Paying non-wage compensation to a non-resident foreign company

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

This guidance is intended for Finnish service recipients paying non-wage compensation to a non-resident foreign company.

Sections 3 and 5.1 were updated on 11/20/2023 in respect of reporting data to the Incomes Register, and section 5.1 was clarified in respect of refunding tax at source. In addition, clarifications were made to the guidance in sections 1 and 2 on situations where Finland and the country of residence of the foreign company have not concluded a tax treaty. Other clarifications and structural changes were also made.

The name of this guidance has been changed because of amendments to section 9 of the act on income tax that entered into force on 1 January 2021.

1 General information on the taxation of a non-resident company

A corporate entity registered abroad is a non-resident taxpayer in Finland unless its actual headquarters are located in Finland. A natural person residing outside Finland is a non-resident taxpayer in Finland if the person resides in Finland for an uninterrupted period of less than six months and they do not have a permanent home and abode in Finland. A non-resident taxpayer only pays taxes to Finland on income earned in Finland as defined in the act on income tax. In addition, if an applicable tax treaty exists, its provisions may limit Finland’s right to tax.

Usually, Finland has the right to collect taxes on the income of a foreign company resident in a contracting state of a tax treaty if the company has a permanent establishment in Finland. In practice, whether a permanent establishment is considered constituted or not is determined according to the applicable tax treaty. The definition for ‘permanent establishment’ of the tax treaties that Finland has made with other countries is usually based on Article 5 of the OECD Model Tax Convention. Nevertheless, some variation exists between the definitions of tax treaties.

Under some tax treaties, a self-employed individual residing outside Finland is also liable to pay tax on business activities in Finland if they reside in Finland for more than 183 days during 12 consecutive calendar months, even if they are not considered to have a permanent establishment in Finland (e.g. tax treaties with Estonia, Latvia, Lithuania, the Nordics).

If no tax treaty has been concluded between Finland and the country of residence of the company, Finland has the right to tax income originating from business activities in Finland or practicing a profession in Finland even if the company is not considered to have a permanent establishment in Finland.

2 Obligation to withhold tax at source

The Finnish service recipient has the obligation to withhold tax at source on non-wage compensations for work paid to non-resident foreign companies when the work or comparable services have been performed in Finland.

However, the service recipient does not need to withhold tax at source if

1. the foreign company is entered in the prepayment registered in Finland, or
2. the foreign company has requested to be issued a tax-at-source card showing 0% of tax.

The service recipient also does not need to withhold tax at source if the foreign company provides proof that a treaty such as a tax treaty prevents Finland from collecting tax. For example, tax treaties usually prevent collecting tax from payments made to foreign companies when the foreign company does not have a permanent establishment in Finland. Nevertheless, if the non-wage compensation for work is paid for the performance of construction work of houses and other buildings, earthmoving, water engineering, or other building work, assembly or installation project work, shipbuilding work, transporting or cleaning, caring or nursing work, or if the non-wage compensation for work is paid to leased employees in the sectors listed above, tax at source should always be withheld unless the foreign company is entered in the prepayment register in Finland or the foreign company presents a tax-at-source card showing 0% of tax (section 10 f of the act on the taxation of non-residents’ income [Laki rajoitetusti verovelvollisen tulon verottamisesta 627/1978]).

The rate of tax at source is 13% when the non-wage compensation is paid to a foreign enterprise or a business partnership comparable to a Finnish limited company (osakeyhtiö; aktiebolag). The rate of tax at source is 35% when the non-wage compensation is paid to a private entrepreneur or a self-employed person.

If the foreign company wishes to avoid having tax at source withheld from the non-wage compensation it receives, it is recommended that the company enters the Finnish prepayment register or requests to be issued a 0% tax-at-source card.

We recommend foreign companies to enter the Finnish prepayment register or requests a 0% tax-at-source card at an early stage – preferably before the work in Finland and invoicing has been started. If the date of payment of the non-wage compensation falls before the date of prepayment registration or the date of receipt of the 0% tax-at-source card, the Finnish service recipient will have to withhold tax at source from the payment.

A foreign company can be entered in the prepayment register if the general conditions for entry are met. However, if Finland and the country of residence of the foreign company have not concluded a tax treaty, a company can only be entered in the prepayment register if it is considered to have a permanent establishment in Finland.

More information on entering the prepayment register is available in the Finnish Tax Administration’s guidance Starting up business in Finland.

More information on a service recipient’s obligation to withhold tax at source is available in the Finnish Tax Administration’s guidance Leased employees from other countries and taxation in Finland

More information on employers’ obligations is available on the Finnish Tax Administration’s webpage Employer's obligations.

3 Reporting to the Incomes Register

Payers must always report to the Incomes Register non-wage compensations for work paid to natural non-resident taxpayers. The report must be made even if no tax at source is collected. Non-wage compensations for work paid to a non-resident organisation only need to be reported if tax at source must be collected. Non-wage compensations for work must also be reported to the Incomes Register if no tax at source is collected even if it should be collected. More information: Reporting data to the Incomes Register: international situations.

4 Collecting tax at source and paying it to Finnish Tax Administration

The payer collects the tax at source from the non-wage compensation for work that it pays to the recipient of the compensation. The payer must provide the recipient with a document itemising the compensation paid and the tax at source collected.

The Finnish service recipient pays the tax at source collected from the non-wage compensation for work in the MyTax service (vero.fi/mytax).

More information on paying tax at source forward is available on the Finnish Tax Administration’s webpage Self-assessed taxes. 

5 Refunding excess tax at source withheld

A payer can have collected tax at source groundlessly from income not subject to tax or collected a larger amount of tax at source than what is required in the relevant international treaty, or tax can have otherwise been collected incorrectly. In this case, the tax collected in excess can be refunded to the receiver of the payment.

Two alternative procedures of refund are possible:

5.1 The Finnish service recipient that has withheld the tax refunds it to the foreign company

This alternative requires that the foreign company provides to the Finnish service recipient a written explanation showing that withholding tax at source was not necessary. In practice, a valid explanation is a retroactive 0% tax-at-source card issued by a Finnish tax office for the payment year. The foreign company having been entered in the prepayment register in Finland at a later date is not a valid explanation for not collecting tax.

If the payer has collected tax at source groundlessly, the payer can correct the amount of tax at source collected by deducting the excess amount from any tax at source to be collected later, provided that a payment is made later to the same recipient during the same calendar year. If no payments will be made later to the same recipient during the same calendar year, the payer can return the tax at source collected to the recipient during the same calendar year. After the payment year ends, the payer can no longer correct erroneously collected tax at source, and the foreign company must apply for a refund from the Finnish Tax Administration as described in section 5.2.

When applying for a refund, the payer must provide a corrected document on the payment made with the correct amount of the tax at source. The corrected document should be such that it can be easily connected to the original document.

More information on correcting withheld taxes and reporting them is available in the Incomes Register guidance Correcting data in the Incomes Register (section 2.3). The same principles are applied when the payer corrects a tax at source collected in the same year.

5.2 The foreign company submits a refund application to the Finnish Tax Administration

A foreign organisation can apply for a tax at source refund from the Finnish Tax Administration with the form 6165, Application for refund of Finnish withholding tax – foreign corporations and organisations. Natural persons can use the form 6166, Application for refund of Finnish withholding tax - individual.

The application must include the document from the Finnish payer itemising the compensation paid and the tax at source withheld, and a statement from the Finnish payer that confirms that no withheld tax at source amounts have been refunded to the applicant. The application must always include the information required on the form on the applicant’s business activities in Finland, a document corresponding to the Finnish trade register extract, and a copy of the business contract showing the services or work performed.

Nevertheless, tax at source is not refunded with either of the above methods if Finland has the right to tax the income in question. The most common reason for this is that a permanent establishment is considered established in Finland, or a stay in Finland exceeding 183 days is involved. In this case, the foreign company will have to file a tax return in Finland, and the collected tax at source will be credited to the company in connection with its Finnish income taxation. The document from the payer must be appended to the tax return.