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Finland

Individuals in Finland are subject to a personal income tax, the municipal tax, church tax, social insurance contributions, real estate tax and inheritance and gift tax. Individuals generally are not required to file a tax return; instead, the tax authorities send out pre-completed tax returns based on information from various sources (e.g. employers and banks). The taxpayer must file a return only if the pre-completed return is incorrect. For individual taxpayers, a tax year is the same as a calendar year. For earned income, tax is normally deducted at source by the employer and an adjustment is made when the return is filed.

Residency
For income tax purposes, individuals are considered resident in Finland if their principal place of abode is in Finland or if they have stayed in Finland for a continuous period of at least six months (not including temporary absences).

Taxable income and rates
Finnish nationals face a high personal tax burden, particularly when taken together with municipal tax, church tax and social insurance contributions.

State income tax rates for 2009 range from 0% to 30.5% and municipal tax rates (on earned income only) are 16.5%-21%. These rates apply to Finnish tax residents. Nonresidents are taxed at a flat tax rate of 35%. Members of the Evangelical Lutheran Church or the Orthodox Church are also liable for the church tax, with rates varying between 1% and 2%, depending on domicile.

The first EUR 13,100 of earned income after deductions is tax-free for state taxation purposes. In 2009 there are four tax brackets of 7%, 18.0%, 22% and 30.5%. The highest rate applies to income of EUR 64,500 and above.

Determination of taxable income
Finnish nationals are taxable on worldwide earned and unearned income. Tax treaties provide relief from double taxation. Income tax, municipal and church taxes are payable on earned income and a flat rate tax is paid on investment income. In general, expenses arising from acquiring and preserving earned or investment income are deductible from the relevant taxable income calculation.

Expenses incurred in excess of EUR 500 for travelling to and from work are considered expenses for acquiring or maintaining taxable income and are thus deductible up to EUR 7,000 from earned income. A standard deduction of EUR 620 is available to all individuals. Statutory pension insurance and unemployment insurance premiums are deductible in full. The deductibility of voluntary pension insurance premiums is limited to an amount depending on the nature of the insurance. In general, voluntary individual pension contributions to foreign pension schemes are deductible for the first four years of residence in Finland.

Interest on a loan is deductible from capital income if the loan was used to buy a permanent home or property that is used to acquire income. Interest payments may be deducted from investment income. Capital losses are deductible from capital income. Medical expenses and alimony are not deductible, but there is a deductible maintenance allowance of EUR 80 per child from earned income for each child living with a former spouse.

Tax credits, to be offset against earned income in the tax year, are available for any deficit on investment income. The credit is equal to 28% of the deficit, capped at a level of EUR 1,400. The maximum amount is increased by EUR 400 for one child and by EUR 400 for two or more children. If the cap has applied, the remaining portion of the deficit may be carried forward for ten tax years.

Residents' taxable income from a business enterprise or shares in an unlisted company is split into investment income and earned income. Investment income, which is taxed at 28%, includes dividends, interest, royalties, capital gains and rental income. Investment income consists of between 10% and 20% of the return on net assets of the business activity. The remainder of business income is taxed as earned income.

For dividends received by individual shareholders from publicly listed companies, 70% is taxed as investment income at a rate of 28%. Dividends from unlisted companies are tax-exempt where the part is equal to 9% of the mathematical value of the shares, but only up to a maximum of EUR 90,000 per shareholder. If the dividend exceeds EUR 90,000, 70% of the excess is taxable at 28% and the remaining part of the dividend (30%) is tax exempt. To the extent the dividend exceeds the 9% mathematical value, 70% of the excess is treated as earned income and taxed at progressive tax rates and the remainder (30%) is tax exempt.

Dividends from nonresident companies are taxed in the same way as domestic dividends as long as there is a tax treaty between Finland and the relevant country.

Residents' foreign and domestic interest income on bank deposits and bonds are treated as investment income and taxed at 28%. Foreign interest income must be declared. Interest income earned domestically must be declared unless it is tax exempt or subject to withholding tax. Nonresidents are not subject to withholding tax on their interest income on bank deposits and bonds.

Royalty income is taxed as investment income at a flat rate of 28% if the industrial right (patent, trademark, copyright) has been bought or inherited by a resident. The resident inventor's royalty from an invention is taxed as earned income. Nonresidents are subject to 28% withholding tax on royalty income, unless otherwise specified in a tax treaty.

Residents' capital gains from property sales are taxed at the 28% uniform investment income rate regardless of duration of ownership and mode of acquisition.

Proceeds from the sale of an owner-occupied dwelling are tax-exempt if the owner has occupied the dwelling for at least two years before the date of sale. Capital losses may be offset against capital gains in the year they are realised and the three following years.

Special expatriate tax regime
A foreign expert with special expertise may choose to be taxed at a flat rate of 35% for 48 months if his/her regular monthly cash salary exceeds EUR 5,800 (except for teachers and researchers). The application must be filed within 90 days from the start of the work in Finland. The regime also can be applied to teachers and researchers at universities, colleges or other upper-level schools. The concession is not available to individuals who have been resident for tax purposes in Finland in the previous five calendar years.

Capital taxes
The net wealth tax was abolished in 2006.

 

Source: Deloitte 

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