A person living in Finland may get income from abroad in many different situations. Income may hail from e.g. assets abroad or earned income from work abroad.
Person’s tax status is determined based on national legislation of each country. The national legislation mainly defines the way and the extent of taxation. A person living permanently in Finland is tax resident in Finland, which means that he’s tax liable on his worldwide income. Nevertheless, in a tax treaty situation the tax treaty between Finland and the other country may limit the right to tax that Finland would have based solely on the national legislation. Instead, tax treaties may never create or broaden country’s right to tax.
It’s good to notice that in Finland a resident taxpayer is liable to file his worldwide income in tax return even though Finland wouldn’t have right to tax based on a tax treaty or the income was exempted based on Finland’s national legislation.
Rent income from abroad:
If a person living permanently in Finland receives rent income from e.g. an apartment or a real estate abroad, the income is generally considered to be income from immovable property concerning which the other country has usually the primary right to tax. However, tax treaties don’t generally limit the country of residence from taxing rent income from abroad, and hence the income is also taxed in the country of residence. The country of residence eliminates double taxation based on national legislation and tax treaty by either crediting the taxes paid abroad from the income taxed in the country of residence or by exempting the income from taxation.
Dividends from abroad:
When a person living permanently in Finland receives dividend or other similar income from abroad, the source state usually withholds tax. Tax treaties have usually rules concerning the amount of tax that can be withheld.
The tax withheld from the income according to a tax treaty is credited in Finland from the tax that is to be paid to Finland from the same income. Here, regulations concerning elimination of double taxation are applied. It should be taken into account that in Finland only the amount of tax that should be paid according to Finnish regulations can be credited and that the credited amount of tax can’t be more than the amount actually paid. Therefore, part of the tax paid abroad may be left uncredited.
Earned income from abroad:
If a taxpayer that’s considered resident in Finland works and receives salary and wages abroad, the division of the right to tax between Finland and the country of employment needs to be reviewed. When working abroad also social security questions need to be looked into.
When an employee is transferred abroad, the reason for the stay (work/other) needs to be taken into account when evaluating how the right to tax the salary and wages is divided.
According to the six months rule, income from employment abroad is not taxable in Finland if the employment is the reason for the stay abroad and if the stay lasts continuously for at least six months. This can only be applied if the tax treaty between Finland and the other country doesn’t prevent the country of employment from taxing the income. The six months rule may be applied regardless of whether the income is taxed abroad or not.
If the reason for the stay abroad is other than the employment (e.g. family reasons), the six months rule can’t be applied. In this kind of situation right to tax the salary and wages is determined based on other regulations and tax treaties.
We are here to help you:
The right to tax earned income from abroad is determined based on the individual circumstances of each case. Therefore, help from experts is needed when finding out the obligations of both the employer and the employee. Central factors that need to be taken into account are e.g. planned and actual duration of the stay abroad, stay in Finland (and other countries) during the employment, rules in the applicable tax treaty and the reasons for the stay abroad. Also, factors related to the paymaster, like group relationships and working for separate group companies, may have an impact on the evaluation.
In international situations it’s nearly always important to review also the regulations of the other country. We can reach local help easily through our Nexia International network.
Amongst other things, we draft applications for refund of foreign withholding taxes on dividends.