The article will describe the calculation rules for Finnish Taxes, and how to set up the system to calculate the Finnish Tax automatically.
General rules
Finnish residents
The tax rate is received from the person's tax card. The percentage rate is calculated individually based on the income and deductions recorded in the personal tax assessment for the year before last. For example, the percentage rate on the 2022 tax card is based on the income and deductions recorded in the tax assessment for 2020, and 2021 tax cards – based on 2019, etc.
The tax card is provided and updated by the Finnish Tax Administration every year in December or January, the tax card normally takes effect from the 1st of February.
The income and deductions used for calculating the tax rate are shown in the tax decision enclosed with the tax card.
A person can also request a revised tax card for the past year, then the tax rate for the new year will be calculated according to the information that the person gives for the revised tax card.
Tax cards are delivered to employers electronically from the Tax Administration.
Finnish Non-residents
Staying 6 months or less
If a person stays in Finland for no longer than 6 months, they are considered a non-resident taxpayer.
There are 3 schemes of tax withholding for non-resident taxpayers:
1. When a person does not hold a tax card
If a person's employer is Finnish or has a permanent establishment in Finland, and the person does not have any tax card, tax is withheld at source on income that they receive for the work they do in Finland. The tax at source is usually 35%.
2. When a person holds a Tax-at-source card
The tax card may include a deduction for tax at source: €510 per month or €17 per day. The employer can make the deduction from income before the tax is withheld.
Example: If you are paid €2,000 per month and you have no tax-at-source card, the tax is 35% or €700. If your employer has received a tax-at-source card from you with instructions for giving you a tax-at-source deduction, the tax is €521.50 (= (€2,000 – €510) × 35%).
The tax at source is a final tax. You do not need to file a tax return to the Finnish Tax Administration.
3. When a person applied for a tax card by progressive scale.
If a person’s country of residence is an EU country, Norway, Iceland, or Liechtenstein, or a country that has a tax treaty with Finland, and if a person holds a Finnish personal ID, they can ask to be taxed progressively.
Progressive taxation means that the tax treatment depends on the income – the more they earn, the more tax they pay. In the progressive scheme, all the income and deductions over the year are taken into consideration when the tax rate is calculated.
Staying longer than 6 months
If a person comes to Finland temporarily but stays for longer than 6 months, they are treated as a resident taxpayer. This means that they will usually have to pay tax to Finland on all the income they receive. However, their home country and Finland may have signed a tax treaty that prohibits Finland from taxing the income they receive from outside Finland.
If a person has a Finnish employer, they need a Finnish personal ID and a tax card, and their tax depends on the annual gross income according to a progressive scale.
Individuals that stay in Finland for longer than 6 months, must file a Finnish tax return.
How to set up the automatic calculation of Finnish Taxes
Organization setup
The Employee Pool needs to be linked to the National Payroll Code “FI”
Tax Module setup
Go under Payroll Module > Tax Module
Payroll National Code - select “FI” to define the settings for Finnish Taxes
Source For Tax Basis - select the Payroll Accumulator that is set up to accumulate the taxable income
Entry Code to be created for Tax - select the EC that will calculates the tax, note that only ECs in range 900 and over are available for selection, ECs 994-999 are excluded as used for other purposes.
Source for Tax Days - select the Payroll Accumulator that is set up to accumulate the days when the employee received the taxable income
Tax at Source Withholding % - define the percentage of tax for the employees holding Tax-at-source cards, currently, it is 35%
No Tax Card Withholding % - define the percentage of tax for the employees who do not present a tax card to the employer, and the employer has not received the withholding tax information electronically, currently, it is 60%
Employee setup
All employees need to be set up under the Payroll > Constants tab to have the automatically calculated taxes.
Basic Tax Card
The Tax Cards will be imported from the Tax Office with the help of the plugin [link to the documentation to be added]. During the import:
Automatic Tax will be set to “FI”
Income Type - the income type selected during the import. For the maritime industry, it is usually the income type 25 Merityötuloa
Percentage - the tax percentage applied on the income below the Income Limit
Additional Percentage - the tax percentage applied on the income above the Income Limit
Income Limit - the limit according to which the Percentage or Additional Percentage is applied
Valid From - the tax card validity start date
If the Tax Card is imported electronically into Constants, all fields appear disabled for modifications.
The Tax Card information can also be set up manually if needed:
Tax-at-source Card
When the employee is taxed at source (non-resident without the Tax Card or with the Tax-at-Source Card), the “Non-resident” option has to be enabled on the employee Payroll Constants:
Without the Deduction for Tax at Source (no deduction from income before the tax calculation):
Without the Deduction for Tax at Source (€510 per month deduction from the income before the tax calculation)
Tax by Progressive Scale
If the employee is a Finnish non-resident and applied to be taxed by progressive scale, the “Non-resident” and “Taxed by Progressive Scale” options have to be enabled on the employee Payroll Constants:
Finnish residents without Tax Card
When the Finnish resident employees do not present a tax card to the employer, and the employer has not received the withholding tax information electronically, they are linked to the FI Automatic Tax to be calculated with 60% tax according to the Tax Module settings.