Leased employees - taxation in Finland

Wages of leased employees are subject to Finnish income tax. If you work as a leased employee, it is your responsibility to contact the tax office to find out the right income tax on the wages earned in Finland. Read this article to learn more about your obligations. This article also contains instructions to foreign companies for entry in the prepayment register.

(Russian version: Загрузить текст  в русскоязычной редакции. Загрузить бланк № 6205)

• Instructions to employees, employers and service recipients
• Instructions for prepayment registration

1 Introduction

The wages of leased employees whose employer is foreign are subject to Finnish income tax if these employees have arrived from Belarus, Bermuda, Cayman Islands, Cyprus, Denmark, Estonia, Georgia, Guernsey, Iceland, Isle of Man, Jersey, Kazakhstan, Latvia, Lithuania, Moldova, Norway, Poland, Sweden, Tajikistan and Turkey and are present in Finland for a period not exceeding six months.

Due to amendments in the legislation that have been in force as from 2007, the wage income of leased employees is taxed in Finland, if the leased employees are present in Finland for six months or for a shorter time, and if their employers are foreign, and if the tax treaty between Finland and their country of tax residence does not prevent Finland from taxing it.

The following countries have tax treaties with Finland that do not prevent such taxation:

• Starting 2007: Denmark, Iceland, Norway, Sweden, Estonia, Latvia, Lithuania.
• Starting 2009: Belarus, Moldova, Georgia, Isle of Man.
• Starting 2010: Guernsey, Bermuda, Jersey.
• Starting 2011: Poland, Kazakhstan, Cayman Islands.
• Starting 2013: Turkey
• Starting 2014: Cyprus, Tajikistan.

Leased employees' wage income is subject to Finnish tax also in cases where they have arrived from countries that do not have a tax treaty with Finland. Wage income is subject to tax from the first day onwards, regardless of the length of the leased employees' period of presence.

If they arrive from a country that has a tax treaty with Finland but is not  Belarus, Bermuda, Cayman Islands, Cyprus, Denmark, Estonia, Georgia, Guernsey, Iceland, Isle of Man, Jersey, Kazakhstan, Latvia, Lithuania, Moldova, Norway, Poland, Sweden, Tajikistan and Turkey. Their wages are subject to tax if the period of presence is 183 days during a calendar year or consecutive 12 months.

When the employer of a leased employee is a foreign corporation with no permanent establishment, no subsidiary and no other corporate entity in Finland, it does not have to collect withholding tax in Finland for the Finnish tax authorities. Because of this, the employee himself must make sure that he pays income tax on the wages earned in Finland.

However, this article is not intended for those foreign leasing corporations that have a permanent establishment in Finland or a Finnish subsidiary or other similar entity that pays the leased employees' wages. Such leasing corporations will have other obligations in respect of social security including tax withholding and annual payroll reporting. For more information, see page .

This article contains instructions intended for leased employees from overseas, for foreign leasing corporations that do not have a permanent establishment, and for their service recipients based in Finland.

2. How to request a Finnish personal identity code; Individual Tax Numbers in the construction industry

2.1 Local tax offices may issue personal identity codes

Workers arriving in Finland can receive their Finnish personal identity codes from the local tax office. The Finnish Tax Administration is entitled (starting 1 June 2012) with a parallel authorization with Local Register Offices  (called maistraatti in Finnish; magistraten in Swedish), to enter information into the Population Register System and distribute identity codes to foreign citizens who arrive to work in Finland. Starting 1 March 2013, the Tax Administration has issued identity codes to all foreigners regardless of how long they stay in the country.

However, if you stay longer than a year, your case is handled by the Local Register Office and a Finnish municipality may be entered in the Population Register System as your Finnish domicile. For more information, see the www.maistraatti.fi website.

It is important that you visit the office in person as no one else can do it for you. Bring the following documentation with you:

• If you are an EU/EEA citizen: your currently valid passport or your Schengen
  area identity card and a document confirming that your right of residence has been registered (if more than 3 months have passed since you arrived in Finland).
• If you are not an EU/EEA citizen: your currently valid passport and residence permit of an employed person.

You must also have your employment contract or another written explanation of the main terms and conditions of your employment in respect of the work being done in Finland.

For more information, visit www.migri.fi, the website of the Immigration Office.

2.2 Individual Tax Numbers in the construction industry; Tax Number registration

Everyone working on building sites must have an individual Tax Number as of 1 September 2012 displayed on a name tag featuring their photo. There will be a transition period extending up to 1 March 2013 for the sites that have begun operations before 1 September 2012. But if construction begins in September 2012 or later, name tags must be worn immediately.

The public register of Tax Numbers opened 1 August 2012. When your Tax Number is issued it does not automatically mean that you are entered in the public register. You have to request for registration. Requests may be made by the construction workers themselves, by their employers, or by the main contractors of projects. Additionally, entries may be made on the initiative of the Tax Administration.

For more information, click www.tax.fi/taxnumber.

3 Employee leasing defined

Employee leasing means that a leasing corporation assigns its workers or employees to work for another company (the service recipient corporation). Work is performed under the direction and management of the service recipient. However, the employees’ employment contracts are made with the leasing corporation only. The contract between the leasing corporation and the service recipient corporation is a business contract. If physical persons, not corporations, are the main contracting parties, the arrangement described above is equally possible.

The foreign leasing corporation has the main obligations of an employer, even though the Finnish service recipient receives, by transfer, a set of other legal obligations that are directly connected with work. These legal obligations include adherence to the rules on working hours and occupational safety. Work is performed under the direction and management of the service recipient, and usually the place of work, the tools, and any chemicals or materials are the service recipient's. However, the employees’ employment contracts are made with the foreign leasing corporation, not the service recipient. Wages are paid by the foreign leasing corporation.

Employee leasing enterprises can be referred to by many different names: e.g. staff leasing companies, companies hiring out employees, companies hiring out labour/manpower, professional employer organizations - PEOs, or human resource outsourcing companies. Similarly, service recipient enterprises can be referred to by e.g. the following alternative names: principals, users, user organizations or user companies.

An employee is a leased employee when the supervision and direction of the work is in the hands of the Finnish service recipient instead of the foreign employer. Furthermore, an employee is usually considered a leased employee in the following circumstances:

• The place of work is under the control, management and responsibility of the service recipient; in other words, the foreign employer has no activities or business at that place, having merely assigned his employees to work for the service recipient.
• Fees payable to the foreign employer are dependent on hours worked, or dependent on a comparable connecting factor between the fees and the worker's wages.
• Most tools, supplies and consumables are given to the worker by service recipient.
• Service recipient cannot unilaterally decide on questions regarding personnel selection and number of workers at each place.

Employee leasing is governed by general rules -- the rules are not bound to a specific industry or line of work. The Finnish tax authorities consider all the facts and circumstances of each case, and the criteria listed above are given special attention.

In addition to the usual, simple employee-leasing arrangement, there are more complicated arrangements (that also are employee leasing) where the Finnish service recipient has signed a contract with a foreign company, but the foreign company is not the actual employer of the employees. Instead, it has leased the employees from another company. In this arrangement, the reporting obligation to the Finnish authorities will be the responsibility of the final wage-paying company, for which the employees work and with which they have their employment contracts and also of the Finnish service recipient for whom they work.

3.1 Distinctions between employee leasing and subcontracting

Because of the new rules on employee leasing, it has now become more important than previously to differentiate between employee leasing and subcontracting. In subcontracting, supervision and direction are the responsibility of the subcontractor company. In employee leasing, supervision and direction are the responsibility of the service recipient.

Furthermore, in subcontracting, tools and equipment are given to the workers by the subcontractor-employer. In employee leasing, the foreign employer does not give tools or equipment to the worker, instead, the Finnish service recipient gives them. And the responsibility for the acceptable results of the work lies on the subcontractor, if a subcontracting arrangement has been made. In employee leasing, work results are the responsibility of the service recipient.

3.2 Distinctions between employee leasing and employment services

Employee leasing must be differentiated from employment services, where an intermediary office is in charge of making contact between the employer company and the workforce. Consequently, if the foreign company only acts as an intermediary, and does not have the workers on its payroll, no employee leasing is taking place. The Finnish company will assume the role of the employer, if the workers start working. This means that the Finnish company must fulfill all the usual obligations of an employer.

3.3 Working as an independent contractor

The Finnish tax authorities often encounter situations where it must be determined whether the worker should be viewed as an independent contractor, whether he works as a leased employee, or whether he works as an employee directly employed by his employer. The answers to these questions are always based on careful consideration of all the relevant facts and circumstances.

The worker is generally an independent contractor if the party receiving the services has no right to supervise, manage or direct the performance of work, and if the worker uses his own tools, and if the worker performs his work at his own office or workshop. Another important consideration is whether the worker advertises his services publicly. Moreover, the question of risk and responsibility is also relevant. If the tax authorities consider that the income has been received from work as an independent contractor, it will not be taxed as wages.

The Tax Administration has issued the Employee or independent contractor? article. Many relevant principles have been explained in it.
The payer of remuneration should be aware that the tax authorities may have issued the worker a tax card (in which the rate is zero for tax withheld at source), and the payer can use it for paying the worker, but it does not mean any release from liability. In other words, the payer should not think that he is protected from further claims by the authorities, if he in fact had become the employer and the worker his employee. The payer is responsible for finding out the relevant facts, and to fulfill all employer obligations when someone has been employed, and is no longer an independent contractor.

3.4 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, Income Tax Act (tuloverolaki 1535/1992, TVL). The provisions of tax treaties do not normally prevent Finland from taxing the wages of a foreign-resident leased employee in circumstances where the wages are earned on board a Finnish ship or aircraft in international traffic. However, an exception from this rule is the multilateral Nordic tax treaty that provides in its Article 15.4 that the pay earned on aircraft is only taxed in the country of residence.

If your employer company - i.e. the leasing agent - does not have a permanent establishment in Finland, it does not have to withhold tax on your wages and pay it on to the Finnish tax authority.  Under the circumstances, neither the foreign leasing agent nor the Finnish service recipient have the usual obligations described later in this guidance to file startup notices and other reports because these filings relate to work performed in the territory of Finland. Working on board ships or aircraft on international routes is outside of the territory of Finland. In this case, you may seek tax treatment in Finland either based on taxation at source, or based on an income-tax prepayment calculation scheme, depending on whether you are a tax resident of Finland or a nonresident.  You must file an income tax return to Finland in order to report your pay unless you have received a source-tax payment order and your wages are subject to the withholding of taxes at source.

4 Instructions given to leased employees

4.1 Taxation of nonresidents (persons with limited liability to tax) in Finland

If the duration of stay is shorter than six months, the individual is considered a tax nonresident of Finland (a person with limited liability to tax). Tax treatment will be different from that of Finnish tax residents (persons fully liable to tax).

4.1.1 Requesting for Finnish personal identity number

The procedure of tax prepayment requires that you have a personal identity code. The necessary forms and instructions for requesting it are available at the local tax office. Foreign citizens must complete Form 6150.

Form 6150e, Registration information on a foreigner staying in Finland temporarily.

4.1.2 Decision on prepayments

If you are a leased employee arriving from  Belarus, Bermuda, Cayman Islands, Cyprus, Denmark, Estonia, Georgia, Guernsey, Iceland, Isle of Man, Jersey, Kazakhstan, Latvia, Lithuania, Moldova, Norway, Poland, Sweden, Tajikistan or Turkey or from a country with no tax treaty, you are expected to pay income tax on your wages in the form of self-initiated prepayments, unless your employer withholds tax at source. Please contact the local tax office of the area where you live and work in Finland as soon as you start work. At the latest, you must contact the tax office by the end of the month following the calendar month when you started working.

An amount of €510.00 is subtracted from your monthly wages as a tax-exempt portion. If you do not work for a full month the amount is €17.00 per day.

Prepayments of income tax are determined on the basis of form 5057e, Application for prepayment - A person who resides outside Finland and who's coming to Finland as a leased employee, Загрузить бланк № 6205, pdf, Application for prepayment. Fill it out to give the following details:

• Finnish and foreign address.
• Dates of arrival and departure.
• Amount of wages in Finland.
• Period of working in Finland.
• Bank account number (IBAN/BIC).

During your work period, you must make prepayments every month. In addition, if you work for four months or longer, you will have to pay health insurance premiums based on your gross income without the exemption of €510 or €17 as explained above. However, if you have the certificate A1 or E 101 from your home country, showing that you already have health insurance coverage, you will not have to pay the Finnish health insurance.

You are entitled to claim progressive taxation, if the country of your tax residence is in the European Economic Area or a country that has signed a tax treaty with Finland. This means that instead of paying the flat-rate tax at source your income is taxed in the same way as that of Finnish residents.

Enclose the following form with your application for a prepayment decision:

Application for progressive income taxation

For more information taxation of the earned income of nonresident individuals: Tax at source or Progressive tax

Consequences for not requesting
If you fail to request to be included in the prepayment system, or if you are late in submitting your request, the tax office can impose a penalty tax that may be as high as €2,000.00.

4.1.3 Documentation for your home-country authorities to confirm your payments of tax in Finland

In principle, you are supposed to pay income tax not only to Finland but also to your home country. However, no double taxation will take place. The tax treaty between Finland and your home country enables you to avoid double taxation.

The Finnish tax office will give you a document that proves that you have made prepayments of income tax. Show it to the tax authority in your country, so the amounts that you have paid in Finland can be credited correctly. In this way, you will avoid double taxation.

4.1.4 Final assessment in Finland

The final tax assessment will take place the year following the income year. At this time, the authorities will calculate the final amounts owed. If the prepayments are not enough to cover your final tax liability, you will have to pay the outstanding amount later. And vice versa: if the prepayments have been too high, you will be paid a refund.

During the spring months following the end of the calendar year when you have worked in Finland, the Finnish authorities will send you a Pre-completed Tax Return form. They will send it to your valid postal address in your home country. This is part of the final tax assessment procedure. Upon receipt of this form, it is your responsibility to go over its contents. If you find it necessary to make any comments, corrections or additions, remember to send back the form to the Finnish authority.

If you are a nonresident, your final assessment will be carried out in a similar way, and at the same time as that of Finnish tax residents. Taxation at source uses the flat 35-percent rate. However, there is a daily deduction of 17.00 that reduces the income on which you pay tax, but no other deductions are permitted. Taxation within the progressive scheme, which may have been implemented in your prepayments, involves the summing up of all your income and deductions. The final result of your taxation depends on this calculation.

Your employer sends the Finnish tax authority an employer payroll report at the end of the year, so the Finnish authority will have precise information on your length of stay and amounts paid to you. The tax authority processes the information received from your employer, and prints it out on your Pre-completed tax return form. However, when going over the Pre-completed tax return, you notice any errors or omissions, please make sure that you send back the Pre-completed return form with corrections, especially as to the period that you spent working in Finland. To make sure that the deduction from tax at source can be granted to you, please give precise information on your length of stay.

To request the progressive scheme of taxation is permissible even if you have paid tax at source in your prepayments. You request it by sending back your Pre-completed tax return, and enclosing the Application for progressive income taxation form.

The Finnish authority will then process your corrections, and again check the facts and amounts printed on the Pre-completed return, and then assess your final income tax liability. By the end of October, you will receive the final decision in your home-country address. If you change your address during the year after you come back from Finland, please make sure that you notify the Finnish Population Register about each change of address. For more information, visit www.vrk.fi.

Foreign employees working in Finland may agree with their employer that all taxes and charges will be taken care of, and thus their employment contracts will be made in terms of fixed net wages. It may further have been agreed between employers and employees that any tax refunds will be payable to the employer. Nevertheless, as defined by § 23 of the Act governing tax collection, the employee cannot redirect the process of refunding taxes to taxpayer so that the arrangement would be binding from the Finnish Tax Administration's point of view. Consequently, any tax refunds are payable to the bank account communicated by the taxpayer. The form to give bank information is 7208e, Individuals Bank Account Notice.

4.2 Taxation of employees staying in Finland for longer than six months

An employee working for a foreign employer can become a tax resident of Finland if he either has his permanent, habitual home in Finland, or if he is staying in Finland for longer than six months. Under these circumstances the authorities will consider the employee a resident, and the progressive scale — and various deductions — become applicable. The income tax rate will depend on the amount of income. In addition to tax, social security and insurance contributions will be withheld from wages, unless the employee is a holder of the A1 or E101 certificate of a posted employee. In this case, no importance is attached to the country of departure before arriving in Finland, and no importance is attached to whether the employer pays the wages from a Finnish office or bank account or from somewhere outside Finland. Read more about the relevant rules and exceptions in the article and links .

It is important that the employee contact the local tax office for a decision on prepayments of income tax. If this step is not completed, the employee will end up paying surtax. Furthermore, if no Pre-completed tax return form has been sent to the employee, he is expected to submit an income tax return on his own initiative after the close of the tax year.

In cases where the employee of a foreign employer is staying in Finland for longer than six months, the foreign employer will be required to complete an employer payroll report form 7801e, Annual information return summary and itemization and submit to the Finnish authorities.  It must include all employees who have worked in Finland and stayed longer than six months, not only leased employees, and regardless of line of business or industry, and regardless of countries of residence. For more information and further details, see section "5.1.2 Annual information returns -- Employer Payroll Reports" below.

5 Instructions to foreign employers or their representatives

5.1 Reporting obligations of a foreign employer

5.1.1 Employee leasing notice form

Foreign leasing corporations are expected to report precise information on their leased employees in Finland. The report to the Finnish Tax Administration is to be filed separately for each employee. The deadline is the end of the month following the calendar month when the first leased employee started working for the service recipient in Finland. All employees are reported. This requirement will become effective for employees starting work on 1 July 2007 or later.

Fill out the form 6147e, Employee Leasing Notice, employer and payer of wages in another country  called Teadanne renditud töötajast, and send it to Helsinki Area Tax Office. All foreign leased employees must be reported, regardless of duration of their contract.

Submit this form in all situations where an international treaty does not prevent Finland from collecting income tax on the leased employee's wages. Thus, if the leased employee comes from the following tax-treaty states, the form is to be submitted: : Belarus, Bermuda, Cayman Islands, Cyprus, Denmark, Estonia, Georgia, Guernsey, Iceland, Isle of Man, Jersey, Kazakhstan, Latvia, Lithuania, Moldova, Norway, Poland, Sweden, Tajikistan and Turkey. Furthermore, be sure to always submit the form if the employee comes from a non-tax-treaty state.

The leased employee's foreign employer is required to submit this form, if it has no permanent establishment in Finland, and if it is registered in the prepayment register. If the employer is not registered, the representative appointed as provided in § 4 a, Posted Workers Act must submit this form. If the employer has not appointed a representative, the employer will be required to submit this form in all cases.

The foreign employer must give information on the actual service recipient i.e. the "hirer" company for which the employees are going to do their work. This means that it has no importance if the foreign employer has signed a contract with an intermediary organisation that will pass on the employees to the final service recipient, it must also in such a case give information on the actual service recipient i.e. the "hirer" company—not the intermediary.

Nonresident employers with permanent establishments in Finland are not expected to submit this form. They have the obligation to withhold tax on all wages, so form 6147e, Employee Leasing Notice, employer and payer of wages in another country will not be required.

5.1.2 Annual information returns -- Employer Payroll Reports

Employees staying in Finland for less than six months
The employer payroll report (EPR) form intended for payments to nonresidents is to be submitted in January after the end of the calendar year. This form will contain the necessary annual payroll information on the leased employees. The form should be submitted by a foreign employer registered in the prepayment register, or the employer’s representative, if the employer is not registered.

The form is 7809e, Annual notification For payments to persons with limited tax liability in Finland - Annual notification for payments to persons with limited tax liability in Finland. If the employer has appointed no representative, the employer must submit the form himself, regardless of prepayment registration. Use Payment Type A9 when reporting the amounts paid to each employee (A9: Wage income paid to a foreign leased employee).

As an employer or an employer’s representative, you must especially supply precise information on the beginning and end dates of the period when the leased employees worked in Finland. It is also very important to include the employees’ Finnish personal identity numbers.

In case a tax treaty prevents Finland from collecting income tax on the leased employee's wages, Form 7809e need not be submitted. Only submit it if your leased employees are coming from Belarus, Bermuda, Cayman Islands, Cyprus, Denmark, Estonia, Georgia, Guernsey, Iceland, Isle of Man, Jersey, Kazakhstan, Latvia, Lithuania, Moldova, Norway, Poland, Sweden, Tajikistan or Turkey. And always submit it if they come from a non-tax-treaty state.

Employees staying longer than six months
Furthermore, if you are a foreign employer with employees staying in Finland for longer than six months, or if you are a representative of such an employer, you must file the EPR form (7801e, Annual information return summary and itemization), which is the same requirement that concerns all Finnish residents. This report must include all employees who have worked in Finland and stayed longer than six months, not only leased employees, and regardless of line of business or industry, and regardless of countries of residence.

If you do not have a permanent establishment in Finland, but the employee carries social insurance in Finland, use 7M Type of Payment (Wages paid by employer (no permanent establishment in Finland) to employee who is covered by Finnish social insurance) and write the annual wages in line 14. If you do not have a permanent establishment in Finland, and the employee does not have social insurance in Finland, use 7L Type of Payment. (7L is defined as Wages paid by employer (no permanent establishment in Finland) to employee not covered by Finnish social insurance.) If you have agreed to pay your employee's taxes, and the employment contract defines wages as a net amount, use 7N Type of Payment. (7N is Wages paid by foreign employer (no permanent establishment in Finland) having responsibility to pay and discharge employee’s taxes (employment contract ”Net-of-tax”). For more information, see page Employment contracts that define pay in terms of net salary.

If the employee is generally liable to tax, but during the period defined by the tax treaty, stays in Finland for 183 days or fewer days, Finland will have no taxing rights in respect of his/her wages. As the employer, you must use 7Q Type of Payment when reporting the wages. (7Q is Wages paid by employer (no permanent establishment in Finland) to employee, who has not stayed longer than 183 days in Finland during Tax-Treaty-defined sojourn period).
When submitting the information, please be advised that you should not report any tax prepayments made on behalf of the employee as taxes withheld. Withheld tax (ennakonpidätys in Finnish) means amounts withheld by a registered employer on wages paid. Such employers must report the withheld amounts in their EPR forms (for more information on registration as an employer, see section 5.2 Registration of the foreign employer below).

Payment types to be used:

5.1.3 Consequences of negligence

If a leasing corporation -- foreign employer -- or foreign employer’s representative -- fails to submit EPR or fails to submit it on time, a maximum fine of €15,000 may have to be paid.

5.2 Registration of the foreign employer

Being an employer, a foreign party can become a regular, registered employer in Finland even if no permanent establishment in Finland is formed. This means that the employer can then take care of the withholding obligation, collecting tax and paying it forward to the tax authority, and the employees will be freed from the responsibility of making timely prepayments. However, even if registered, foreign leasing corporations are expected to report precise information on their leased employees in Finland, separately for each employee, using form 6147e, Employee Leasing Notice, employer and payer of wages in another country called Teadanne renditud töötajast. The deadline is the end of the calendar month following the month when work was started.

5.2.1 Leased employee who is a tax nonresident in Finland

If an employee fails to give a tax-at-source card to the employer, 35 percent is withheld on their pay and no deductions are given. If your employee is a nonresident, he must be a holder of a tax-at-source card, if not, you as the employer cannot deduct the €510.00 per month or the €17.00 per day discussed above.

If an employee gives you a nonresident's tax card, the percentage printed on it is withheld on their pay.  The above deductions connected with taxation at source are not applicable in this case.

You as the employer are expected to pay forward any withheld tax to the Finnish Tax Administration's bank account, using your personal bank reference number. In addition, you must file Periodic Tax Returns, specify the remuneration as "605 - wages subject to tax at source", and the withheld amount of tax as "606 - Tax at source on wages, pension etc.". At the end of the year, you must additionally submit the annual information return 7809e, Annual notification For payments to persons with limited tax liability in Finland either on a printed-paper form or electronically to report the payments made. When filling out Form 7809, specify the type of payment with code "A9 - Wage income paid to a foreign leased employee". Additionally, give complete details on amount withheld, amount deducted upfront (€510.00 per month or €17.00 per day), exact start and end dates of work period in Finland.

5.2.2 Leased employee who is generally liable to tax -- a tax resident in Finland

If your employee stays in Finland for longer than six months, you as the employer must pay the withheld amounts using your bank reference number. Furthermore, you must file the Periodic Tax Return with relevant facts about the amounts paid to your employee. Specify them as "601 - subject to withholding tax", and specify the withholding as "602 - Tax withheld".

You will also be expected to file the usual EPR form 7801e, Annual information return summary and itemization. If your employee carries mandatory social insurance in Finland, but you have no permanent establishment in Finland, use 7M as Type of payment and fill in the wage amount in line 14. If your employee has no insurance in Finland, and is not covered by the Finnish social security system, and you have no permanent establishment in Finland, use 7L as Type of payment.

5.3 How to apply for registration

It is recommended that foreign leasing corporations apply for entry in the prepayment register. When the service recipient corporations in Finland pay fees for leasing, they will not have to withhold 13 percent of tax if the leasing corporation is registered in the prepayment register. The withholding rates are: 13 percent from payments to foreign limited liability companies or other corporations, and 35 percent from payments to foreign self-employed entrepreneurs.

Entry in the prepayment register has no significance as to whether the company should pay income tax in Finland or not. Liability to income tax is dependent on whether a permanent establishment is formed or not. For most foreign companies, Uusimaa Corporate Tax Office will decide whether a permanent establishment in Finland is formed.

It is required that the tax domicile of the foreign company is located in a country with a tax treaty with Finland. If a permanent establishment in Finland is formed, the foreign company must ask for an official decision on prepayments of income tax to be made. File the request for prepayments to Uusimaa Corporate Tax Office.

Foreign leasing corporations should use a 'Y' form (from the Business Information System) to apply for registration. Form Y1 is designed for corporate entities, Form Y2 for partnerships, limited partnerships and similar small businesses, and Form Y3 for self-employed individuals.

Mandatory enclosures include a description of business, a certified copy of the trade register certificate, and an English, Finnish or Swedish translation, and a document that lists the names of company directors who have the right to represent and sign for the company. Copies of existing service contracts in Finland must be enclosed with the application form.

If the company submitting the application has not had a Finnish Business ID, it will be issued to the company in connection with the prepayment registration process.

The Finnish Tax Administration will remove a company from the prepayment register if it no longer pursues income-producing activities in Finland. If the foreign company ever goes out of business, it should notify the authorities.

In addition, the tax office can remove a taxpayer from the prepayment register if negligence of taxpayer obligations has been observed. In this case, the prepayment registration is not renewed at its usual renewal date. This sanction can be directed to taxpayers who have:

• Grossly neglected the payment of tax, or
• Neglected their obligation to submit declarations and tax returns, or
• Neglected their accounting or recordkeeping requirements or
• Neglected their other important taxpayer obligations; and
• If there is a previous record of negligence of a company director.

Foreign leasing corporations are required to submit complete annual reports on their leased employees and on the wages paid to them. As noted above, this is called an Employer Payroll Report. If the foreign leasing corporation fails to do this, it will be removed from the prepayment register on grounds of gross negligence of the information-reporting requirement.

Furthermore, the tax office can also refuse entry in the prepayment register, or renewal of prepayment registration, if the applicant is a physical person with a history of setting up companies that have previously not fulfilled their taxpayer obligations. Similarly, if the manager or director of a company has a history of neglecting taxpayer obligations, the tax office can refuse entry or refuse to renew the company's prepayment registration.

Use the BIS website www.ytj.fi free of charge to check the validity of prepayment registration (of any counterpart, including foreign employer companies). Either company name or the Business ID can be typed in the search fields of this website. Another way the control other companies' registration status is to contact the Telephone Service of the Finnish Tax Administration at 029 497 030 (not a toll-free call).

5.4 Liability to pay VAT

Selling goods and services in Finland in the course of business is subject to VAT, even if the business is conducted by a foreign company.

If the foreign business has a permanent establishment (or a fixed establishment for the purposes of value-added taxation) in Finland, it will always be considered liable to VAT. Some of the rules are different governing permanent or fixed establishments for the purposes of income taxation, and respectively, for the purposes of VAT. If the foreign business has not applied for VAT registration in Finland, or has no permanent establishment, the VAT for goods and services sold by this foreigner in Finland must be paid by the buyer (reverse-charge system).

For more information about VAT, read page - VAT registration of foreigners in Finland, and VAT payable for cross-border sales of services.

6 Instructions to service recipients

The service recipient may have other obligations besides the tax obligations. Regarding occupational safety, the service recipient must ask the foreign leasing corporation to provide the necessary documents. For more information, go to www.tyosuojelu.fi.

6.1 Service recipient corporation form

Service recipient corporations must submit this form to the Finnish Tax Administration, to give the necessary details on the foreign leasing corporation. The service recipient has leased foreign manpower to perform work in Finland. If you have leased employees from several foreign leasing corporations, use a separate form to show each leasing corporation. The Finnish authorities require their names, addresses, ID numbers and descriptions of their line of business. Furthermore, you must inform the authorities of the representative appointed as provided in § 4 a, Posted Workers Act. Similarly, you must report any subsequent changes in the facts and information. The requirement concerns both legal persons and individuals, if they are service recipients of leasing corporations.

If you are a service recipient, you must complete the form so as to give the identity of the leased employees' actual foreign employer.  If you have signed a contract with an intermediary, you must still give the required details on the actual foreign employer for whom your leased employees work and with which they have their employment contracts—not on the intermediary company.

Submit the form to deliver the necessary facts and information to the authorities as soon as the first leased employee of the leasing corporation starts working for you. However, the final deadline for submitting the facts falls on the end of the month following the calendar month when the first leased employee started working. This requirement will become effective for employees starting work on 1 January 2007 or later. However, for the first time, the first deadline for submitting the form falls on 31 August 2007.

Furthermore, if any changes in the facts and information have taken place, the deadline is, similarly, the end of the following calendar month. This means that if the foreign leasing corporation's business address has changed, the service recipient must report it to the authorities. As of 2008, service recipients are also expected to report the projected end date of the contract, or the planned last date of work by the foreign leased employees. Nevertheless, if work is discontinued for a temporary period, it does not have to be reported. The authorities will consider that the contract is no longer valid, or that the work of leased employees has finally ended, if no foreign leased employees of the leasing corporation have worked for the service recipient for six months.

As noted above, if any changes have taken place and the service recipient should report them, the last day to do it is the end of the following calendar month.

Deliver the facts and information to Helsinki Area Tax Office by filling out form 6146a, Työn teettäjän ilmoitus verotusta varten, "Service Recipient's notice".

This form is to be submitted in cases where a tax treaty will not prevent Finland from collecting income tax on the wages of the leased employee. Thus the form concerns leased employees from Belarus, Bermuda, Cayman Islands, Cyprus, Denmark, Estonia, Georgia, Guernsey, Iceland, Isle of Man, Jersey, Kazakhstan, Latvia, Lithuania, Moldova, Norway, Poland, Sweden, Tajikistan and Turkey and from states that have no tax treaty with Finland. The form is to be submitted regardless of duration of contract or work in Finland.

6.2 Consequences of negligence

If a service recipient fails to submit the form or to submit it on time, a fine of €15,000 may be sanctioned. However, this is not applicable to a physical person, unless the negligence of the information-reporting requirement was related to business or forestry.

6.3 Service recipient must withhold tax

When paying fees, nonwage compensation or other remuneration for work performed in Finland, the service recipient is required to withhold 13 percent (from payments to foreign limited liability companies or other corporations) or 35 percent (from payments to foreign self-employed entrepreneurs) as tax at source. However, no withholding is necessary if the foreign beneficiary is prepayment registered, or shows the service recipient a tax card with a zero withholding rate, or shows the service recipient other documentation that prevents tax withholding.

Use your personal bank reference number to pay the amounts withheld to the bank account of the Finnish Tax Administration. Withholding is obligatory unless the party presenting the invoice is prepayment registered or shows a tax card with zero rate. When filling out the Periodic tax return form, specify the net remuneration as "605 - subject to tax at source", and the withheld tax as "606 - Tax at source on wages, pension etc.". Furthermore, at the end of the year, the service recipient will be required to submit the annual information return 7809e, Annual notification For payments to persons with limited tax liability in Finland either on a printed-paper form or electronically to report the payments made (also regarding amounts paid to nonresident corporations, if tax at source was withheld). When filling out Form 7809, specify the type of payment with code A4. Use the BIS website www.ytj.fi free of charge to check the validity of prepayment registration (of any counterpart, including foreign employer companies).

If payment (leasing fees, compensation, remuneration etc.) is made for work in a building site, or a construction, installation or assembly project, other civil engineering project, shipbuilding, transport services, cleaning services, nurse services, and childcare services, the payer always has the obligation to withhold tax, unless the party presenting the invoice is prepayment registered or shows a tax card with zero rate.

7 Refund procedure of tax at source

If fees have been paid to a foreign company, and the service recipient has withheld tax and paid it forward to the Finnish Tax Administration, the amounts can be refunded if Finland does not have a taxing right regarding the income concerned. If the payment falls into the category of business income or nonwage compensation for work, and the nonresident beneficiary does not have a permanent establishment in Finland, the applicable tax treaties usually stipulate that Finland does not have taxing rights.

Two alternative procedures of refund are possible:

(1) Refund paid by Finnish service recipient that withheld tax
This alternative requires that the foreign employer company delivers the service recipient a written explanation, showing that no withholding of tax at source was necessary. In practice, a valid written explanation is a retroactive tax-at-source card issued by a Finnish tax office. Then the Finnish company refunds the tax to the foreign company, and subtracts the refunded amount from the upcoming payments of withheld tax at source to the Finnish Tax Administration. But if no upcoming payments of withheld tax at source are scheduled for the current year, this procedure will no longer be possible, and procedure (2) must be used.

(2) Refund application submitted to Finnish tax office by foreign company
The procedure is to fill out form 6165e Application for refund of Finnish withholding tax and send it to the tax office.

Form 6165e must be complete with the following enclosures: Proof of payment issued by the service recipient, including proof of taxes withheld, copy of contracts and foreign trade register extract or similar and its translation into Finnish, Swedish or English. If the foreign company has been given a tax-at-source card, the application must have an explanation as to when and by which Finnish tax office the tax-at-source card has been issued.

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