Tax Authorities pro-actively monitor the activities of foreign businesses in Finland
The Finnish Tax Administration is focusing more on risk-based monitoring of businesses in Finland. This means that especially foreign entities having any activities in Finland often receive a clarification request regarding potential tax and reporting liabilities in Finland. In the Finnish legislation, the Tax Administration has a right to request information from various sources.
Also, the Tax Administration cross-checks information from different sources/registers and they utilize the information provided by other countries according to the ongoing information exchange agreements. Thus, the information regarding the activities of a foreign business in Finland reaches the Finnish Tax Administration relatively easily.
This is why it is essential that any foreign entity planning to conduct business activities in Finland, should proactively determine the related compliance requirements. Failures in following the liabilities will result in extra administrative costs, as well as penalties and late-payment interests in addition to payable taxes.
Corporate income taxation
The Finnish Tax Administration is active in investigating the income tax liability of foreign entities having activities in Finland. A foreign company having activities in Finland is liable to report to the Finnish Tax Administration, even if the company would argue not having a permanent establishment in Finland. Failure to provide the information often leads to assessed income taxes as well as penalties and late-payment interest in Finland.
Moreover, Finnish customers of a foreign service provider are liable to levy withholding tax from payments made to foreign service providers, when the work is carried out in Finland. The Finnish customer can refrain from the withholding only under certain circumstances, e.g. when the foreign entity is registered in the Finnish prepayment register or provides a 0% tax at source card of the Finnish Tax Administration to the payee. The withholding tax becomes final, if the foreign service provider does not report the activity and possible income in Finland.
It is always the best and cost-efficient approach to analyse the permanent establishment position as well as ascertain the tax registration and reporting liabilities concerning corporate income tax before starting the activities in Finland.
Value added taxation
Fixed establishment for VAT purposes is evaluated separately to permanent establishment for CIT purposes. Thus, any potential liability to VAT register and pay VAT should be separately investigated. Even if the activities in Finland are invoiced from abroad, Finnish VAT liability may arise if the Finnish fixed establishment is considered to intervene in the supply. Also, there are specific VAT rules for several industries (such as construction and real estate related services).
Based on the Finnish legislation, a foreign company shall register a branch or other entity in the Finnish trade register when the foreign entity is running a continuous business or trade in Finland. Temporarily a foreign company may carry on the business in Finland without such registration.
Payroll Reporting & HR Resource Services
Any entity having employees working in Finland is obliged to report the compensation, benefits as well as certain business travel reimbursements (whether seen taxable or not) to the Finnish Incomes Register. This requirement is valid for foreign entities and even though the entity has not registered itself in Finland or not. There are certain exemptions to the reporting and we are happy to assess if the exemptions would be valid for a particular case.
We are happy to help in checking what kind of registration and reporting is required for a certain foreign entity concerning payroll. We also provide these services as we offer full HR resource and payroll services.
Employment law and employer’s obligations
When hiring local employees in Finland or posting an employee to work temporarily in Finland the employer company shall take into account that the Finnish mandatory employment and social security legislation also sets some obligations for the foreign employers. Before entering Finland the terms related to employees’ work in Finland should be clarified in order to have a clear understanding that there is no breach related to Finnish employment law and that the applicable employment terms are clear for all parties. The Finnish Employment Contract Act also extends the scope and applicability of certain collective agreements. If a national collective agreement is regarded as “generally binding” in the field of business concerned, its terms shall be applied as minimum conditions by all employers in the sector even though the employer would not be a member of any Finnish trade union.
The employer is also liable to arrange the Finnish social security and employment pension insurance coverage in accordance with the Finnish legislation unless the employee holds a valid certificate of coverage stating that the employee has remained covered by the home country social security system. PwC Finland is happy to assist in reviewing the applicable terms of the employment and comment further on the applicability of a certain collective agreement or other terms of the Finnish employment legislation.
If you have planned or ongoing business activities in Finland, our team of specialists in different fields of international tax/legal matters is happy to assist in determining potential liabilities in Finland.
Feel free to contact us and we are happy to provide a tailored proposal of our services, whether you are interested in a preliminary high level analysis of liabilities or a more thorough assistance in registrations/compliance reporting.