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International Transactions
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BERGMANN
Attorneys at Law
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Tax Registration Related to the Conduct of Business in Finland |
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If you are conducting business in Finland, you are probably already registered in one or other of the Finnish public registers. If not, such registration will often be required or at least advisable. Your activities in Finland may be considered to form a permanent establishment even if you are not aware of that. A company that conducts business on an ongoing basis through a permanent establishment in Finland always has to submit a start-up notification to the Finnish Trade Registry.
The start-up notification contains the basic information about the company and its Finnish branch, including the company name, line of business, contact information, legal representatives etc. Even if your activities do not amount to permanent establishment, voluntary registration will often be advisable. In addition, registration in the Prepayment, VAT and/or Employer’s Register may be required.
In practice, a company that wishes to conduct business in Finland will often also have to register in the so-called Prepayment Register maintained by the Finnish Tax Administration. As a result of the registration, the tax authority will define and collect pre-tax based on the estimated income from the registered activities in Finland for the relevant accounting period. If an enterprise neglects to withhold or pay tax accordingly, it may be removed from the Prepayment Register
In principle, registration in the Prepayment Register is voluntary. However, if a company provides any services which involve carrying out work for Finnish customers, registration is a practical necessity. In the absence of such registration, customers are obliged to withhold tax before paying invoices containing any kind of fees or compensation or for work performed. No tax has to be withheld if the company’s business in Finland is limited to the selling (or leasing) of goods.
As a rule, foreign companies or entrepreneurs without a permanent establishment in Finland are not obliged to pay income tax in Finland. Nevertheless, the Finnish customer or service recipient is obliged to withhold tax at source from invoices for work performed in Finland if the foreign business is not registered in the Prepayment Register and does not present a tax-at-source card with a percentage of 0%. The withholding percentage is 13% for payments to companies (and 35% for payments to self-employed individuals). As a result of changes made in 2007, registration in the Finnish Prepayment Register is now also possible for foreign companies (or self-employed entrepreneurs) that conduct business in Finland only on a temporary basis and do not have a permanent establishment in Finland, provided, however, that the foreign business is located in a country that has concluded a tax treaty with Finland.
A foreign company with a fixed establishment in Finland has to register in the VAT Register in the same manner as Finnish taxpayers unless the company’s turnover in Finland stays below €8,500 during the accounting period in question.
Companies not obliged to register in the VAT Register (either because they do not have a permanent establishment in Finland or because their turnover is lower than €8,500) may nevertheless apply for voluntary registration. Indeed when conducting business in Finland, voluntary registration for tax purposes will often be a practical necessity. (For further information on this issue, please refer to our article International Deliveries and Services and Value Added Tax).
VAT-liable businesses must file a monthly VAT tax return with the regional tax office and pay tax on their own initiative by the 15th day of the second calendar month following the period of the taxable transaction. For example, the monthly tax return and payment attributable to May must be submitted and paid at the latest on 15 July.
In addition, foreign enterprises with a permanent establishment in Finland have to register in the Employer Register maintained by the Tax Administration if they employ more than one permanent employee during the tax year. In this regard, the foreign company has the same obligations as a Finnish employer.
In particular, the employer has to withhold Finnish income tax from salary paid by reference to the tax percentage shown in the employee’s tax card. (If no tax card is presented, the withholding percentage is 60%). Furthermore, the employer is obliged to file monthly payroll reports (until the 15th day of each month) on the salary paid (and the income tax withheld) in the previous month. In addition, an annual payroll report has to be filed with the tax office by 31 January in the year following the tax year in question.
In general, foreign businesses with no permanent establishment in Finland do not need to register in the Employer Register, but rather the employees are themselves responsible for making the necessary prepayments of income tax on their salary. Voluntary registration in the Employer Register is nevertheless possible.
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