Taxation of people working for higher education institutions – international situations

This is an unofficial translation. The official instruction (record no VH/3089/00.01.00/2018) is drafted in Finnish and Swedish languages.

This guidance concerns the taxation of people working for universities of applied sciences and universities in international situations. International tax situations include expert fees paid for work abroad, lecture fees, and the tax treaty regulations concerning teachers and scientific researchers.

1 Foreword

This guidance concerns the taxation of people working for universities of applied sciences and universities in international situations. The tax situations discussed in the guidance include lecture fee, thesis opponent fees, and tax treaty regulations concerning teachers and scientific researchers.

International employment situations and taxation are discussed in the following two guidance, Taxation of income earned abroad and Taxation of employees from other countries. For the most part, these are also applicable to the international employment situations of people working for universities and universities of applied sciences.

2 The position of higher education institutions in income tax treaties

In international employment situations, it is often important for tax purposes to determine whether or not the employer is treated as a public entity for tax purposes. Universities and universities of applied sciences as a limited liability company (or universities of applied sciences) are the kind of entities referred to in the Income Tax Act (1535/1992) that are liable to pay tax on income from business activities (sections 21a and 21b, Income Tax Act). The taxation of higher education institutions is discussed in more detail in Tax Administration guidance Tax guidance for higher education institutions (in Finnish).

Previously, for tax purposes, Finnish universities and universities of applied sciences were treated as public entities, but these institutions are no longer treated as public entities for income tax purposes.

According to the Universities Act (558/2009), universities are either corporations under public law (public universities) or foundation universities governed by the Foundations Act. According to the Ministry of Finance's statement of 25 November 2009 to the tax department of the Parliamentary Finance Committee (VM 084:00/2009), Finnish universities classified as legal persons in either of the above categories have not been treated as public entities for tax purposes since 1 January 2010.

Pursuant to the Universities of Applied Sciences Act (932/2014), Finnish universities of applied sciences falling within the remit of the Ministry of Education and Culture are legal entities in the form of limited liability companies (university of applied sciences as a limited liability company). A university of applied sciences as a limited liability company is not treated as a public entity for tax purposes even if it was owned by a local authority, a joint municipal authority, or another type of public entity.

As a general rule, the concept of public entity is not defined in the tax agreements concluded by Finland. As a result, the definition for public entity is based on Finnish tax legislation. As Finnish universities and universities of applied sciences are not defined as public entities in Finnish tax legislation, they are also not treated as public entities for the purposes of tax treaties. As a result, the taxation of salary paid by a Finnish university or university of applied sciences is based on Article 15 concerning the taxation of income from employment (hereinafter referred to as Article 15).

By way of exception, in certain tax treaties, a university is defined as a public entity. As referred to in Article 3 of the tax agreement between Finland and Greece, all universities and similar higher education institutions are treated as public entities for the purposes of the tax treaty. A university of applied sciences may be deemed to be a higher education institution referred to in the tax agreement. On the other hand, according to the protocols to the tax agreements Finland has concluded with Australia and Turkey, only the University of Helsinki is a public entity. For the purposes of these two tax agreements, the taxation of salary paid by the University of Helsinki – and with Greece, also the salary paid by other universities and universities of applied sciences – is, by way of exception, based on Article 19 (Public Service).

However, in the case of salary paid for work performed in connection with the university’s or university of applied sciences’ business activities, Article 15 is in force for the purposes of the above three tax agreements. Business refers to operations in which income is derived from business activities. The matter is discussed in more detail in Tax guidance for higher education institutions (in Finnish).

Tax treaty between Finland and Australia: Agreement between the Government of Finland and the Government of Australia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, and Protocol (91/2007), in Finnish (Finlex)

Tax treaty between Finland and Greece: Agreement between the Republic of Finland and the Hellenic Republic for the Avoidance of Double Taxation with respect to Taxes on Income and on Capital (58/1981), in Finnish (Finlex)

Tax treaty between Finland and Turkey: Agreement between the Republic of Finland and the Republic of Turkey for the Avoidance of Double Taxation with respect to Taxes on Income (49/2012), in Finnish (Finlex)

3 Employees working in a foreign country

3.1 The six-month rule

Residents are under the obligation to pay Finnish tax on income sourced in Finland and in other countries (section 9, subsection 1 (1), Income Tax Act). However, pay for work performed abroad is income exempt from tax if the conditions of the six-month rule are fulfilled.

Pay for work performed abroad is tax-exempt in Finland (section 77, Income Tax Act) if:

• the person's stay abroad is caused by said work; and
• the duration of the work is at least six months, and the employee does not stay in Finland for more than six days per each month of work; and
• the country of work has taxing rights to the income in question under a tax treaty, if there is an agreement on income taxation between Finland and the country of work.

The six-month rule only applies to wage income, which means that, for example, a person’s scholarship and other grants are not tax-exempt income under the above provision. The above provision also does not apply to pay received from a Finnish public entity. Finnish universities and universities of applied sciences are not public entities, and therefore pay from these institutions for work performed abroad may be tax-exempt income based on the six-month rule.

The six-month rule only applies if the person's stay abroad is caused by said work. Section 77 and the six-month rule do not apply to remote work as it does not fulfil the condition of the stay abroad being cause by said work. For example, their presence may be due to studies or due to their spouse's foreign assignment in the country. Where the performance of remote work does not require staying abroad, the conditions for tax exemption are not fulfilled.

More detailed information on the six-month rule can be found in Taxation of work performed abroad.

3.2 Taxing rights of the country of work

As a general rule, pay for work performed abroad is also subject to tax in the country of work. Article 15 of the tax treaties generally grants taxing rights to the country of work with respect to wage income received for work performed in that country. However, an exception to this rule is the 183-day rule, which prevents the country of work from imposing tax if:

• the employer is not domiciled in the country of work; and
• the pay does not cause an increase of payroll expenses in a permanent establishment located in the country of work; and
• the employee does not stay more than 183 days in the country of work during a certain period of time.

Where the wages or salary are paid by a Finnish university or university of applied sciences, the country of work generally has the right to tax the pay only on employees who stay in the country for more than 183 days during the period of time specified in the tax treaty – usually a calendar year or 12 consecutive months.

According to the tax agreements Finland has concluded with Australia and Turkey, the University of Helsinki is a public entity. According to the tax agreement between Finland and Greece, all Finnish universities and similar higher education institutions are public entities. As regards wages and salary paid for work done for a Finnish public entity by a person who lives in Finland, under the tax treaty Article 19, tax is only imposed on the pay in Finland. As the country of work does not have taxing rights under a tax treaty, the six-month rule is not in force in Finland. 

The taxing rights of the country of work may also be affected by the tax treaty articles concerning teachers and scientific researchers, according to which the pay for teaching and scientific research may be exempt from tax in the country of work. In other words, with the country of work not having taxing rights, the six-month rule also is not in force. The tax treaty rules concerning teachers and scientific researchers are discussed in more detail in section 6.

Where no tax agreement has been concluded between Finland and the country of work, the 183-day rule or other tax treaty rules do not limit the taxing rights of the country of work. In such a case, the application of the six-month rule may only be prevented by the fact that the employee's stay abroad is not caused by said work, or that the employee has stayed in Finland on average more than six days during each month of working abroad.

3.3 Elimination of double taxation

When a Finnish resident works in a foreign country, the income from such work is subject to tax in Finland under domestic legislation, unless it has specifically been declared exempted by definition of law. Similarly, the country of work may impose tax on the income under the provisions of its own national legislation.

If the individual works in a country that has signed a tax treaty, it is Finland's responsibility to provide relief for any double taxation if Finland is, for treaty purposes, the country of residence and if, for treaty purposes, the country of work has the taxing rights. Under the tax treaty, the method for eliminating double taxation is either a tax credit or tax exemption.

Double taxation may also be relieved in situations where people work in a country with no tax treaty with Finland. In these situations, double taxation is relieved in accordance with the Act on Relief from Double Taxation, with the method always being a tax credit.

Therefore, where the six-month rule does not apply to wage income paid by a Finnish university or university of applied sciences, and the income has also been taxed in the country of work, relief for double taxation is provided in Finland. However, double taxation is not in force if the country of work does not have taxing rights under a tax treaty for wage income paid by a Finnish university or university of applied sciences.

3.4 Tax-exempt allowances relating to working abroad

Certain costs of living due to working abroad paid by the employer may be exempt from tax even if the actual pay is not considered tax-exempt income based on the six-month rule.

According to section 76, subsection 1, paragraph 5 of the Income Tax Act, the moving and travel expenses of a taxpayer and his or her family members arising from working abroad, which are paid by the employer, and the usual cost of private service staff and education of children paid by the employer for the duration of working abroad are income exempt from tax. More detailed information on the above tax-exempt allowances for travel expenses can be found in section 5.6 of Taxation of income earned abroad.

Also exempt from tax is that part of a housing benefit received abroad that exceeds the benefit's reasonable value, as defined in the Tax Administration decision on in-kind benefits. According to the decision on in-kind benefits, the tax value of a housing benefit received abroad is the fair value of the accommodation, which must not exceed 50 percent of the value of an accommodation located in the Helsinki 2 region, as defined in subsection 1 of the Income Tax Act.

Allowances for work-related travel expenses are exempt from tax in both international and domestic employment situations. With regard to commuting between home and regular place of work, travelling to a secondary place of work, or travelling to a special place of work, the nature of trips made to and in a foreign country is determined on the basis of the same rules and principles as the nature of trips made in Finland. More detailed information can be found in Reimbursement of work-related travel expenses for tax purposes (in Finnish).

4 Individuals from other countries

4.1 Permanent residence and home in Finland, or period of stay in Finland exceeds six months

4.1.1 Tax liability in Finland

Individuals arriving in Finland from abroad are regarded as resident taxpayers in Finland if they have accommodation (a home) here, or if their period of stay in Finland exceeds six months (section 11, subsection 1, Income Tax Act). Residents are liable to tax on both income sourced in Finland and income earned in other countries (section 9, sub-1.1, Income Tax Act).

Due to the tax treaty regulations regarding the country of residence, it is possible that a person who is generally liable to tax in Finland is a resident of another country under a tax treaty. In such a case, despite the person being a resident taxpayer in Finland, as a general rule, Finland can only tax the person’s income sourced in Finland.

Tax treaties generally do not prevent the taxing of wage income paid by a university or university of applied sciences in Finland for work performed in Finland. The tax treaty Article 15 does not take away Finland’s taxing right because the salary is paid by an employer whose domicile is in Finland. On the other hand, the tax treaty rules concerning teachers and scientific researchers may also limit Finland’s taxing rights in the above situations.

4.1.2 Foreign key employees

As a rule, the earned income of residents is taxed under the progressive scheme. Despite becoming a resident taxpayer in Finland, in certain cases, individuals arriving in Finland from other countries may be liable to pay source tax on their earnings at the 32-percent rate (35 percent in and before 2019). Provisions on the source tax withheld from foreign key employees are laid down in the act on source tax of foreign key employees (1551/1995, Key Employee Act).

The Key Employee Act also applies to teachers and scientific researchers working for a Finnish university or university of applied sciences when the scientific research is done for the common good, provided that the teacher is not a Finnish citizen and has not been a resident taxpayer (i.e. generally liable for taxes) in Finland during the five calendar years prior to the start year of employment. The Key Employee Act is only applied upon request; the application must be submitted before, or no later than 90 days from, the start of employment.

More detailed information on tax at source withheld from key employees and the related conditions can be found in Taxation of employees from other countries.

4.2 Period of stay in Finland maximum six months

4.2.1 Earnings in Finland

Non-residents are liable to pay tax in Finland only on income sourced in Finland (section 9, subsection 1 (2), Income Tax Act). Wage income paid by a Finnish university or university of applied sciences to a non-resident (person liable to tax, but with restrictions) is income-sourced in Finland if the work, task or service is solely or mainly performed in Finland (section 10, subsection 4, Income Tax Act).

To determine whether the work was mainly performed in Finland, the review period for non-residents in all situations is one pay period, as specified in Supreme Court decision KHO 1994-B-556. In certain situations, the amount of work to be done in Finland may have been agreed for a period of one year or longer. However, for tax purposes in these situations as well, the review period when determining whether the income was sourced in Finland is the pay period.

Tax treaties generally do not prevent the taxing of wage income paid by a university or university of applied sciences in Finland in so far as the work was performed in Finland. The tax treaty's 183-day rule does not take away Finland’s taxing right because the wage income is paid by an employer domiciled in Finland. On the other hand, the tax treaty's rules concerning teachers and scientific researchers may lay down restrictions on Finland’s taxing rights also in the above situations.

Non-residents are taxed according to the Act on the Taxation of Non-residents' Income and Capital (627/1978, tax at source act). Tax is withheld at source on the income of non-residents at a flat rate of 35 percent, which does not depend on the size of income. Alternatively, the income may be taxed under the progressive scheme by means of a similar tax assessment as is normally done for Finnish residents under the Act on Assessment Procedure (1558/1995). More detailed information can be found in Taxation of employees from other countries.

4.2.2 Lecture fee

As a rule, in Finland, a fee paid for giving a lecture in an event organised by a university or university of applied sciences is considered wage income. This is due to section 13, subsection 1, paragraph 2 of the Prepayment Act (1118/1996), according to which wage income also refers to personal lecture and presentation fees.

In practice, a lecture or presentation is always given by a natural person. A lecture or presentation fee is the individual’s taxable earned income, regardless of whether or not the individual has an employment or service relationship with the payer. The matter is treated similarly in both domestic and international situations. More detailed information can be found in Pay and non-wage compensation for tax purposes (in Finnish).

According to section 10 of the Income Tax Act, a fee paid by a university or university of applied sciences for a lecture or presentation given in Finland is income sourced in Finland also when the lecture or presentation is prepared in the person’s country of residence. The fee is generally paid for giving the lecture or presentation, and therefore the work is considered to take place mainly in Finland also when the lecture is prepared abroad. However, according to the Income Tax Act, a fee paid for a remote lecture given by a person who is in a foreign country is not income-sourced in Finland, because in such a case the work is performed abroad.

A tax treaty does not prevent the imposition of tax on a lecture fee that is subject to tax in Finland, because the work is performed in Finland for an employer domiciled here. Notwithstanding this, the rules concerning teachers and scientific researchers may restrict Finland’s taxing rights in these situations as well.

The tax exemption of allowances for travel expenses to non-resident wage earners is conditional on the wage earner being in Finland on a work-related trip to a special place of work. Whether or not this condition is fulfilled is determined on the basis of the same principles that apply to resident wage earners. Where the general conditions are fulfilled, the travel allowance paid to a visiting lecturer on top of their wage income is exempt from tax. The matter is discussed in more detail in Tax Administration guidance Allowances for travel expenses for tax purposes (in Finnish).

As a general rule, university or university of applied sciences is a special place of work for a visiting lecturer arriving from a foreign country. In such a case, where the general conditions are fulfilled, the travel allowance paid to a visiting lecturer is exempt from tax. Allowances for travel expenses are exempt from tax also when the lecturer does not charge a fee for giving the lecture. Tax law finds that only clearly regular provision of lectures or teaching work taking place in the same location is deemed a regular place of work, in which case the payment of allowances for travel expenses is subject to tax.

Where the lecture is given by a well-known representative of an enterprise with widespread operations in the provision of education and lectures, however, the fees paid to such an enterprise by a university or university of applied sciences are compensation for work for the enterprise concerned. More detailed information can be found in Pay and compensation for work for tax purposes (in Finnish). Notwithstanding the above, tax-exempt allowances for travel expenses cannot be paid to recipients of compensation for work. This is irrelevant in international situations, as the fees paid and other payments made to the enterprise are generally not subject to tax in Finland, unless the enterprise has a permanent establishment in Finland.

4.2.3 Expert fees for work performed abroad

Where a non-resident taxpayer living abroad performs the work for which they are paid a fee mainly abroad, the fee is not income sourced in Finland under the Income Tax Act. Such fees based on work performed abroad include fees paid to dissertation pre-examiners or licentiate thesis examiners, or expert fees related to filling a post of professor or docent.

In general, the duties of opponents who live abroad also include work that needs to be performed in Finland. Most of the opponent's duties (examination of dissertation and statement) can be performed abroad. Attending the public examination of the dissertation in Finland is only a small part of the opponent’s duties. For this reason, the opponent's fee is not deemed income sourced in Finland in the Income Tax Act either on the account of the fee being paid to a non-resident taxpayer who lives abroad and the work being mainly performed abroad.

Allowances for travel expenses paid to a non-resident taxpayer are exempt from tax if the work is performed within a pay period mainly outside Finland. In such a case, the salary or other allowances paid to the person are not income sourced in Finland. It may also be agreed with the opponent that the opponent’s fee be waived and the only payment for the opponent’s duties be allowance for travel expenses. In such a case, the allowance for travel expenses may be deemed exempt from tax.

4.2.4 Withholding of tax at source on expert fees

Tax must be withheld by the payer at source when paying a non-resident taxpayer wage income or a fee that is subject to tax in Finland. The tax must be withheld at source at a 35-percent rate, or in accordance with the rate in the tax at source card issued by the Tax Administration.

Where a non-resident taxpayer living abroad performs the work for which they are paid a fee abroad, the fee is not income sourced in Finland under the Income Tax Act, and therefore not subject to tax in Finland. In such a case, the university can waive withholding the tax at source, even if the employee does not present a tax at source card.

If the income is sourced in Finland but Finland’s taxing rights are restricted by a tax treaty, the payer may apply the tax treaty’s rules on the wage income without a tax at source card, in accordance with section 10 of the Act on the Taxation of Non-resident's Income, provided that the payee presents an account of their domicile and reports their name, date of birth, and any other official identifying information, as well as their address in their home country.

Where it cannot be ascertained whether the income is subject to tax in Finland or how the tax treaty should be applied, the income earner or payer must submit an application for a tax at source card.

The university must report the wage income to the Incomes Register; for this, the university must have the income earner’s identifying information. If the income earner does not have a Finnish Personal Identification Number, his/her name, date of birth, gender and address details must be reported. Both the address in Finland and the address in the country of residence can be reported to the Incomes Register. For an income earner who is a non-resident taxpayer, the country of residence, the Tax Identification Number (TIN) of the country of residence if the identifier is in use in the non-resident taxpayer's country of residence, and contact information in the country of residence must always be reported. More detailed information on reporting data to the Incomes Register can be found online at Incomes Register.

5 Tax treaty tax relief for teachers and scientific researchers

Some tax treaties contain rules concerning teachers and scientific researchers under which the pay for teaching or scientific research work is exempt from tax in the country of work if certain conditions are fulfilled. For example, this may have an effect on the pay received by a person who works abroad being tax-exempt under the six-month rule as, among other conditions, the application of the rule is conditional on the taxing rights of the country of work. Furthermore, the pay of a teacher or scientific researcher arriving in Finland from a foreign country may not be subject to tax in Finland, even if Finland’s internal legislation were to allow it.

Especially in the case of graduate students, it is also worth noting that the definitions of 'researcher' and 'student' may vary from country to country. For example, the country of work may treat a Finnish academic researcher as a student. In this case, it is the interpretation of the country of work that counts.

The rules of the tax agreements concluded with Egypt, Japan and France concern both teachers and scientific researchers, whereas in the tax agreement concluded with United Kingdom, the rules only concern teachers, and with Morocco, only scientific researchers. The conditions for tax exemption vary between tax agreements, but for the rules to be in force, the person must first of all be a resident in the contracting country, as defined in the tax agreement, before the start of the period of stay in the other contracting country. For example, a teacher or scientific researcher arriving in Finland from France must be a resident in France, as defined in the tax agreement between Finland and France, before the start of their period of stay in Finland.

Notwithstanding this, for the duration of the work, the teacher’s or scientific researcher’s country of work may be their country of residence under the tax agreement. An exception to this rule is the tax agreement between Finland and Egypt, according to which the person must be a resident in the country of departure under the tax agreement for the entire duration of the work.

The tax relief for a teacher or scientific researcher applies to a person who resides in the other contracting country for a certain maximum period of time with the intention of teaching or doing scientific research work at a higher education institution or other educational institution of that country. Whether or not the purpose of stay is teaching or doing scientific research is evaluated in Finland on the basis of the circumstances at the start of the stay. However, in all cases, the tax relief may be granted more than once, provided that the person has clearly moved back to his/her home country after the maximum period of stay. According to the tax agreement between Finland and France, tax exemption is granted for the first two years, even if the period of stay in the country of work were to last longer.

In the tax agreements that Finland has concluded with Egypt and Morocco, exemption from tax is conditional on the person having been invited to work in the country of work. In this context, being invited means agreeing with the teacher or scientific researcher before they arrive in the country of work that they will be teaching or doing scientific research work there, or that the work is based on a staff exchange programme established between educational institutions of the contracting countries.

In the tax agreements that Finland has concluded with Japan, Morocco and France, exemption from tax is also conditional on the teaching and scientific research work being done to serve the public interest and not the interests of a private party or parties. The legal form of the higher education institution is not relevant in evaluating whether the teaching or scientific research work is done to serve the public interest. What is relevant, however, are the activities with which the teaching or scientific research work is affiliated.

Teaching and research, which are regarded as the basic missions of universities and universities of applied sciences, may be deemed to serve the public interest. Where the teaching or scientific research activities are performed in connection with the higher education institution’s business activities, they may be deemed to serve the interests of a private party or parties. The taxation of higher education institutions is discussed in Tax guidance for higher education institutions (in Finnish).

Summary of conditions for tax exemption in Finland's tax agreements:

Summary of conditions for tax exemption in Finland's tax agreements

Tax agreement and article	Conditions for tax exemption in the country of work
Egypt, Article 21	teaching or scientific research activities in a university or other higher education institution, or in a scientific research institute in the country of work. The exemption from tax is conditional on a Finnish scientific research institute or higher education institution having invited the person to Finland. The exemption only applies to the job specified in the invitation. the maximum period of stay in the country of work is two years the person must be a resident of Egypt under the tax agreement also for the duration of their stay in Finland.
United Kingdom, Article 22	a professor or teacher, who resides in the country of work to teach in a university, higher education institution, school, or other educational institution. the requirements include submitting a certificate of tax liability in the home country. The certificate may be submitted, for example, by filling in the following form: British teachers/Certificate of residence and tax liability for the use of Finnish tax authorities (6159e), pdf. tax liability is required for the pay in the other contacting country (e.g. a teacher arriving in Finland must have a certificate of the pay being taxed in the United Kingdom) the maximum period of stay in the country of work is two years lives, or immediately prior to the period of stay in the country of work lived, in the other contracting country
Japan, Article 20	a professor or teacher, who resides in the country of work to teach or do scientific research in a university, higher education institution, school, or other educational institution. the rule does not apply if the scientific research work is done mainly to serve the interests of a private party or parties the maximum period of stay in the country of work is two years resides or immediately prior to the period of stay in the country of work resided in the other contracting country
Morocco, Article 21	scientific research activities (and occasional teaching duties related to the research) in the country of work, with the person being invited by the state, a university, an educational institution, or other non-profit cultural organisation the pay is required to be earned from sources in the other contracting country (not in the country of work) the rule is not in force if the scientific research work is performed mainly to serve the interest of a private party or parties, rather than the public interest the maximum period of stay in the country of work is two years resides or immediately prior to the period of stay in the country of work resided in the other contracting country
France, Article 20	teaching or scientific research activities in the country of work the rule does not apply if the activities did not serve the public interest tax exemption is granted for the first two years, even if the period of stay in the country of work was longer lives in a contracting country when the period of stay in the country of work starts

6 Scholarship or other grant for scientific research

6.1 Finland’s internal legislation

Provisions on the taxation of scholarships and other grants are laid down in section 82 of the Income Tax Act. According to the above provision, scholarships and other grants paid by a Finnish public entity or the Nordic Council are fully exempt from tax when awarded for use in scientific research, whereas scholarships and other grants paid by a university, university of applied sciences or other private party, such as a foundation, represent income only partially exempt from tax.

The amount of taxable income is calculated by combining the amount of scholarships and other grants awarded by the above private parties with the amount of scholarships, grants, study grants, and awards from Finnish public entities and the Nordic Council, and subtracting from the total amount the expenses incurred in acquiring and maintaining the income. Of the remaining amount, an amount corresponding to the annual artist grant awarded by the state is exempt from tax. The rest is taxable earned income.

More detailed information on the taxation of scholarships and grants can be found in Taxation of grants, scholarships and awards for merit (in Finnish). The maximum tax-exempt amounts of grants awarded (the annual artist grant awarded by the state) for each year are presented in the guidance. Below is more detailed information regarding international situations.

The above also applies to scholarships and other grants that a foreign country or public entity pays to a person who is a resident taxpayer in Finland. Finnish residents pay tax to Finland on income earned both in Finland and in other countries.

Non-residents, on the other hand, are only liable to pay tax on income earned in Finland. Though not expressly specified as such in section 10 of the Income Tax Act, scholarships and other grants awarded to a non-resident by a Finnish payer are consistently considered income sourced in Finland, whereas scholarships or other grants awarded by a foreign payer are not income sourced in Finland.

6.2 Effect of tax treaties

A tax treaty may limit Finland's taxing rights also when the income is taxable under Finnish tax laws. As a general rule, tax treaties do not contain rules on scholarships or other grants. As a result, taxing rights are determined on the basis of the tax treaty's article concerning other income.

According to the ‘Other income’ article, income is generally only taxed in the person’s country of residence under the tax treaty. There are exceptions to this rule. According to the tax agreements concluded with the following countries, other income can also be taxed in the country where the income is sourced:

Argentina, Australia, Azerbaijan, Barbados, Brasilia, Canada, China, Estonia, Indonesia, India, Latvia, Lithuania, Malaysia, Morocco, Mexico, New Zealand, Pakistan, the Philippines, Singapore, Thailand, Turkey, Uruguay, Vietnam, and Zambia.

As a general rule, for the country of source to have taxing rights, the income should be earned in the country of source. According to the tax agreement between Finland and Egypt, income classified as other income is only subject to tax in the country of source.

In addition to the above information, the article concerning students and trainees included in the tax agreements that Finland has concluded with Egypt, Malaysia, the Republic of Korea, Thailand, the United Arab Emirates, and the United Kingdom contain a rule that concerns, for example, scholarships, grants and awards for doing scientific research. According to the rule, a scholarship, grant or award for doing scientific research is, under certain conditions, exempt from tax in the country of work that would otherwise be imposed on scholarships, grants and awards.

First and foremost, the exemption from tax is conditional on the person residing, or having resided immediately prior to the period of stay in the country of work, in the other contracting country. Also, the sole purpose of the stay in the country of work must be to do scientific research as a recipient of a scholarship, grant or award from a non-profit or an educational, scientific or religious organisation.

In addition, the exemption from tax may also apply to a scholarship, grant or award received from the country of work or another public entity, or it may only be in force, for example, for the first two years of stay in the country of work. The exemption from tax may be limited so that it only applies to scholarships, grants and awards received from outside the country of work. The conditions for exemption from tax in tax agreements vary, meaning that they should always be checked from the currently valid tax agreement.

A Finnish university or university of applied sciences cannot be considered the type of educational or scientific organisation that could award the types of scholarships or other grants or awards for doing scientific research that would represent tax-exempt income on the above grounds.

6.3 Responsibilities of grant payers and recipients

Grant payers are not under obligation to withhold tax on the grants paid. However, grant payers are required to report any scholarships and other grants whose recipient is a natural person, if the amount of scholarship or grant payment is 1,000 euros or more during one calendar year. Notifications on grants paid to resident taxpayers are to be submitted in electronic form. Notifications on grants paid to non-resident taxpayers are to be submitted using the annual notification for payments to persons with limited tax liability in Finland, form 7809 (payment type D1).

Provisions on the duty to disclose and relief from withholding obligation can be found in the following Tax Administration decisions:

• Tax Administration decision on relief from withholding obligation (in Finnish)
• Tax Administration decision on the general duty to disclose (in Finnish)

The grant recipient is personally liable to pay any taxes imposed on the grant, due to the payer being relieved from the withholding obligation. Resident taxpayers can submit an application for prepayment online in MyTax, on paper by post, or by calling the Tax Administration's telephone services. Non-resident taxpayers can request prepayment by sending an application for tax prepayment to the Tax Administration.