaty.

The student tax relief also applies to trainees.  For the purposes of the student tax relief, a trainee is for example an individual who is in vocational education in their own country that includes acquisition of practical experience by working, such as apprenticeship training.

3.2 Income earned outside the country of study

As a rule, the country of study may not tax the foreign-sourced income earned by the student or trainee. Most of the tax treaties contain an article under which the payments 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 the grants and study allowances received by students from their countries of residence may not be taxed in the country of study.

Example 2: A student living in Finland is studying in Sweden. He receives assistance from Finland in the form of a study allowance.  Under Article 20 of the tax treaty between the Nordic countries, this study allowance is not taxed in Sweden.  Study allowance is considered taxable earned income 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 applying to 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.”

A student tax relief provision that is identical with or corresponds to the Article 20 of the Model Tax Convention is contained in the tax 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 (from 1 January 2014), 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 (from 1 January 2013), Netherlands, New Zealand, Nordic countries, Pakistan, Philippines, Poland, Portugal, Republic of Korea, Romania, Russia, Serbia (treaty with Yugoslavia), Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Switzerland, Tajikistan (from 1 January 2014), Tanzania, Thailand, Turkey, Ukraine, United Arab Emirates, United States of America, United Kingdom, Uruguay (from 1 January 2014), Uzbekistan, Vietnam and Zambia.

The wording of the student article is not always identical with that of the Model Tax Convention.  In addition to business apprentices, the provision may also apply to such groups as trainees in industrial firms, agriculture and forestry. It is advisable to check the content of the student article from the tax treaty in effect.

In addition to the student tax relief applying to the income earned outside the country of study, some of the tax treaties also contain a tax relief provision on income earned in the country of study.

3.3 Income earned from work performed in the country of study

The country of study usually has the right 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 earned outside the country of study. In such cases, the right to tax the income earned from work performed in the country of study is on the basis of the article on private or public employment relationships contained in the tax treaty.

Some of the tax treaties contain provisions under which the right of the country of study to tax the income is restricted so that the income from work performed in the country of study is also 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 higher education institution in their country of residence.  A higher education institution corresponds to Finnish universities and universities of applied sciences. As the provision usually also applies to trainees, it also covers other education taking place in the country of residence if this also includes periods of training aimed at providing the student with practical experience. In such cases, the work may be considered practical training referred to in the tax treaty.

The tax relief can only be applied to income earned from the work performed in the country of study if the stay and work in a foreign country is connected with the taxpayer’s studies or practical training in their country of residence. The only exception is the tax treaty between Finland and France under which the work does not need 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. Presenting the study records provided by the education institution of the country of residence showing that the education institution considers the work as practical training has been deemed as sufficient evidence of the study-related nature of the work in the country of residence in judicial practice (KHO 19.6.1996 document 2063).

There are also different types of restriction concerning the duration of stay.  Again, the tax treaty between Finland and France is an exception as it does not contain any restrictions concerning the duration of stay.  The student tax relief may apply to the entire income, part of it or only to the amounts necessary for student’s maintenance.  If the exact amount of the relief is not mentioned in the tax treaty, the tax relief laid down in section 6(1) of the Tax at Source Act (510 euros/month or 17 euros/day) is applied in Finland.

For example, under the student article of the tax treaty between Finland and Germany, the income earned from the work performed in the country of study is fully tax-exempt if the student is present in the country of study a maximum of 183 days in the calendar year. This provision applies to students in universities and other higher education institutions and trainees in business, industries, agriculture or forestry. An additional requirement is that the work is connected with the student’s or trainee’s studies or practical training.

Under the tax treaties between Finland and the following countries, the student tax relief is the amount necessary for student’s maintenance (in Finland, 510 euros/month or 17 euros/day) provided that the stay in the country of study does not exceed 183 days/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 tax treaties between Finland and the following countries, the student tax relief is the amount necessary for student’s maintenance (in Finland, 510 euros/month or 17 euros/day) provided that the stay in the country of study does not exceed 183 days (the number of days is not tied to the calendar year):

Argentina, Austria, Barbados, Brazil, Czech Republic, Georgia, India, Israel, Netherlands, Pakistan, Romania, Russia, Turkey, Ukraine, United Arab Emirates and Vietnam.

The tax treaties with the countries listed below also contain a student tax relief provision on income from work performed in the country of study. However, the prerequisites for and the amount of the relief differ substantially from the provisions in the other tax treaties listed in this section and they should always be checked from the tax treaty in effect at the time (Valid tax treaties).

Egypt, Faroe Islands, France, Iceland, Japan, Malaysia, Philippines, Portugal, Republic of Korea, Sri Lanka, United Kingdom and Zambia. (The tax treaty provisions applying to Faroe Islands and Iceland that differ from those applying to other Nordic countries are contained in section IX of the Protocol to the Nordic Tax Treaty).

3.4 Grants and scholarships received from the country of study

In some of the tax 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 to the right to tax grants and scholarships in the student article, the right to tax the grants and scholarships received from the country of study is on the basis of the article on other income (usually Article 21 of the tax treaty).

Under the article on other income, the income is usually only taxed in the individual’s country of residence stated in the tax treaty.

Example 3: A student living in Finland is studying in Sweden and has received a grant in Sweden for his studies.  Under Article 22 of the Nordic Tax Treaty, grants are only taxed in the student’s country of residence stated in the tax treaty (in this case Finland).

However, under the tax treaties between Finland and the following countries, 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 tax treaty between Finland and Egypt, the other income is only taxed in the country of source. Under the tax treaty between Finland and Portugal, the other income is only taxed in the country of source if it is not taxable in the individual’s country of residence.

3.5 Teaching and research staff

Some of the tax treaties also contain provisions on tax relief for teaching and research staff. The tax treaties that Finland has concluded with Egypt, France, Japan and Spain contain provisions under which both teaching and research staff are entitled to tax relief.  The tax treaty between Finland and the United Kingdom only contains a provision on tax relief for teaching staff.  The tax relief means that under certain conditions, the salaries of teaching and research staff are tax-exempt in the country of work.

The provisions of the tax treaties that apply to teaching and research staff differ from those applying to students and trainees.  The difference between students and research staff is not always clear. In Finland, the student article applies to postgraduate students and researchers.  At the same time, however, postgraduate students working on their doctoral dissertations are considered researchers in Finland, whereas in some other countries they are considered as students.

It is advisable to check the prerequisites for the tax relief from the tax treaty in effect at the time. For more information about the tax relief granted to teaching and research staff, see the instruction Ulkomailta Suomeen tulevan verotus (in Finnish and Swedish).

4 Taxation of students coming to Finland

4.1 General

The taxation of the salary of a student or trainee coming to Finland substantially depends on whether the individual in question is considered a tax resident or a tax non-resident. In many cases, the nationality of the employer (Finnish or foreign) is also relevant.  A tax resident is liable to pay tax on their worldwide income.  A tax non-resident is only liable to pay taxes on income earned in Finland. Income earned in Finland includes the income listed in section 10 of the Income Tax Act.

However, salary is not considered income earned in Finland and it is not taxed in Finland if the tax non-resident works in Finland for a foreign employer (section 10(1)(4) of the Income Tax Act). A foreign employer is an employer with no permanent establishment in Finland.

A tax resident is taxed in the manner laid down in the Act on Assessment Procedure (1558/1995). A tax non-resident may also be taxed progressively in the manner laid down in the Act on Assessment Procedure.  In such cases, a tax non-resident must obtain a tax non-resident’s tax card from the Finnish Tax Administration for the payer of the salary or append an application for progressive taxation to the tax return.

In the taxation carried out in accordance with the Act on Assessment Procedure, a student or trainee may be granted the tax relief that they are entitled to under a tax treaty.  The relief amounts to 510 euros/month or 17 euros/day unless otherwise provided in the tax 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 own legislation. Thus, the income earned in Finland by a student or trainee that has come to Finland may also be taxed in the student’s or trainee’s country of residence. However, the country of residence eliminates double taxation in accordance with the tax 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 income earned by a tax non-resident student or trainee from work performed for a Finnish employer is taxed in accordance with the Tax at Source Act.

4.2 Tax-at-source deduction

A student or trainee arriving in Finland for a stay of no longer than six months is considered a tax non-resident in Finland.  If a tax non-resident does not apply for a non-resident’s tax card, the payer of the salary must withhold the tax at source from the salary in connection with the payment. The tax at source is a final tax and amounts to 35 per cent of the salary. Fringe benefits are also subject to tax at source, as valued in accordance with a decision of the Finnish Tax Administration (sections 3(1) and 7(1) of the Tax at Source Act).

Before withholding the tax, the payer may make a tax-at-source deduction from the total amount of the salary and the fringe benefits if there is an appropriate entry on the tax card.  Provisions on the tax-at-source deduction are contained in section 6 of the Tax at Source Act. The deduction amounts to 510 euros/month or 17 euros/day if the salary accumulates for a period of less than one month.  The tax-at-source deduction also covers the student tax relief. Any employer’s health insurance contribution and the health insurance contribution payable by the insured are paid from the amount from which the tax-at-source deduction has not yet been made.

Example 4: A tax non-resident is in an employment relationship lasting for one month for which he receives a salary of 1,000 euros. A Finnish employer withholds the tax at source from the salary from which the tax-at-source deduction has already been made. The tax is 35 per cent x (1,000 euros - 510 euros ) = 171.50 euros. The tax-at-source deduction can only be made if there is an appropriate entry on the tax-at-source card. The tax at source is a final tax. The tax non-resident in question does not need to submit a tax return to Finland.

Example 5: A tax non-resident is in an employment relationship lasting for 1.5 months for which he receives a salary of 1,500 euros. A Finnish employer withholds the tax at source from the salary from which the tax-at-source deduction has already been made. The tax s 35 per cent x (1,500 euros - 510 euros - 255 euros (15 days x 17 euros)) = 257.25 euros. The tax-at-source deduction can only be made if there is an appropriate entry on the tax-at-source card. The tax at source is a final tax. The tax non-resident in question does not need to submit a tax return to Finland.

4.3 Progressive taxation

Since 2014, tax non-residents have been entitled to request that their earnings (except for dividends) should be taxed progressively in the manner laid down in the Act on Assessment Procedure, instead of being subject to taxation at source. In such cases, the taxation of a tax non-resident is carried out in the same manner as the taxation of Finnish tax residents.  Under section 13(1)(6) of the Tax at Source Act, the requirement for this arrangement is that the tax non-resident in question resides

  • in a country belonging to the European Economic Area (EEA) or
  • in a country or region that is covered by an agreement on executive assistance and sharing of information in tax matters or if
  • the taxpayer is a holder of a residence permit referred to in the researcher directive.

Under subsection 2 of the provision referred to above, progressive taxation may only be applied in tax prepayment if the tax non-resident obtains a non-resident’s tax card from a tax office and submits it to the payer of the salary. Based on the information entered on the tax card, the payer must withhold the tax from the salary in accordance with the rate stated on the tax card.

A tax non-resident may also apply for progressive taxation on the tax return or by submitting a claim for adjustment before the end of the appeal period.  In the tax return and the claim for adjustment, the tax non-resident must give the income earned in Finland, the taxable income earned in the country of residence in the same year and the deductions concerning these earnings.

Under section 14 of the Tax at Source Act, when the tax on earned income is determined, consideration is also given to the income earned by the taxpayer outside Finland that is taxable in the country of residence and the income earned in Finland that cannot be taxed in Finland on account of a tax treaty and the deductions concerning such income. Even though the earnings referred to above are not taxable in Finland the taxpayer may have to pay higher taxes on income taxable in Finland as a result.

Under section 14(5) of the Tax at Source Act, when income earned in Finland is taxed, no consideration is, however, given to income earned outside Finland that is taxable in the country of residence or the income earned in Finland that may not be taxed in Finland on account of a tax treaty if the individual lives in a country belonging to the European Economic Area or is a holder of a residence permit referred to in the researcher directive or if the taxable net income earned in Finland is at least 75 per cent of all earnings.  This exception can only be applied if the taxpayer presents a certificate provided by the tax authority of their country of residence detailing the income and the deductions concerning them.

Progressive taxation is usually a more favourable alternative for students and trainees than taxation at source.  However, a student or trainee is not entitled to the tax-at-source deduction if the taxation is carried out in accordance with the Act on Assessment Procedure.  However, a student or trainee may be entitled to student tax relief based on a tax treaty in the same manner as tax residents. The tax relief amounts to 510 euros/month or 17 euros/day unless otherwise provided in the tax treaty.

For more information about the progressive taxation of tax non-residents, see the instruction ”Rajoitetusti verovelvollisen henkilön ansiotulon verotus: lähdevero vai progressiivinen vero” (in Finnish and Swedish).

5 Taxation of Finnish students going abroad

5.1 General

As a rule, the taxation of the income earned abroad by Finnish students and trainees is determined in accordance with provisions normally applied to salaries. As described in section 3.3 above, a number of tax treaties contain provisions under which students and trainees are entitled to tax relief. The income earned in the country of study may be fully or partially tax-exempt in the country of study.  However, students or trainees living in Finland may still be taxed in Finland.

When a Finnish tax resident is working outside Finland, the income earned from this work is taxable in Finland under our national legislation (section 9(1)(1) of the Income Tax Act), unless there are specific provisions making it tax-exempt. The income may also be taxed in the country of study in accordance with that country’s legislation.  If the work-related stay in a foreign country lasts at least six months, the salary 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 salary received abroad, it must be determined whether the country of study has the right to tax the salary under a tax treaty. Double taxation is eliminated in Finland if the country of study has the right to tax the income. The income is only taxed in Finland if the country of study does not have the right of taxation under a tax treaty.

5.2 Elimination of double taxation

As a rule, the income earned by tax residents from work outside Finland is taxable in Finland.  The income may also be taxed in the country of study in accordance with that country’s legislation. If the individual in question is working in a country that has a tax treaty with Finland, Finland must eliminate double taxation if Finland is the country of residence under the tax treaty and the country of study has the right to tax the income under the tax treaty. Double taxation may also be eliminated when an individual is working in a country that does not have a tax treaty with Finland.

If Finland has a tax treaty with the country of study, double taxation is eliminated by means of the credit or exemption method.  There are no definitions in the tax treaties on what calculation formulas should be used as more detailed provisions on them are contained in the national legislation of the countries concerned.

In Finland, provisions on the elimination of international double taxation are contained in the Act on the Elimination of International Double Taxation (1552/1995). The act is also applied when there is no tax treaty between Finland and the country of study.  In such cases, double taxation is always eliminated by means of the credit method.

The act is applied to the income taxes collected by the State of Finland, corporate income taxes, municipal income taxes and church taxes. The tax treaties contain provisions on which taxes are considered in the elimination of double taxation.  For example, under the tax treaty between Finland and the United States, the taxes paid to the individual states of the United States are not credited in Finland. If there is no tax treaty, only the tax payable to the foreign country may be considered under the act. The act and the tax treaties do not apply to health insurance contributions.

Under the act, double taxation is eliminated by deducting the taxes paid in the foreign country from the tax payable on the same income in Finland (credit method). Under the tax treaties, double taxation is eliminated by means of the credit or exemption method.  In the latter method, the income is tax-exempt in Finland. However this may mean higher progressive tax in Finland.

The taxpayer must request the elimination of double taxation and determine the taxes paid to the other country and the basis for them.  The taxpayer may already request the elimination of double taxation in tax prepayment or on the tax return form.

For more information about the elimination of double taxation, see chapter 4.4 (”Elimination of double taxation”) in the publication “Kansainvälisen verotuksen käsikirja” (Handbook of international taxation). The publication is only available in Finnish.

5.3 Six-month rule

Income earned from work outside Finland is tax-exempt in Finland (section 77 of the Income Tax Act)

  • 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 of work has, under a tax treaty, the right to tax the income in question if there is an income tax treaty between Finland and the country of work.

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, Finpro ry or Finpro 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 in this case because the student works continuously and on a regular basis for at least six months during a stay outside Finland. The prerequisite is that the country of work has the right to tax the salary under a tax treaty.

Another prerequisite is that the country of work has the right to tax the income. Some of the 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.  As regards postgraduate students, it should also be noted that not all countries define researchers and students in the same manner.  For example, the country of study may consider a Finnish researcher a student and vice versa. The interpretation of the country of study is decisive in this matter.

Example 7: A student living in Finland is in practical training in France.  The student stays in France for more than six months. Under Article 20 of the tax treaty between Finland and France (student article), France may not tax the salary received from the practical 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.

6 Social security contributions

Provisions on social security fall within the remit of the Finnish Centre for Pensions (ETK) and the Social Insurance Institution of Finland (Kela). For more information about social insurance, see www.etk.fi and www.kela.fi.

Health insurance in Finland is based on living or working in Finland. A foreign citizen living in Finland for the purpose of studying will not become eligible for Finnish health insurance on account of living in Finland. A student or trainee coming to Finland may in most cases become eligible for Finnish health insurance from the moment of moving to Finland if the move to Finland is considered permanent or the individual in question will work in Finland for at least four (4) months.  In such cases, the employer must pay the employer’s health insurance contribution to the Finnish Tax Administration.

In Finland, the health insurance contribution of an individual with health insurance coverage (daily allowance contribution and healthcare contribution) is included in the withholding tax. Otherwise, the employer must withhold both the tax at source and the health insurance contribution from the salary. If the health insurance contribution is based on the income subject to tax at source, the contributions are based on the gross salary exclusive of any tax-at-source deduction or the student tax relief.

In addition to the health insurance contributions, the employer may also have to pay earnings-related pension contribution (for employees aged 18 and over), unemployment insurance contribution (for employees aged 17 and over) and the accident insurance contribution. Employers may also have to withhold the employee’s pension and unemployment contributions. The employer will pay the contributions referred to above to appropriate insurance institutions.

However, no contributions need to be paid if an individual coming from the EU/EEA area or Switzerland presents the A1/E101 certificate issued by their country of residence or a corresponding certificate issued by a country that has a social security agreement with Finland.

If the salary of the individual coming to Finland is below the level laid out in a collective agreement or, in a situation where there is no collective agreement, less than 1,187 euros/month (in 2017) or if they work less than 18 hours/week, the individual in question is usually not eligible for Finnish health insurance on the basis of work. In such cases the employer is not liable to pay the employer’s health insurance contribution or collect the health insurance contribution from the employee.

An individual living in Finland who is planning to study or work abroad, should find out about the validity of the Finnish health insurance at Kela. 

The income earned in other countries is usually taken into account when the health insurance contribution payable by an individual living in Finland is determined. However, the social security regulation of the European Union (883/2004) may restrict Finland’s right to impose health insurance contributions if the individual in question has been working in an EU/EEA country or Switzerland. Finland has also concluded bilateral social security agreements with Australia, Canada, China (1.2.2017), Chile, India, Israel, Quebec, Republic of Korea (1.2.2017) and the United States. These agreements contain provisions that may restrict Finland’s right to impose social security contributions on the basis of income earned in the other country. Agreements with Israel, Quebec and the United States are the only ones which applies to employer’s health insurance contribution and the health insurance contribution payable by the insured.

7 Instructions for students and trainees

7.1 Students and trainees coming to Finland

7.1.1 General

Students and trainees coming to Finland should contact the Finnish Tax Administration if they also intend to work in Finland. This is because they need a tax card. Students and trainees should also present their passport and a certificate of studies so that the tax office can determine whether they are entitled to the student tax relief referred to above. The taxpayer must give the tax card to their employer. In addition to withholding the tax in accordance with the tax rate entered on the tax card, the Finnish employer may also withhold from the salary social security contributions referred to above.

A student or trainee coming to Finland may have to submit a tax return to Finland. The obligation to submit the tax return depends on the duration of the stay in Finland and whether a tax non-resident has applied for a tax-at-source card (see in more detail section 7.1.2 below) or a non-resident’s tax card (see section 7.1.3 below).

Students and trainees become Finnish tax residents if they stay in Finland for more than six months.  If they also intend to work in Finland, they must obtain a tax card or apply for a tax prepayment arrangement. If they intend to work for a Finnish employer they must obtain a tax card.  If they are working for a foreign employer they must apply for a tax prepayment arrangement. The tax rate is determined in a progressive manner on the basis of the whole year’s income. For a tax card, students and trainees also need a Finnish personal ID, which they can obtain from the tax office.  For more information about applying for a personal ID, see the instruction ”Suomeen töihin tulevalle suomalainen henkilötunnus” (in Finnish and Swedish).

The employer gives the employee a certificate of the income and of the taxes withheld from it. Students and trainees should retain the certificate as they may need it for eliminating double taxation in the taxation of their country of residence.

7.1.2 Tax-at-source card

Tax non-residents (students and trainees staying in Finland for a maximum of six months) must pay a tax at source of 35 per cent on work performed for a Finnish employer if they have not obtained a non-resident’s tax card. The employer withholds the tax at source when paying the salary.

Before withholding the tax, the employer may make the tax-at-source deduction (510 euros/month or 17 euros/day) on the basis of the entry on the tax-at-source card. In addition to the tax, the employer must also withhold from the salary social security and insurance contributions (totalling seven per cent) if the taxpayer is unable to present a certificate stating that they are covered by insurance in a foreign country.

The application for a tax-at-source card should be submitted using the form 5057e. The taxpayer must give the original copy of the tax-at-source card to the employer. The tax at source is a final tax and the student or trainee paying it does not need to submit a tax return to Finland.

7.1.3 Non-resident’s tax card

Instead of paying taxes at source, a tax non-resident may apply for progressive taxation. In such cases, the taxpayer must obtain a non-resident’s tax card from a tax office.

Only taxpayers with Finnish personal ID are eligible for progressive taxation. A taxpayer wishing to obtain a personal ID must complete a registration form (form 6150e). For obtaining a personal ID, the taxpayer must visit an office of the Finnish Tax Administration issuing personal IDs. For more information about the issuing of personal IDs, see the instruction ”Suomeen töihin tulevalle suomalainen henkilötunnus” (in Finnish and Swedish).

A taxpayer applying for progressive taxation must attach an application for progressive taxation (form 6148e) to the tax card application (form 5057e). The taxpayer must enter on the application all income that they will earn in Finland, all taxable income that they have earned in their country of residence and the deductions concerning these earnings. Earnings taxed in the country of residence include salaries, social benefits (study allowance) and pensions.

If the student or trainee has applied for progressive taxation for tax prepayments, in the year after that they will receive a pre-completed tax return that they should check and, if necessary, send the corrected tax return to the Finnish Tax Administration.

7.2 A Finnish student or trainee going abroad

A Finnish student or trainee going abroad should contact the Finnish Tax Administration if the stay in a foreign country also includes work and the employer is from outside Finland. The taxpayer must check the details of the taxation in the country of work. A Finnish tax card cannot be used for withholding taxes from salaries earned outside Finland if the employer is from outside Finland.  Students and trainees going abroad should take their passports and certificates of study (in English or in the language of the country of stay) with them. Taxation in the country of work may be lower if the taxpayer can show that they are students.

A Finnish tax resident must submit a tax return for worldwide income (including the income earned from work outside Finland). The income earned from work outside Finland and the taxes paid to countries outside Finland must be declared on the tax return. The information about the amounts paid as taxes is needed for eliminating double taxation.  If the salary is tax-exempt in Finland on the basis of the six-month rule, the amount of taxes paid to countries outside Finland is irrelevant.

The taxpayer must also enter on the tax return the duration of foreign employment by country, names of the employers and the days spent in Finland. The Finnish employer that has applied the six-month rule must submit the information on the monitoring form (form 5053). The form is only available in Finnish. In such cases, the employee only needs to give the information if specifically requested to do so by the Finnish Tax Administration.  If the employer is from outside Finland, the employee must submit the information on tax return (form 16) or using the Tax Return Online service.

The Finnish Tax Administration cannot obtain details of temporary changes in addresses directly from the Population Register Centre. If the taxpayer would like the Finnish Tax Administration to send the tax-related mail to other than their permanent address, they must also notify the Finnish Tax Administration of the new address in person or in writing.