Taxation of the earned income of nonresident individuals: Tax at source or Progressive tax
- Date of issue
- In force until further notice
Tax residency and nonresidency
There are two categories of tax liability in income taxation: unlimited and limited liability to tax in Finland. Residents, having unlimited tax liability, are people who live in Finland, and correspondingly, nonresidents, who have limited tax liability, are people living in other countries. Residents pay Finnish taxes on their incomes sourced in Finland and other countries (liability to tax on their worldwide income). Nonresidents pay Finnish taxes on their Finnish-sourced income only.
Tax assessment of nonresidents
If you live in a foreign country and you arrive in Finland for a period shorter than six months, and continue to keep your permanent home in the country where you come from, you are held to be a Finnish tax nonresident, with limited liability to tax. Nonresidents' taxation is either carried out by withholding a flat-rate source tax on all income, or by performing a similar progressive tax assessment as is done for Finnish residents, in which the rate of tax depends on the size of income.
2.1 Tax at source
If a company treated as a Finnish employer is paying you, it must withhold 35% as source tax. Employers withhold this tax on each payday. Before calculating the amount to be withheld, they may deduct €17 per day from your gross income. This requires that you have a tax-at-source card from a Finnish tax office with instructions printed on it that specify the deduction. Besides tax, your employer must also withhold social security and insurance contributions (amounting to approximately 7%) unless you have a certificate (such as an A1 Certificate) showing that your coverage by the social insurance system of a foreign country is still valid.
If you are a performing artist or athlete, a final tax at source of 15 percent is collected on the income earned in Finland based on your personal activity.
This is a final tax, and there is normally no obligation to file a tax return in Finland because of artiste/sportsman income.
2.2 Progressive taxation
You can request that your earned income (except dividends) be taxed under the progressive scale instead of the 35% flat tax at source, on the condition that you are a resident of a country within the European Economic Area or of a country that has a bilateral tax treaty with Finland.
To facilitate progressive taxation you must visit a tax office to ask for a nonresident's tax card, which you must then give to your employer. When you fill out the application form, you must report all your Finnish-sourced earned income, your taxable earned income in your country of tax residence, and all deductions from them. Finland only taxes your income from Finnish sources, but your taxable income from your country of tax residence has an increasing effect on your taxation in Finland.
The progressive tax on earned income is calculated using the state income tax table and the average rate of municipal income tax. Acceptable deductions include commuting expenses and the expenses for production of income. Actual tax rates depend on the amounts of income and deductible expenses. Launch the Withholding Calculator to see whether the rate is correct.
Besides tax, your employer must also withhold social security and insurance contributions (amounting to approximately 7%) unless you have a certificate that establishes that you are covered by the social insurance system of a foreign country.
If your taxation is progressive, you will receive a pre-completed tax return during the following year on which you will find a specification of your income and deductions, and the result of your assessment (whether you still have residual taxes to pay or whether you are going to get a refund). You must check the contents of that tax return and send it back to us with corrections if necessary.
If you did not ask for progressive tax assessment during the income year when your payer(s) withheld source tax on your pay, you still have the option to ask for it afterwards by sending back the pre-completed tax return and adding a specification to it that shows all your Finnish-sourced earned income, your taxable earned income sourced in your country of residence, and the deductions that concern the income.
2.3 Leased employees
If you stay in Finland for a shorter period than six months and an employer not from Finland is paying you, you do not have to pay Finnish income tax unless you are a leased employee.
If you come from Estonia, Lithuania, Latvia, Sweden, Norway, Denmark, Iceland or Poland, and you work here as a leased employee, you may have to pay Finnish tax on your wages. For more information, click here.
2.4 Guidance for employees
You must obtain a Finnish personal identity code. You can get it at the tax office. Complete the registration form (no 6150).For more information, click here.
The tax office is where you can get a tax card, which you must give to your employer.
- Application for tax-at-source card
- Application for tax-at-source card and Application for progressive income taxation
Leased employees must always make prepayments in order to cover the tax liability on their wage income. To request for an official calculation of income tax prepayments, contact the tax office.
- Application for prepayment
- Application for prepayment and Application for progressive income taxation
2.5 Guidance for employers
Employers must follow the withholding instructions that are printed on their employees' tax cards. Tax-at-source cards contain instructions for collecting the source tax. Amounts withheld as source tax must be reported on the Periodic Tax Return, and specified as 'Tax at source'. After the year has ended, you must report the employees who stayed in Finland for less than six months on "Annual notification –payments to recipients with limited tax liability (nonresidents)".
Ordinary tax cards issued to nonresidents also contain instructions for withholding. Employers within the private sector must report what they have withheld on the Periodic tax return, and specify it as 'Tax withheld'. However, in the case of employment income from a public entity, or in the case of director's fees and payments to artistes or sportsmen, amounts withheld must be specified on the Periodic Tax Return as 'Tax at source'. After the year has ended, you must report the employees who stayed in Finland for less than six months on "Annual notification –payments to recipients with limited tax liability (nonresidents)".
For more information on Periodic tax returns, click here
For more information on annual information returns and Employer Payroll Reporting, click here.
3 Tax assessment of residents
If you stay longer than six months, you are treated as a resident, and are fully liable to pay tax in Finland. For more information, click here.