Leased employees from other countries and taxation in Finland

This translation into English is not official. The official instruction texts are available in the national languages Finnish and Swedish.

This article explains the tax treatment of foreign leased workers in Finland and contains guidance for the workers, for foreign employee-leasing companies, and for contractors in Finland at whose worksites the work is done. The guidance in this article has been updated with added instructions and changes as follows:

• Updates to 3.1 below were made because the new Digital and Population Data Services Agency has been set up as of 1 January 2020. This agency replaces the previous Finnish agencies called “Population Register Centre – Väestörekisterikeskus” and “Local Register Offices – maistraatit”, referred to in the previous versions of this guidance. 
• Updates regarding the submittal of reports and changes in MyTax were made to 7.1.
• The 6.1.2 and 7.2 sections now contain an added reference to the sanction of cancelling a company’s prepayment registration. The authorities may cancel the registration if the company does not comply with its information-reporting requirement.
• More precise information is now given in 7.3 regarding the situations where recipients do not have to withhold tax at source from amounts paid as “trade income” to a foreign business enterprise. In addition, updated guidance on how the paid-out trade income and the tax at source must be reported to the Incomes Register.

1 Introduction

In general, workers leased from providers in other countries must pay tax on their earnings from work performed in Finland to Finland. This also applies to workers who are tax residents of other countries, not Finland.

The tax status of a worker depends on the length of his or her stay in Finland and the provisions of a tax treaty between the worker’s country of tax residence and Finland, and on other factors. The provisions on the workers’ tax status vary.

Usually, the countries of residence will also impose tax on the worldwide earnings of their residents according to their own laws. For this reason, the worker’s pay from work done in Finland can also be taxed in the worker’s country of residence. Any double taxation is relieved in the worker’s country of residence, according to the provisions of the treaty between that country and Finland, or according to the provisions of the national laws of the worker’s country.

2 Income taxation of earnings of leased employees in Finland

2.1 Tax liability and income from a source in Finland

Two categories of tax liability exist in income taxation: unlimited and limited liability to tax in Finland (= residency and non-residency, respectively). Pursuant to section 11.1 of the act on income tax (Tuloverolaki (1992/1535)), “residents” means individuals who live in Finland and individuals who live in other countries but are present in Finland for longer than six months. Nonresidents, i.e. taxpayers with limited liability to tax, are those who have not stayed in Finland during the tax year or have only stayed for a shorter period. For more information, see the Tax Administration’s guidance on Tax residency and tax nonresidency.

Finnish residents pay tax to Finland on anything they earn both in Finland and other countries. Nonresidents only pay tax to Finland on what they earn in Finland (§ 9.1 of the act on income tax). Income that must be treated as being from a Finnish source includes wages paid by a foreign employer for work performed in Finland, if the foreign employer has leased the worker to a recipient company in Finland under an employee-leasing contract (§ 10.4c of the act on income tax). This way, even if the leased worker is a nonresident individual taxpayer with limited tax liability, he or she must pay tax to Finland on wages received for work carried out in Finland.

2.2 Effect of tax treaties

The provisions of a tax treaty between the leased worker’s country of residence and Finland may have an impact on how the Finnish tax authority collects tax on his or her wage income. The wages of workers from countries with which Finland has signed a treaty are taxed in Finland, if the worker stays for more than 183 days – either over a period of 12 months, or in the course of a calendar year, depending on the provisions of each treaty.

However, the following tax treaties, and some others, allow the wages of leased employees to be taxed in the country where the work is done, starting the first day of work and regardless of how long the worker is present in the country:

• Since 2007: Iceland, Norway, Sweden, Denmark, Latvia, Lithuania and Estonia
• Since 2009: Moldova, Georgia, Belarus and the Isle of Man
• Since 2010: Guernsey, Bermuda and Jersey
• Since 2011: Poland, Kazakhstan, Cayman Islands
• Since 2013: Turkey
• Since 2014: Cyprus and Tajikistan
• Since 2018: Germany and Turkmenistan
• Since 2019: Spain

Pursuant to the tax treaty between Finland and Bulgaria, wages earned from work done in Finland can be taxed in Finland if a resident of Bulgaria works for a non-Bulgarian employer in Finland (Agreement between the Republic of Finland and the Republic of Bulgaria on avoiding double taxation of income, Article 7 (11/1986)). This provision of Finland’s treaty with Bulgaria applies both to leased workers and to other workers.

The wages of a leased worker are also taxed in Finland if he or she comes from a country with which Finland does not have a tax treaty. In this case, the wages are taxable income in Finland from the very first day of work, regardless of how long the worker is present in Finland.

3 Applying for a personal identity code and (the construction sector's) individual Tax Number

3.1 Personal identity codes issued by tax offices

Finnish personal identity codes are normally issued to people from other countries when their personal details are added to the information system maintained by the Agency for Digitalisation and Population Information.  Foreign nationals are expected to visit a service office (of the Digitalisation Agency) in person in order to ask for a Finnish personal identity code.

Individuals who come to Finland to work can also be given a Finnish personal identity code by their local tax office. The following entries are made in the Population Information System when a personal identity code is issued by the tax office: the foreign individual’s full name, date of birth, gender, address in Finland, nationality, native language, occupation.

However, if you stay longer than a year, your case is handled by the Digital and Population Data Services Agency, and a Finnish municipality may be entered in the Agency’s information system as your Finnish domicile. (For more information, visit dvv.fi).

Documents needed for the personal identity code:

• Citizens of EU countries/countries of the European Economic Area: a valid passport or official proof of identity with a photograph to enable easy identification, as well as a certificate of residence from the Finnish Immigration Service (after a stay of three months)
• Non-EU/EEA citizens: a valid passport as well as a valid residence permit or visa, where applicable

You must also show your employment contract or alternatively, a written description, provided by the employer, of the main terms and conditions of the work being done in Finland.

Read more: Finnish personal IDs for workers arriving in Finland

For more information on work rights and residence permits, visit the website of the Finnish Immigration Service, migri.fi.

3.2 Individual tax numbers in the construction sector; the Tax Number Register

People who work on building sites must wear a name tag with their photo. The name tags must show their registered tax number. To be given a tax number, workers need a Finnish personal identity code.

The Tax Administration enters each worker’s unique tax number and other personal details into the Tax Number Register. Entering a construction worker into the register always requires a specific request. Requests are made by the worker, by their employer, or by the main contractor on the building site. In addition, the Tax Administration may also enter individuals in the register on its own initiative.

Read more: tax.fi/taxnumber.

4 Employee leasing defined

4.1 General remarks about employee leasing

Employee leasing refers to a contractual arrangement where a business enterprise (the leasing company, also known in English as a PEO, a professional employer organisation) leases employees to another business against a charge. The leased workers do their work for the other business (the service recipient company).  This way, a contractual relationship is established between the (foreign) leasing company and the (Finnish) recipient. The above definition equally applies to natural persons, in addition to companies, if natural persons are the contracting parties.

Usually, the right to direct and supervise workers primarily belongs to the employer. However, if an employer assigns a worker, with his or her consent, to another company, the right to direct and supervise the work is transferred to that company. Not only the right to direct and supervise work but also the employer obligations directly related to the performance of the work and the associated arrangements are also transferred.

In an employee-leasing arrangement, the leasing company pays wages to the worker and withholds tax on the wages. For purposes of the Employment Contracts Act (Työsopimuslaki 55/2001), the worker is on the payroll of the leasing company. For this reason, the leasing company’s obligation to withhold taxes cannot be transferred to another party; for example, to an umbrella company that issues invoices. The money that the recipient company pays to the leasing company is regarded as “trade income” i.e. nonwage compensation for work. For purposes of income taxation and pre-assessment of income taxes, workers are considered “leased” if the following criteria are met:

• The right to direct and supervise the work is in the hands of the service recipient who signed the contract.
• The work is performed in a workplace over which the service recipient has control and for which it is responsible. This means that the leasing company does not operate there. It only leases its employees to the other contracting party i.e. to the recipient company.
• Most tools, supplies and consumables are given to the worker by the recipient company.
• The leasing company cannot unilaterally decide on the number of workers on site, or on their qualifications.
• Responsibility for the results of the work rests with the recipient company.
• The leasing company pays wages to its employees and the amount of pay reaches at least the level that the collective agreement has defined.

The concept of employee leasing, for purposes of this article, and the work done under an employee-leasing arrangement, require that all the above terms and conditions are satisfied. If this is not the case, the payments from the service recipient are treated as the individual worker's wages instead of being treated as fees paid out against the invoice received from the leasing company. In this case, the recipient must withhold tax on the wages as usual and also pay the employer’s health insurance contributions on them.

The applicability of the regulations on employee leasing does not depend on the foreign company’s industry sector. Instead, each case is decided separately after an overall assessment, taking account of the criteria listed above.

If a corporate entity is only offering the work performance of its owner-shareholder without providing any other leased employees to a recipient company, the requirement is still in force that wages must at least reach the levels of pay that the collective agreement has defined. The owner-shareholder must receive such wages from his or her own enterprise.  This requirement is also valid in case there are other people besides the owner-shareholder whose work performance is offered to recipients so that they can work as leased employees.

It may be that instead of a corporate entity, a self-employed operator of a trade or business is the party that provides its workers to service recipients so that they can work under a leasing contract. For these leased employees, too, the requirement is in force that wages must at least reach the minimum levels that the collective agreement has defined.  However, it is impossible for a self-employed to offer his or her own work for employee leasing. This is due to the fact that if the business is a sole proprietorship, i.e. a self-employed operation (T:mi; F:ma), there cannot be an employer-employee relationship, and there cannot be any payroll transactions where wages could be paid to the individual who owns the business. For this reason, an operator of a trade or business who is self-employed cannot fulfil the above requirements of a leased employee.

Managing Directors or members of the Board of Directors are not treated as being in an employer-employee relationship with their company. For this reason, the Employment Contracts Act is not applicable. This means that no arrangements are acceptable where a leased employee is supposed to be a Managing Director or board member. Compensation paid to the individual who acts as a Managing Director or board member is always fully treated as wages of the individual appointed as the Managing Director, or as wages of the individuals appointed as board members, regardless of what route was used when the payment from the company was made.

In addition to traditional employee leasing, the concept also covers any situations where a worker is not directly employed by the leasing company with which the Finnish company (the service recipient company) has an agreement, but is leased from another, third-party business enterprise. In such circumstances, the employer’s reporting obligations belong to the employer who pays the leased worker’s wages and with whom the worker has an employment contract, and the recipient’s reporting obligations belong to the Finnish company where he or she is assigned as a member of the workforce.

4.2 Differences between employee leasing and subcontracting

In the case of subcontracting, the right to direct and supervise the work belongs to the subcontractor. In the case of employee leasing, it belongs to the recipient, i.e. the company where the leased workers do their work.

In the case of subcontracting, the workers get their tools and equipment from the subcontractor. In the case of employee leasing, they get them from the recipient company. In the case of subcontracting, responsibility for results of the work rests with the subcontractor. In employee leasing, work results are the responsibility of the recipient company.

4.3 Differences between employee leasing and employment agency services

Employment agency services and employee leasing are different sectors of activity. Employment agencies bring workers and employers together so that they can sign an employment contract between them.

If an enterprise that provides workers from foreign countries only acts as an agency, and does not act as the workers’ employer, the arrangement is not employee leasing. The workers’ employer is the Finnish company for which the work is performed. The Finnish company has hired them and signed employment contracts with them. Consequently, the Finnish company must fulfil all the usual obligations that belong to the employer.

4.4 Working on board a Finnish ship or aircraft

People who work on board a Finnish ship or a Finnish aircraft and who are leased employees and residents of foreign countries must pay tax to Finland under the provisions of § 13 of the act on income tax (Tuloverolaki 1535/1992).  In general, tax treaties do not prevent Finland from taxing the wages of leased employees who live abroad if the wages are earned from work on board a Finnish ship or aircraft. There are exceptions, however, such as the multilateral Nordic tax treaty. Under Chapter 4, Article 15 of the Nordic treaty, tax on income earned on board an aircraft is only payable to the worker’s Nordic country of residence.

Work in the sector of international transport is almost always done outside Finland’s territory. The reporting obligations, discussed below, of foreign leasing companies and Finnish recipient companies, only apply to work performed in Finland. This means that the reporting obligations do not apply to employees leased to work in the transport sector on international routes.

Read more: Taxation of employees from other countries – International traffic (Section 3.7).

5 Instructions for foreign leased workers

5.1 Non-resident leased workers

5.1.1 Special tax treatment

If you are a Finnish tax nonresident, your income is taxed as provided by the Finnish Act on the taxation of nonresidents' income (Laki rajoitetusti verovelvollisen tulon verottamisesta 627/1978, LähdeVL). This means that your employer withholds the tax due at source when paying wages to you. This is a final tax, which discharges your tax liability for the year, and its rate is 35% (Tax at Source Act, § 7.1 (1), Act on the taxation of nonresidents’ income).

However, nonresident leased workers are taxed in a special process. Basically, your taxes are assessed in the same way and at the same time as those of Finnish residents. The special process for leased workers does not, however, constitute taxation under the Act on assessment procedure (Verotusmenettelylaki (1558/1995)) as referred to in section 13 of the Act on the taxation of nonresidents’ income, which is why income tax is imposed at the rate of 35%. Your employer deducts €510 per month or €17 per day from your taxable wages for the entire time when you are working. You get no other deductions.

However, if you are a citizen of an EU country or a citizen of the countries in the European Economic Area or of a country or region that is governed by the Convention on Mutual Administrative Assistance in Tax Matters or a Tax Information Exchange Agreement, or if you have a residence permit pursuant to the Researcher Directive, you are entitled to demand tax treatment under a domestic, progressive scheme in accordance with the act on assessment procedure (with the exception of dividends). (§ 13.1.6 of the act on the taxation of nonresidents’ income.)

5.1.2 Asking for a calculation of tax prepayments

If you are a nonresident and you receive wages as referred to in §10.4c of the act on income tax, the wages are subject to prepayment taxation i.e. preassessment. This rule applies if your employer is a foreign company with no permanent establishment in Finland and with no voluntarily obtained registration in the Tax Administration’s register of employers, and if there is no international convention preventing your wages from being taxed. You must ask for prepayment taxation by the end of the calendar month following the beginning of your work in Finland (§ 16a of the act on the taxation of nonresidents’ income).

Failure to apply for prepayment taxation by the deadline may result in a punitive tax increase of up to €2,000 payable to the State of Finland. The amount of the punitive tax increase depends on the degree of culpability, previous failures and other similar factors.

You must submit your request for prepayment taxation to your local tax office as soon as you start working in Finland and in any case by the end of the month following the beginning of your employment.

An amount of €510 is subtracted from your monthly wages as a tax-exempt portion. If you do not work for a full month, the amount is €17 per day.

Workers can complete the Non-resident's application for tax at source card, tax card, tax prepayment or tax number (Form 5057e) in order to apply for pre-assessment. In addition to personal details, you must fill in the following information:

• Your address in Finland and abroad
• Dates of arrival and departure from Finland
• Amount of wages earned in Finland
• Length of employment in Finland
• Bank account number (BIC/IBAN)

Pre-assessed taxes must be paid once a month.

In addition, if you are covered by the Finnish system of sickness insurance, you are liable to pay health insurance contributions. The amount of the contribution is calculated from the wages before the €510/month or €17/day is deducted. No contributions are deducted if you are able to present a Certificate A1 or other proof showing that you continue to be covered by another country’s social insurance system.

If you ask for treatment under the act on assessment procedure, with progressive income taxes, enclose a completed Claim for progressive taxation of earned income (6148e).

5.1.3 Proof of tax payments for the authorities of the worker's country of residence

As a rule, workers also pay tax on earnings in Finland to their country of residence. Double taxation is eliminated in the worker’s country of residence according to the applicable tax treaty. Any tax paid to Finland by a worker on his or her earnings is taken into account in the calculation of tax payable to the worker’s country of residence. The elimination of double taxation is governed by international tax treaties.

The Finnish tax authorities provide statements of taxes paid to Finland through prepayment taxation. You can use the statements as proof of tax payments for the tax authorities of your country of residence. This way, they are able to take account of any tax you paid to Finland, in order to avoid double taxation.

5.1.4 Tax assessment in Finland

It is normal procedure in Finland that the authorities assess taxes on individual taxpayers’ wages the year after the wages are earned. At that stage, your final tax liability is calculated on the basis of the actual income earned. If the tax you paid in advance is not enough to satisfy the final tax liability, you must pay “back tax” to make up the difference. In the inverse case, if more than the required amount of tax was paid in advance, the excess is refunded.

Each year in spring, the Finnish Tax Administration sends workers a pre-completed tax return relating to the previous tax year’s income and deductions. The pre-completed tax return, which is sent to your home address in your country of residence, shows the wages reported by the employer and the length of employment in Finland. Workers who are not sent a pre-completed tax return are responsible for completing their tax return for Finland.

Please check the information and amounts that affect your taxation. If you notice errors or omissions, report any necessary corrections to us. You can make additions and corrections to tax-return information in MyTax. Alternatively, you can submit them on paper.

Even workers who have not applied for progressive taxation at the pre-assessment stage can apply for this retroactively by submitting their tax return. In this case, a completed Claim for progressive taxation of earned income (Form 6148e) must be enclosed.

Employers file reports to the Incomes Register on not just the wages paid to leased workers but also on the exact dates when a worker had worked in Finland. This information is transferred to the worker’s tax return. However, it may be that a worker’s pre-completed tax return does not contain the information on wages or length of employment – or the information is incorrect. In this case, to have the right to receive deductions from the tax at source, the worker must complete Form 50A to provide information on the wages and to give the exact dates when he or she worked in Finland. When the tax-assessment process is finished, the Finnish Tax Administration sends its decision to the worker’s address in the country of residence by the end of October the following year. This is why it is important that you inform the Finnish Population Information System (DVV) of your new address after you move house. This can be done online. Guidance for change-of-address reporting is available at posti.fi.

Foreign employees working in Finland can sometimes arrange for their employer to pay their taxes in Finland (“net-of-tax contract”). In this case, you as the worker give your employer authorisation to receive any tax refunds that you might receive. However, any arrangements by which workers transfer their right to tax refunds to another person are not binding from the Tax Administration’s perspective. In general, tax refunds are paid out in euros, into the bank account indicated by the taxpayer. You can inform the Tax Administration of your bank account number and other bank details in MyTax. Alternatively, you can use a paper form: Form 7208, Individuals’ Bank Account Notice). Read more: Change of bank account details.

5.2 Leased worker who is a Finnish tax resident, fully liable to pay tax

The wages of resident leased workers are taxed at the progressive tax rate, similarly to permanent residents of Finland.

Workers whose employer is a foreign company that does not have a permanent establishment in Finland, or that has not asked to be entered into the Tax Administration’s register of employers on a voluntary basis, need to take care of their prepayment taxation themselves. It is important for these workers to contact their tax office to arrange their prepayment scheme. Without prepayments, the back taxes that would result would bear interest. People who arrive in Finland from other countries can request a pre-assessment decision by completing Form 5042e (“Application for tax card, tax prepayment or tax number – current or former foreign residents”). The income-tax prepayment scheme requires that the worker must have a Finnish personal identity code.

Workers who are treated as Finnish residents have the obligation to file a Finnish tax return after the year is over. Generally, the country of tax residence imposes tax on all the income of its residents, applying the provisions of its own legislation. In this case, the country of residence would eliminate any double taxation.

6 Instructions for foreign employee-leasing companies

6.1 Foreign employers must file reports to the Incomes Register

Legal rules on the requirements of foreign employers to provide information to the Finnish Tax Administration are found in § 15 a, act on assessment procedure. The information must be sent to the Incomes Register, as provided in § 6 of the act governing the Incomes Register (Laki tulotietojärjestelmästä 53/2018).

If a foreign employer pays wages to a leased worker coming to work in Finland from abroad, as referred to in § 10.4c of the act on income tax, the employer must report any payments to the Incomes Register unless the provisions of an international agreement prevent Finland from imposing tax on the wages. In the same way, if a foreign employer pays wages to a wage earner who stays in Finland for more than six months (under § 6.2.10 of the act governing the Incomes Register), the employer must report the payments to the Incomes Register. The deadline for submitting the above reports to the Incomes Register is the fifth calendar day after payday (§ 12.1, act governing the Incomes Register).

Additionally, if the employer has a foreign leased worker, the employer must send the Incomes Register the information of the employee-leasing notice (§ 6.2.17, act governing the Incomes Register).The deadline for submitting this information to the Incomes Register is the fifth calendar day after the day when wages were paid to the first leased worker (§ 12.8 of the act governing the Incomes Register).

To submit the information is required, if there is no tax treaty preventing Finland from imposing tax on the worker’s wages. Section 2.2 of this guidance lists the tax-treaty countries from which leased workers can arrive and their pay is subject to Finnish taxes.

The relevant information must also be submitted regarding any workers arriving from countries with which Finland does not have a tax treaty. Finland’s current tax treaties are listed on Tax.fi (Tax treaties in force).

The information is required from all foreign employers who have a prepayment registration in Finland. If a worker’s employer is not included in the Prepayment Register, responsibility for submitting the information rests with the employer’s representative as per section 4a of the Act on Posting Workers (447/2016). However, if the employer has not appointed a representative, the responsibility ultimately rests with the foreign employer.

6.1.1 The Employee Leasing Notice

The employee-leasing notice for a foreign leased worker must be submitted for every leased worker, regardless of the duration of their work.

The submitted notice must contain the estimated duration of the work, the details of the Finnish employer, and of the representative of the foreign employer. Furthermore, an estimate must be given of the amount of pay for the entire tax year. 

The submitted notices must include details on the recipient enterprise (the Finnish company) for whom the employees actually perform their work. Even employers who provide workers to an agency must give the details of the Finnish end client and not the employment agency.

Foreign employers that have a permanent establishment in Finland have a responsibility to withhold tax at source, or to withhold tax (under domestic withholding rules) on their workers’ wages, and these foreign employers do not therefore need to submit information on an Employee Leasing Notice.

6.1.2 Consequences of not reporting the required information

If the information-reporting requirement is not complied with, the Tax Administration may, in the following circumstances, impose a penalty charge for negligence as provided in the act on assessment procedure (§ 22a):

• The employer has given information to the Incomes Register that contains an error or omission
• Reports are filed late
• Reports are filed to the Incomes Register, but the employer has not used the correct method of reporting as required by law
• The employer fails to submit a report
• The employer does not submit a report until prompted to do so

For more information on the consequences of non-reporting,
see Reporting income data: penalty fees

Under the provisions of § 26.2 of the prepayment act (Ennakkoperintälaki (1118/1996)), it is within the jurisdiction of the Tax Administration to cancel the prepayment registration of any party that neglects its information-reporting requirement.

6.2 Inclusion of foreign employers in the Tax Administration’s register of employers

Foreign employee-leasing companies that have a permanent establishment in Finland must register with the employer register before they pay out wages to any worker for the first time.

Even if an employer does not have a permanent establishment in Finland, it can still be registered as an “employer paying out wages regularly” in the employer register. Foreign employers with a valid registration in the employer register have the same obligations in Finland as Finnish employers. This means that they must withhold taxes from the wages they pay their workers, and that the workers do not need to apply for prepayments. However, foreign employers with no permanent establishment in Finland are not employers in Finland as defined in the act on income tax. In this regard, whether or not they are on the employer register is not important.

Companies that are on the register must withhold tax and tax at source from their employees’ wages and pay the related amounts on to the Tax Administration. You must apply the withholding rates that are indicated by each individual worker's tax cards. Foreign workers who stay in Finland for up to six months are issued a tax-at-source card or a non-residents’ tax card by their tax office. Workers who stay longer are issued a residents’ tax card.

Read more about the reporting obligations of foreign employers on the Incomes Register website: Reporting data to the Incomes Register: international situations See Chapter 4 (Reporting obligation of a foreign employer).

6.3 Inclusion of foreign employee-leasing companies in the Prepayment Register

We recommend that foreign companies that lease out employees to Finland register with the Prepayment Register in Finland. Finnish recipient enterprises do not need to withhold tax at source for the trade income they pay to foreign companies that have a valid prepayment registration in Finland. If the leasing company is not on the prepayment register, the recipient must withhold tax at source on the leasing company’s invoices. The rate is 13% on payments going to companies that are similar to Finnish limited-liability companies or partnerships. It is 35% if the beneficiary is a sole trader (= a self-employed individual) (§ 7 of the act on the taxation of nonresidents’ income).

Whether a foreign company is or is not registered in the Prepayment Register has no effect on its income tax liability in Finland. Income tax liability depends on whether it has a permanent establishment in Finland. If a permanent establishment in Finland is formed for a foreign leasing company, it must apply to their local tax office for prepayment taxation in order to pay its income taxes to Finland.

When the country of tax residence of the foreign company is a country with which Finland has a tax treaty, the company can be entered in the Prepayment Register. Companies from non-treaty countries cannot be registered. Read more: Starting up business.

7 Instructions for companies in Finland where the leased workers work

If you are a recipient enterprise and some of the members of your workforce are leased, you may also have other obligations and duties in addition to the tax-related ones described here. For example, they are required to ask the leasing company to provide the documents specified in the Act on the Contractor’s Obligations and Liability when Work Is Contracted Out before they agree on using the leased workers. For more information, visit the website of the Occupational Safety and Health Administration at www.tyosuojelu.fi.

7.1 The Finnish companies’ reporting obligations

Business enterprises based in Finland need to notify the Tax Administration of any foreign businesses from which they assign foreign leased workers to become temporary members of their workforce and to do work in Finland (§ 17.7 of the act on assessment procedure). A separate notice is required for each foreign leasing company they do business with. The Finnish recipient enterprise must give the Tax Administration the required facts, the leasing company’s contact information, and information on its line of business.

Recipients also need to provide the details of any representative of the foreign leasing company as per § 8 of the Act on Posting Workers (Laki työntekijöiden lähettämisestä (447/2016)) as well as the related contact information. The Tax Administration also needs to be notified of any changes in the information. The above requirements apply to companies and self-employed entrepreneurs alike, if they are in the role of a recipient enterprise where leased workers work.

Recipients must provide the details of the foreign employer company that actually has the workers on its payroll. Even if the workers are leased through an intermediary – or through an employment agency – the notice must contain information about the foreign employer that the workers have signed an employment contract with, not about the agency.

The recipients must provide the information to the Tax Administration as soon as the first employee of the company in question starts working for them. The deadline for submittal of this report is the end of the calendar month after the month when the workers started.

In the same way, when any changes in the information have occurred, the deadline for notifying the Tax Administration is also the end of the following month. This refers to issues such as changes in the contact details of the foreign companies, etc.

When the contract ends before its planned end date, or when a leased worker stops working as a member of the service recipient’s workforce, the previously reported end date must be put right. Temporary breaks in contracts or in the work of the leased workers do not need to be reported. A contract – or the work of a worker leased from a foreign company – is treated as having ended when nobody from the foreign company has been working as a member of the recipient’s workforce for six months.

When using MyTax to send the reports, the deadline is the end of the following month, both for the notice and for any information on changes. Alternatively, you can complete Form 6146 on paper – "Report submitted by the hirer of leased employees" (Vuokratyön teettäjän ilmoitus ulkomaisen vuokratyön käytöstä; Inhyrarens anmälan om användning av hyrd utländsk arbetskraft). (6146, pdf).

The notices are required if there is no tax treaty preventing Finland from taxing the worker’s wages. Section 2.2 of this guidance lists the tax-treaty countries from which leased workers can arrive and their pay can be subject to Finnish taxes.

The notices are also required in the case of leased workers arriving from countries with which Finland does not have a tax treaty. The recipient enterprises must inform the Tax Administration of all their leased employees who are working in Finland, regardless of the length of their employment.

7.2 Consequences of not reporting the required information

Recipient enterprises that fail to file the above notices or that submit a notice late can be fined up to €15,000. Fines are not imposed on natural persons, unless the failure relates to reporting obligations associated with running a business or agriculture or forestry operation (§ 22a of the act on assessment procedure).

The registration of a recipient enterprise in the prepayment register can be cancelled (§ 26.2 of the act on tax prepayments) if the notice is not submitted at all.

7.3 Service recipients’ obligation to withhold tax at source on the amounts of trade income paid out

Recipient enterprises have an obligation to withhold tax at source for any trade income paid to a foreign company, if the payment relates to  a work performance in Finland. The rate is 13% on payments going to companies that are similar to Finnish limited-liability companies or partnerships. It is 35% if the beneficiary is a sole trader (= a self-employed individual) (§ 7 of the act on the taxation of nonresidents’ income).

The payer of trade income must not withhold tax at source if:

• The foreign company is prepayment-registered in Finland;
• The foreign company is able to present a 0% tax-at-source card to the payer, or
• Show other documentation establishing that withholding is not necessary. This means documentation that proves that the foreign company cannot be treated as having a permanent establishment in the prevailing circumstances.

If 'trade income' is paid for work falling into the following categories: building, earthmoving, water construction or other construction, installation, assembly, shipbuilding, transportation or cleaning services, caregiving or medical care services, the customer/payer cannot refrain from collecting tax at source unless the beneficiary is entered in the Prepayment Register in Finland, or shows a zero-rate card (10e.2 of the act on the taxation of nonresidents’ income).

If ‘trade income’ was paid to a nonresident company, and if the payer has withheld tax at source on it, the payer must submit a report to the Incomes Register detailing the amount of ‘trade income’ and the amount withheld. More information on reporting: tax.fi/incomesregister. Visit ytj.fi, the BIS information service site, to check whether any foreign company has a valid registration. The checking is free of charge.

Read more about how tax at source must be withheld on amounts paid out as “trade income”: Starting up business.