Relief for international double taxation

The English translation below is unofficial. It has been made for the purpose of facilitating the understanding of the Finnish tax system and legislation. For official guidance, refer to the Tax Administration's publications in the national languages Finnish and Swedish.

This is a memorandum of guidance addressing the income taxation of private individuals – natural persons – and the methods of eliminating double taxation. The guidance concerns circumstances where the total income of an individual who is a tax resident of Finland at least in part consists of amounts on which not only Finland but also another country can impose taxes.

1 Introduction

Under the provisions of the Finnish act on income taxation (tuloverolaki 1535/1992), taxpayers may either be residents (generally liable to tax) or nonresidents (liable to tax, but with restrictions). Residents, having unlimited tax liability, are the people who live in Finland, and correspondingly, nonresidents, with limited tax liability, are people living in other countries. Residents are subject to Finnish taxes on the income they receive in Finland and in other countries (§ 9, subsection 1, line 1, act on income tax). Nonresident taxpayers are only liable to pay taxes on their income earned in Finland (§ 9, subsection 1, line 2, act on income tax).

Read more about resident and nonresident tax liability in the Tax Administration’s Tax residency and nonresidency guidance.

The receipts of income from foreign sources of a person who resides in this country are generally not only subject to tax in Finland but also in the country of source. Double taxation arises when the same income is taxed in both the source country and the country of residence. Double taxation may either be juridical or economic double taxation.

Juridical double taxation refers to circumstances where a taxpayer is subject to tax on the same income, for the same taxable period, in more than one jurisdiction (= “state” or country). Economic double taxation refers to the taxation, carried out by more than one jurisdiction, of two or more different taxpayers with respect to the same income. Economic double taxation occurs, for example, when income earned by a nonresident individual is taxed in Finland to the individual himself, and at the same time taxed in the individual’s residence country, as a business income item to a business enterprise where the individual is a shareholder.

The purpose of international tax treaties between various countries is to do away with double taxation, especially when it takes the form of juridical double taxation. The treaties contain agreements upon how the taxing rights with respect to various categories of income are divided between the residence country of the beneficiary and the source country of the income. Generally, relief for double taxation is provided by the tax authorities of the taxpayer’s country of residence. Double taxation is eliminated either by the credit method or by the exemption method.

Tax treaties contain agreements on the elimination of double taxation in general terms, and the Act on Relief of Double Taxation (Laki kansainvälisen kaksinkertaisen verotuksen poistamisesta (menetelmälaki), 1995/1552) contains provisions on the ways to give relief for double taxation to individual taxpayers who are Finnish residents. If there is no tax treaty in force, the method to relieve double taxation is the credit method, and only the rules provided by the Act on Relief are followed. Neither the Act on Relief nor the tax treaties signed with other countries are applicable on health-insurance contributions.

2 Provisions found in the tax treaties in force

2.1 The residence (country) principle and the source (country) principle

Tax treaties are needed when individual taxpayers have income sourced in other countries than their country of residence, or when individual taxpayers have property and wealth located in other countries. Income, property and wealth of this type are generally subject to tax both in the residence country and the source country. This is due to the fact that the residence (country) principle and the source (country) principle are applicable: All countries strive after being able to impose taxes on the worldwide income and wealth of their resident taxpayers (the residence principle). In addition, all countries strive after collecting tax on all the income sourced in their jurisdictions and all the property or wealth located there even if the beneficiary, or the owner of the property, is a resident of a different country (the territorial principle i.e. the source principle).

Countries have entered into tax treaties with one another in order to manage situations where double taxation would result from applying the residence principle and the source principle on the same income and wealth. The treaties contain resolutions addressing the question whether the source country can impose taxes, invoking the source principle on each category of income and on each category of property and wealth. If it is agreed that the source country cannot impose taxes, the income, property or wealth will only be taxed in the individual taxpayer’s country of residence.

With the exception of income consisting of dividends, interest and royalties, tax treaties do not usually provide rules on the amounts of the taxes to be imposed. This way, the question of how much tax must be paid is only determined by the national legislation of the country concerned. If the taxing rights belong to the country of source in accordance with the treaty, the general rule is that relief of double taxation is given by the country of residence. No measures have to be taken in order to give relief for double taxation if the tax treaty provides that the income or property is taxable only in the Contracting State which is the individual taxpayer’s country of residence.

The residence country principle has been laid down in section § 9, subsection 1, line 1 of the Finnish act on income taxes. An individual who has lived in Finland during the tax year, a Finnish corporate entity, a benefit under joint administration and an estate must pay tax to Finland on their income received in Finland and elsewhere (tax residency i.e. general liability to tax).

The territorial principle i.e. the source country principle is laid down in § 9, subsection 1, line 2 of the act on income taxes. Individuals who have not lived in Finland during the tax year and foreign corporate entities must only pay Finnish taxes on income earned in Finland (tax non-residency i.e. limited tax liability).

2.2 Residence “for treaty purposes”

Tax treaties concern persons residing in one of the Contracting States or in both of the Contracting States. For purposes of the treaties, “resident of a Contracting State” means any person who, under the law of that State, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature.

In some circumstances, under the provisions of the Finnish act on income taxes, due to his residency or his registered domicile, a Finnish resident is liable to pay tax on worldwide income not only in Finland but also in the other Contracting State. Such a Finnish taxpayer has “double residency”. The provisions of the applicable tax treaty have key importance when the tax authorities determine which one of the two Contracting States must be treated as the country of residence. In these circumstances, the other Contracting State must relinquish its right to apply the residence principle.

Read more about resident and nonresident tax liability in the Tax Administration’s guidance on Tax residency and nonresidency   

2.3 Provisions to relieve double taxation in various tax treaties

If the country of source, under provisions of the relevant tax treaty, has the rights to impose tax, the general rule is that the taxpayer’s country of residence must employ the credit method or the exemption method in order to prevent double taxation on the income. It may be that a tax treaty provides different rules for different categories of income sourced in the same Contracting State.

When addressing the matters relating to taxation rights of a source country, the wordings in tax treaties are either “may be taxed in that State” or “shall be taxable only in that State”. However, whichever one of the two alternative wordings are used, it does not change the way taxes are assessed in the source country. Instead, the purpose of the two alternatives is to indicate whether the country of residence should use the credit method or the exemption method when providing relief for double taxation.

If the wording is “shall be taxable only in that State” when the treaty discusses the taxing rights of the source country, the residence country must invariably apply the exemption method. Correspondingly, if the wording is “may be taxed in that State”, the residence country applies either the credit method or the exemption method depending on which one of these two has been agreed as the primary method. There is no need for a tax treaty to contain provisions that both countries must apply the same method as a shared primary method.

At present, almost all Finland’s tax treaties set out the credit method as the primary method. For example, the Nordic tax treaty is among the treaties that implements the credit method. However, by way of exception, the exemption method is applied on wage income as defined in Article 15 of the Nordic tax treaty, as section 3c of Article 25 indicates that such income “may be taxed in that other State”. In the same way, the exemption method is applied on Nordic-sourced pension income if the pensioner has been a Finnish tax resident on or prior to 4 April 2008 and has received, already at that time, pensions from another Nordic country.

For example, Finland’s treaties with France and with Egypt set out the exemption method as the primary method. In the treaty signed with France, the credit method, however, must be applied on taxpayers’ income consisting of dividends, interest, director’s fees, and fees paid to artists, sportspersons and athletes. In the treaty signed with Egypt, the credit method must be applied on taxpayers’ income consisting of dividends, interest and royalties.

Treaties provide detailed rules that list the taxes that must be included in the relief procedures. 

3 Methods of giving relief of double taxation

3.1 Introduction to how the Act on Relief of Double Taxation is applied

Under the Act on Relief of Double Taxation, to implement the credit method is the primary rule. However, if the treaty between Finland and a Contracting State sets out the exemption method as the primary one, that is the method to use. The Act on Relief of Double Taxation provides detailed rules for calculations under both the credit and the exemption method. The treaties only determine the method to be applied on each category of income. If there is no tax treaty in force, the method to relieve double taxation is the credit method, where only the rules provided by the Act on Relief are followed.

The calculations provided by the Act apply to income taxes going to the State of Finland, corporate income tax, municipal income tax, and church tax. For purposes of implementing the Act, the Finnish Public Broadcasting Tax is treated the same as the income taxes going to the State. The Act does not concern the health insurance contribution of the insured person (health insurance contribution and daily allowance contribution).

If the source of income is in a country that has a tax treaty with Finland, the assessment of the taxpayer’s taxes in Finland will give credit for the foreign-paid taxes that are listed in the treaty. If there is no tax treaty in force with the country of source, Finland only gives credit for the tax paid to the foreign country. In this case, the foreign-paid tax may be subtracted from Finnish taxes going to the State of Finland, Finnish municipal taxes, and Church tax. The taxes that can be credited are subtracted from the income tax, municipal tax and Church tax that would be payable on the same income and for the same period of time in Finland.

Under § 2 of the Act on Relief, the Finnish authorities will treat the foreign tax as paid in full when the stage is reached that the final foreign taxes for the year have been settled entirely, or, if they have not been settled, a foreign prepayment/advance tax has been paid. The individual taxpayer must provide information on the final amount of the foreign tax if it is different from the amount the Finnish Tax Administration has used in its credit decision. 

3.2 Credit method

The credit method means that foreign-source income is taxed by the country of residence, but any tax paid in the foreign country is deducted. This produces a division of taxing rights between the two Contracting States. In other words, double taxation is prevented by subtracting the foreign-paid tax from the tax payable in Finland on the same income. When assessing the individual’s taxes for the year, the tax authority first adds all his or her income together and then proceeds to impose the tax, based on that total income. After this, a calculation is performed in order to arrive at the proportional part of the tax that relates to the foreign-source income. The foreign-paid tax is subtracted from the result of this calculation. The credit must be specific to various sources of income and categories of income, and specific calculations must be made as appropriate.

Under the Act on Relief from Double Taxation, the Finnish Tax Administration may additionally give credit for a foreign-paid tax that relates to an amount of income received from a third country. This rule may be significant in circumstances where a foreign-located permanent establishment of a Finnish business enterprise has paid tax to the foreign country of its location on some income it has received from a source in a third country.

The amount of the creditable tax cannot be higher than Finnish assessment would impose on the income concerned. This restriction determines the maximum available credit. In cases where the taxes paid abroad have been based on a higher tax rate than the Finnish rate is, the credit in Finland is maximally only the amount that would be taxed in Finland, and the difference that will not be credited can be used later during the following years.

On the other hand, the amount of the creditable tax cannot exceed the amount actually paid to the foreign country. This means that the part subject to credit cannot be more than the foreign-paid tax actually was – even though the theoretical maximum credit is higher.

Finland’s tax treaties may provide exact maximum percentage rates of taxes that that the country of source can impose on a taxpayer’s income. In these circumstances, only an amount that results from the maximum percentage is credited – even though the theoretical maximum credit is higher. It may be that income in the form of dividends and interest has been subjected to higher taxation in a foreign country than what had been agreed in the relevant tax treaty. In these circumstances, only an amount that reflects the provisions of the tax treaty can be credited in Finland.

The most common reason for the too high tax in the other country is that the taxpayer has not filled out the required application forms and has not provided a sufficient account in order to prove that he is entitled to the treaty benefits. Generally, the taxpayer is able to have the error corrected at the country of source by submitting the required application form later; for example, the taxpayer can contact the payer of the income to ask for the forms and instructions.

Calculation formula for the maximum amount

To arrive at the maximum credit, you must first calculate the amount of tax to be imposed on the category of income (which may be either earned income or capital income) where part of the received income comes from foreign sources:

the Finnish taxes on the income category × (the net taxable Earned inc./Capital inc.) / net taxable income for the category

The next step is to calculate the maximum credit:

tax to be imposed on the category and source of income × (amount from foreign sources – (expenses for the production of income+interest)) / the income in the category and source – (expenses for the production of income + interest expenses)

3.2.1 Demand for relief

To receive relief, you must submit a written demand before the date when the Tax Administration has completed your tax assessment. If you submit such a demand later, the process of giving you credit for the foreign-paid tax will involve an appeal procedure. As of the 2017 tax year, claims for adjustment against income taxes must be filed to the Tax Administration before 3 years have elapsed from the beginning of the calendar year following the assessment. For claims relating to the tax year 2013–2016, the time limit is five years from the beginning of the calendar year following the assessment.

The Finnish authorities will treat the foreign tax as paid in full when the stage is reached that the final foreign taxes for the year have been settled entirely, or, if they have not been settled, a foreign prepayment/advance tax has been paid. The demand for relief, submitted by the taxpayer, must contain a full account explaining how much foreign tax was payable and why, whether or not the foreign tax is paid up, and other necessary information in order to facilitate crediting or relief. An example of acceptable documentation for this purpose is a notice of assessment from a foreign tax authority (= a tax decision), or a certificate proving that the employer or other payor has withheld foreign taxes when paying the income to the taxpayer.

If sufficient documentation or account in order to receive the relief cannot be presented but the conditions for relief are fulfilled, the authorities are permitted to give relief in any case, provided that the amount is reasonable.

In cases where the originally imposed foreign tax is later adjusted, because of an appeal process, or because of an insufficient amount withheld, the provisions of § 9 of the Act on Relief of Double Taxation require that the taxpayer must inform the Finnish Tax Administration of the changes.

3.2.2 Adjustment as a consequence of another adjustment

It may be that an individual living in Finland who is a Finnish tax resident has paid advance tax to the source country for his foreign income. Such an amount of advance tax or prepayment has been subtracted from the Finnish tax on the foreign income. However, the final tax assessment to be carried out in the source country may alter the actual amount of the tax. In some circumstances, the source country may keep preparing its final tax assessment for a long time. When assessment is complete, the statutory periods of adjustment have already ended in Finland. In this case, the simple adjustment cannot be used in Finland any longer for the purpose of introducing a change to the taxation of the foreign income as it had been taxed in the foreign country.

Under the provision of § 9 of the Act on Relief, if some foreign tax had been subtracted, the individual taxpayer must inform the Finnish Tax Administration of any changes made to the foreign tax by the tax authorities of the foreign country.

As provided in § 75, subsection 2 of the act on assessment procedure, it is within the jurisdiction of the Tax Administration to introduce changes to an individual’s tax assessment in the event that another country has adjusted the assessment of its taxes and such adjustment affects the taxation in Finland. The Finnish legislation has not set out a time limit for carrying out such an adjustment resulting from a foreign adjustment. This means that individual taxpayers are free to inform the Finnish Tax Administration of the changes at a later stage, even if the statutory periods of adjustment have already ended.

3.2.3 Credit remaining unused

It may be that no full crediting can be carried out in Finland for taxes paid to a foreign country because the amount of the foreign tax is higher than the maximum credit for the tax year. In this case, under the provisions of § 5 of the Act on Relief of Double Taxation, the amount that remains uncredited can be credited during the five tax years that follow, if the taxpayer demands this, from the taxes to be imposed on income derived from the same income source and falling in the same income category.

If the unused credit has been recorded as an amount due for carryover, the Tax Administration will deduct it automatically during the upcoming five years. Unused credits are processed in chronological order. After the previous years’ unused credits have been deducted, the Tax Administration will deduct the present tax year’s creditable foreign taxes.

Unused credit for foreign-paid taxes can be subtracted from the taxpayer’s income derived from a foreign source if this income is subject to tax in Finland, and if the country of source has the taxing rights on it under the provisions of the tax treaty, and if the particular category of income is taxable in the country of source. It is enough that the income is basically subject to taxation in the source country. This rule is not mitigated by the possibility that no tax has actually been paid to the source country for other reasons, including that the deductions of expenses diminish the actual tax on the income so that it equals zero (ruling of the Supreme Administrative Court no KHO 2014:159).

3.2.4 Tax sparing credit

In some circumstances a tax treaty may require that a credit is given in Finland for an amount of foreign tax that in reality was never paid. This is a special situation that involves a Contracting State that would have the taxing rights on a certain amount of income – but no tax is imposed because the national legislation of the Contracting State gives fiscal benefits to a business operation conducted by a foreigner. The treaties between Finland and the following countries provide such rules: Bulgaria – Article 20.1d, Philippines – Article 22.3, Ireland – Article 24.1c, Italy – Article 23.4, Korea – Article 22.3, Malaysia – Article 21.4, Morocco – Article 23.3 (valid up to 2017 – Article 29.4 in Treaty Series 18/2013), Turkey – Article 22.2d. For more information, read the actual text of the tax treaties.

3.2.5 Treating foreign-paid taxes as expenses for the production of income

Individual taxpayers who have paid tax to foreign countries cannot deduct them directly in the same way as expenses are deducted (See the Finnish Supreme Administrative Court’s ruling no KHO 2004:12). However, to deduct a foreign-paid tax as an expense for the production of income may be permitted if the paid tax is not subject to crediting. For example, if a taxpayer receives rental income for a foreign-located real estate, it is permissible to deduct any foreign real estate taxes from such income. Similarly, it is permissible to treat an indirect tax as a deductible expense for the production of income if such a tax cannot be equated with the creditable taxes listed by the relevant tax treaty.

3.3 Reverse crediting

Generally, under the provisions in tax treaties, the residence country is the country that takes the necessary measures to do away with double taxation.  However, by way of exception, some of the tax treaties that Finland has concluded with other countries provide rules for reverse credits. This means that any double taxation will be eliminated by the tax authorities of the source country. In cases where reverse crediting is implemented in Finland, when Finland is the country of source, the Finnish tax authority gives a deduction to the taxpayer, i.e. gives him a credit based on a tax paid to a foreign country on the income. However, the credit for foreign tax cannot be greater than the amount of taxes imposed in Finland on the same income.

If a Finnish payor is paying pensions as required by social-security legislation to a pensioner who is a tax resident of Italy, Switzerland or Thailand, Finland is the country that takes the necessary measures to remove double taxation although Finland is the country of source. Correspondingly, in cases where the pensioner is a Finnish tax resident and the country of source is Thailand or Italy, the measures are taken by the country of source. 

Reverse crediting is additionally applied as of 2019 on the pensions within the meaning of Article 17.2 of the tax treaty between Finland and Spain. This means in practical terms that reverse credits apply to almost all paid pensions from Finland to people who are tax residents of Spain, the only exception being the pensions paid by public bodies. Reverse credits apply to the pensions paid by public entities that conduct a business operation to people who have earned their pensions during such employment. However, reverse credits are not applicable on pensions based on motor traffic insurance because this category of pensions is only taxable in the beneficiary’s country of residence.

The rules on foreign tax credit contained by the provisions of the Act on Relief from Double Taxation are not applicable because the Act on Relief only controls the double taxation caused by income sourced in a foreign country.

Maximum amount of the reverse credit in total:

tax to be imposed on the category and source of income × (income from a foreign country – (expenses for the production of income + interest expenses)) / the income in the category and source – (expenses for the production of income + interest expenses)

3.4 Exemption method

This method is applied if the relevant tax treaty so provides. The exemption method means that the taxing rights of the Contracting States are separated in such a way that in most cases, the country of residence relinquishes its right. A full exemption is used in some countries, which means that the country of residence assesses a taxpayer’s taxes without taking any account of his or her foreign-source income.

Under the provisions of § 6 of the Act on Relief of Double Taxation, the exemption method applied in Finland is linked with the progressive income-tax schedule. This means that the Finnish tax authorities must take a taxpayer’s foreign-source income into account when defining the income tax rate, which depends on the size of annual gross income. However, the part of the sum total of taxes is exempted that relates to that income (from foreign sources).

When taxes are assessed on the earned income of natural persons, partnerships, consortia, and estates of deceased people, the total of the taxpayer’s income subject to tax must also include any earned income that is exempted from Finnish taxation by virtue of a tax treaty. Starting 2012, the taxation of capital income has been progressive. The rate of capital-income tax is affected by the taxpayer’s total annual gross income, and the Finnish Tax Administration takes the foreign-source income into account when determining it. Regarding taxation of capital income since 2012, foreign-source income is taken into account also when circumstances call for the exemption method.

Because foreign income is part of the taxpayer’s annual gross income subject to tax, deductions are granted for any taxpayer-paid expenses and interest payments that relate to the foreign income. However, under the provisions of § 6 of the Act on Relief of Double Taxation, the exceeding part of expenses for the production of income and interest expenses cannot be deducted in situations where the total of these expenses is higher than the foreign income. This means that the exemption method only accounts for the income that remains after the taxpayer’s gross income has been adjusted by deducting any expenses for its production, and interest expenses, from it. In other words, the net income is the income being accounted for.

For example, under the provisions of the Finland-France tax treaty, the categories of capital income on which the exemption method applies are rental income and capital-gains income when related to an apartment or house located in France.

An example of circumstances where the exemption method is applied on earned income is the treatment of wage income, defined in section 3c of Article 25 of the Nordic tax treaty (with “wage income” for purposes of Art. 15 of the Nordic tax treaty).

When the exemption method is applied, a calculation must be performed that determines the amount of Finnish tax that will not be imposed. The proportional part that is not imposed is worked out separately for every income category and income source, as a function of the size of the taxpayer’s foreign income, and then subtracted from the amount to be paid to Finland. When calculations in order to determine this ratio are performed, the amounts to be treated as income are the “net” amounts after deductions of expenses for the production of income and interest expenses.

The required calculation is illustrated in the following:

1. Perform calculations to arrive at the tax on the income category and source concerned

tax on the relevant income after any tax credits for a deficit in capital income × net taxable income for the source of income concerned / net taxable income for the category

2. Calculate the amount to be subtracted from the tax

tax on the category and source of income × (income from foreign sources – (expenses for the production of income + interest expenses)) / tax on the category and source of income × (expenses for the production of income + interest expenses)

The subtraction from the taxpayer’s earned-income taxes must be made in proportions that reflect their Finnish state, municipal, and Church taxes.

3.4.1 Calculation of the Ceiling Rule for foreign income

Subsection 3 of § 136 of the act on income taxation provides a ceiling rule that applies on the maximum amount of taxes to be imposed. This rule affects tax assessment in cases where the exemption method is used in order to relieve double taxation, and where the taxpayer’s earned income not only comes from foreign but also from Finnish sources. If the total of income taxes, to be paid in Finland and in a foreign country, goes above the total that would be paid if the taxpayer’s earned income came from sources in Finland only, the ceiling rule requires that the actual Finnish income tax must be reduced down to accommodate that total. Taxes on capital income are not restricted by the ceiling rule. The purpose of the ceiling rule is to make sure that an individual taxpayer who received both foreign-source and Finnish-source income does not have to pay more taxes on earned income than someone who received the same amount of income from Finnish sources.

The ceiling rule cannot be applied unless the Finnish tax authority receives information on both the foreign income and the foreign taxes on it. If the Finnish Tax Administration has that information at the time when a taxpayer’s taxes are assessed, the ceiling rule will be applied automatically, and it does not require that a demand be submitted by the taxpayer. The practical implementation of the ceiling rule is that the Tax Administration performs a calculation to determine whether the individual taxpayer’s total burden of taxation (foreign-paid income taxes + Finnish income taxes) appears to be heavier than the tax burden on someone who would receive the same size of income entirely from sources in Finland. If the result of such a calculation shows that the burden would be heavier, Finland relinquishes part of its income taxes as necessary. The ceiling rule does not have an impact on the healthcare contribution to be paid by the insured person, and on Public Broadcasting Taxes.

For example, when pension income from a foreign source is subjected to the exemption method in Finland, any pension-income deduction and basic deduction to be given to the taxpayer will be based on his or her total income, not just the Finnish-source income. Because Finnish taxation, in addition to the above, is governed by the rules provided in § 136, subsection 3 of the act on income taxes, the assessment procedure is not in contradiction with the principles of EU law (for more information, see ruling C-385–00, de Groot, of the ECJ). The same statement has also been made by the European Commission in its press release dated 15 July 2005 where the Commission points out that Finland’s process of tax assessment of foreign-source pension income is not discriminatory because Finnish tax rules contain a ceiling rule – § 136, subsection 3 of the act on income taxes. The same point is made in connection with Ruling no. 3499 of the Finnish Supreme Administrative Court, 27 December 2006. 

3.4.2 How the exemption method is accounted for when taxes are assessed on the income of individuals within specific taxpayer groups

For purposes of progression, some circumstances require that the exemption method is applied when an individual’s total taxable income is calculated for purposes of Finnish taxes – even if no relief for double taxation is granted. Such situations include:

• Assessment of taxes on the income of those who work for special organisations:
  • The Commission for Marine Environment Protection in the Baltic Sea,
  • The Nordic Investment Bank (NIB),
  • The Nordic Project Fund,
  • The Nordic Development Fund, and 
  • The Nordic finance company for environment
  • The WIDER Institute
  • International Organization for Migration (IOM)
• In the tax assessment of wage earners’ income in situations where he or she has arrived from another country and is being treated as a key employee for purposes of the act governing their taxation (Avainhenkilölaki 1551/1995), the fact that they are paid monthly under the foreign key employees' tax scheme will affect the progression: the amount of that pay makes the income tax rate higher with respect to any other earned income (under § 6, subsection 1, act on the taxation of foreign key employees).
• In the tax assessment of a nonresident taxpayer’s income when carried out under the provisions of the act on assessment procedure.

4 Guidance on procedures

The withholding system may be used for advance prevention of double taxation. If you submit written proof that you must pay foreign tax during the current year, the Tax Administration can reduce your Finnish withholding rate or the size of your tax prepayments if they had originally been determined on the basis of your foreign-source income. Requests for reduced prepayments or withholding rates (on the tax card) can be submitted in MyTax, over the telephone and by downloading an application form, printing it out and sending it to the Tax Administration.

Those who are generally liable to tax i.e. are residents must submit a tax return on all their income including their earnings from work abroad (under the Tax Administration's official decision on the obligations to file tax returns and to file a report on real-estate tax and under the Tax Administration’s official decision on the information to be included in submitted returns, only in Finnish and Swedish).

Income received from foreign countries and the taxes paid to those countries must be reported. The information on how much tax was paid to foreign countries is needed for the giving of relief for double taxation. However, if the category of income is tax-exempt in Finland, foreign-paid taxes are not important and the individual taxpayers does not have to detail them.

The Finnish authorities will treat the foreign tax as paid in full when the stage is reached that the final foreign taxes for the year have been settled entirely, or, if they have not been settled, a foreign prepayment/advance tax has been paid. The demand for relief, submitted by the taxpayer, must contain a full account explaining how much foreign tax was payable and why, whether or not the foreign tax is paid up, and other necessary information in order to facilitate crediting or relief. An example of acceptable documentation for this purpose is a notice of assessment from a foreign tax authority (= a tax decision), or a certificate proving that the employer or other payor has withheld foreign taxes when paying the income to the taxpayer.

If the originally imposed foreign tax is later adjusted, because of an appeal process, or because of an insufficient amount withheld, the provisions of § 9 of the Act on Relief of Double Taxation require that the taxpayer must inform the Finnish Tax Administration of the changes.

Another way to seek alteration to a Finnish decision is by addressing an appeal letter to the Tax Administration.