When a foreign company is planning to start business in Finland it should find out the liabilities it will have in Finland. The liabilities may be related to e.g. paid salaries, wages and contributions, employees’ social security, VAT or income taxation. Concerning employees of a foreign company also the right procedure in the employees’ individual taxation needs to be determined.
Company form of a foreign company starting business in Finland
When a foreign company comes to Finland it can organize its business in many different ways. The most common ways are either establishing a subsidiary or registering a branch. The main difference between these is that a subsidiary is a separate company from its parent company and has the obligations and liabilities defined in Finnish company law legislation. A branch is a part of its foreign head office (foreign company) so it’s liable to follow Finland’s legislation only for the part the business is carried on here.
A subsidiary and a branch need to keep their accounts according to Finland’s legislation. When necessary, it needs to enter in the VAT and employer registers and file an income tax return in Finland. Also entering in the prepayment register is recommended when possible.
Even though there was neither a subsidiary nor a branch in Finland, business carried on here may constitute a permanent establishment in Finland for a foreign company in both income taxation and VAT. When having a permanent establishment, the company is liable to income tax and/or VAT in Finland and it may also have liabilities related to paid salaries, wages and contributions. In addition, it should be noticed that when no tax treaty is applicable, a foreign company is income tax liable from the business carried on in Finland, even though there was no permanent establishment in income taxation.
Registering a foreign company in Finland
When a foreign company starts carrying on business in Finland and it doesn’t establish a separate subsidiary or register a branch into the trade register, it still needs to file a start-up notification to the tax authorities. Based on the start-up notification the company is entered in the necessary registers.
Company carrying on business in Finland may be entered in the prepayment register if Finland and the home state of the company have a tax treaty or the company has a permanent establishment in Finland. If a company is not in the prepayment register or doesn’t have a 0 % source tax card, the Finnish customers need to withhold tax on the payments made to the company.
A foreign company doesn’t need to enter in the employer register, if the company doesn’t have a permanent establishment in Finland. However, the company needs to file paid salaries and wages to the incomes register if the employees stay in Finland for more than six months, which means that they are tax residents and pay taxes to Finland as tax prepayments. If the employer has voluntarily entered in the employer register, it needs to withhold tax on the salaries and wages of the employees.
A foreign company needs to enter in the VAT register if it has a VAT permanent establishment through which business is carried on. In addition, a foreign company needs to enter in the VAT register if reverse charge procedure isn’t applied, even if it hadn’t a permanent establishment in Finland. This kind of situation is caused e.g. when goods or services are sold even to some part to private persons. With certain conditions, a foreign company may also voluntarily enter in the VAT register. Read more of value added tax here.
When a foreign company starts carrying on business in Finland, the company needs to review liabilities of the company and its employees in Finland. When determining these liabilities especially the nature and the duration of the business are taken into account. Therefore, it’s advisable to review case-by-case the more specific content of these liabilities together with experts.