If you receive income from a country that is not the country of your tax residence, the entire amount may be subject to tax in two countries at the same time. To make sure that their citizens do not have to pay taxes twice, many countries of the world have signed treaties with one another for the avoidance of double taxation.
The treaties are agreements on how double taxation will be eliminated, and on how the rights to collect taxes on various types of income are divided between the “Contracting States” i.e. between the countries that sign the treaty.
For example, there is a tax treaty for all the Nordic countries. This treaty contains rules on which Nordic country receives the taxing rights in various circumstances, and on how double taxation of a taxpayer’s income is avoided.
Tax treaties dealing with the income of individual taxpayers typically provide rules on the income taxes of individuals, on inheritance taxes and on gift taxes.
- Finland’s tax treaties with other countries
- The Nordic tax convention between Sweden, Denmark, Norway, Finland and Iceland
Non-standard provisions in some treaties
Finland has signed tax treaties on income taxes with some 70 countries. Finland’s treaties are primarily based on the OECD’s model tax treaty. However, some of them do not entirely coincide with the OECD model. This article reviews the non-standard provisions found in some treaties.
Note: This article is only a short review and a general discussion of the matter. Whenever you have a tax question to resolve, and a treaty is applicable to your circumstances, you should look up the exact texts of that treaty.
The Finnish “church tax” is not covered by the treaties with:
The United Arab Emirates, Egypt, Philippines, Malaysia, Morocco
The Finnish “municipal income tax” is not covered by:
The treaty between Finland and Philippines
In most cases, double taxation is eliminated by means of the credit method. However, the treaties on income tax with the following countries provide for the exemption method:
Egypt, Spain up to end of 2018, and France (but if the taxpayer’s income is a Director’s Fee received from France, or a fee to an artiste or sportsman, the credit method prevails)
In general, if income is received by a taxpayer but it does not fall into any of the categories of income listed in the treaty, the income is taxed in the Contracting State where the taxpayer is a resident. However, there are some treaties that confer the taxing rights, by way of exception, on the Contracting State of source as well. Finland’s treaties with the following countries do so:
Argentina, Australia, Azerbaijan, Barbados, Brazil, Canada, China, Egypt, Estonia, Hong Kong, India, Indonesia, Latvia, Lithuania, Malaysia, Morocco, New Zealand, Pakistan, Philippines, Singapore, Thailand, Turkey, Uruguay, Vietnam, Zambia
Some treaties have a provision that grants Finland the right to levy tax, any other treaty provisions notwithstanding, on the income of Finnish citizens who also are tax residents of Finland although they might, for treaty purposes, be residents of the other Contracting State. The treaties with the following countries have that provision:
Argentina, Barbados, Brazil, the Czech Republic, Germany (with year 2017 as the final year), Greece, Italy, Yugoslavia, Korea, Latvia, Lithuania, Luxembourg, Mexico, Pakistan, Romania, Slovakia, Sri Lanka, South Africa, United Arab Emirates, Thailand, Ukraine, New Zealand, Uzbekistan, Russia, Estonia, Zambia
The treaties with the following countries require that a credit is given in Finland for an amount of foreign tax that in reality was never paid (as a Tax sparing credit):
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), Spain – Article 23.3 (with 2018 as the final year), Turkey – Article 22.2d.
When moveable assets are sold or transferred and the seller makes a profit, this capital gain is generally only taxed in the Contracting State where the seller is a resident. However, most Finland’s tax treaties contain a provision that when a taxpayer sells the shares of a housing-company apartment, the capital gain, if any, may be taxed in the country of residence of the housing company. The treaty signed with the following country provides that a capital gain, received when an apartment in a Finnish housing company is sold, is not taxed in Finland:
Besides the above non-standard provisions, some of Finland’s tax treaties provide for special rules on foreign students and trainees. For more information, see Taxation of students and trainees in international situations.