Source: https://www.vero.fi/en/detailed-guidance/guidance/49113/taxation_of_employees_from_other_countr2/
Timestamp: 2020-07-04 16:14:10
Document Index: 464959522

Matched Legal Cases: ['§ 6', '§ 7', '§ 14', '§ 3', '§ 9', '§ 5', '§ 3']

9/7/2015−12/31/2016
4.1 General remarks on the insuring of workers and on the social security contribution required of employers
4.2 Paying social security retroactively
5.1.3 Preparing the certificate to beneficiaries
The applicable Finnish legal statute is the Act on the Taxation of Nonresidents' Income (Laki rajoitetusti verovelvollisen tulon verottamisesta 627/1978, abbreviated as LähdeVL). The procedure is to either collect a flat-rate source tax on your income or on request, perform a similar tax assessment as is normally done for Finnish residents under Act on Assessment Procedure (Laki verotusmenettelystä 1558/1995, abbreviated as VML), in which the rate of tax depends on the size of your income.
To beneficiary must have an entry confirming the right to the deduction marked on the tax-at-source card (under § 6, Act on the Taxation of Nonresidents' Income). Employers must calculate the payroll taxes such as the social security and health insurance contributions on the basis of the gross amount before deduction.
It may be that the employer has withheld as much as 60 percent because the worker failed to present a card. If they hand over a tax-at-source card to the employer later, the employer has the opportunity to adjust the amount. Employers must in this case make the necessary corrections to their Periodic Tax Return reporting where the withheld amount has been designated as 'ordinary withholding' - it should be 'tax withheld at source'; similarly, employers must file an annual Payroll Report on the form that specifies the beneficiary as a nonresident instead of the usual Employer Payroll Report form.
Under the general rule (under § 7.1.1, Act on the Taxation of Nonresidents' Income), withholding at source at the 35-percent rate concerns any trade income (nonwage compensation) paid to a nonresident individual who has arrived in Finland. Nonresident beneficiaries can apply for a tax-at-source card for trade income. The card with instructions for source-tax withholding also permits the payer to deduct the upfront 'source tax deduction'. Because the type of payment is not 'wage income', there is no need to pay the employer's social security contribution.
Outside Finland and the income is treated as taxable income in the country of your tax residence, or
In Finland and the income is not taxed due to the provisions of the applicable tax treaty (§ 14, Act on the Taxation of Nonresidents' Income).
Unless fees to athletes or sportsmen are in question, your employers (payers) must also pay the employer's social security contribution. However, they don't need to pay it if you have a valid A 1 or E 101 certificate proving that your country of residence will continue your social security coverage while you work in Finland. Similarly, they don't have to pay it in circumstances where people arriving in Finland have a certificate from Finland's Social Insurance Institution, Kela, proving that the Finnish social security scheme does not cover them (for more information, see section 4 of this guidance).
The foreign national became a Finnish tax resident when he or she starts working in Finland;
He or she is paid at least €5,800 per month for this employment during the entire period when he works;
The source tax is collected as a final tax; the employer withholds an amount from a wage and forwarded it to the Finnish Tax Administration. No health insurance contribution is collected. The employers are required to pay social security, pension insurance and other insurance contributions in the usual way unless the foreign key employee presents an A1 or E101 Certificate.
In 2015, the treaties with France, the United Kingdom, Japan and Egypt provide for exemptions as follows:
If the employment income of an individual arriving from a foreign country to Finland stays below €1,165.00 per month (in 2015) or the hours are fewer than 18 hours a week, there is no requirement to pay the employer's social security and health insurance contributions in Finland. Under the circumstances, the individual does not become covered by the Finnish social-security system. If length of stay is more than two years, the employer's social security and health insurance contributions must be paid unless the individual has received a Decision of the Social Insurance Institution that defines him or her as excluded from the Finnish residence-based social security system (for more information, see section 4 of this guidance).
Illustration no 4: Having agreed to stay for one year as an "au pair", an individual arrives to Finland from Italy. The agreement made with the host family involves a cash compensation in the form of pocket money of €500 per month (net) and an additional compensation in the form of room and board (a single room and all meals), valuated at €480 under the valuation rules laid down by the Official Decision of the Tax Administration on the Valuation of Benefits-In-Kind (the 2015 version). Use the Gross Income Calculator on the Tax.fi website to ascertain the total income before taxes and charges: the result of the calculation in this particular case shows that the monthly gross pay remains below €1,165. For this reason and also for the reason that the au pair work is for less than 2 years, there is no requirement to pay the employer's social security and health insurance contributions.
Although the employer would not have to pay social security and health insurance contributions, the requirement to pay the following charges is always in force: the pension insurance premium (in respect of workers who are 18 years old and older), the unemployment insurance (17 years and older) and accident insurance premiums. However, the employer does not have to pay them if the individual comes from an EU or EEA country or Switzerland and presents an A1 or E101 Certificate proving coverage by their home country; or presents a similar certificate from a country that has signed a convention on social security with Finland.
No Finnish income tax is collected on the pay. However, the Finnish employer must pay the Finnish social security contribution and withhold a health insurance charge on the pay. These obligations do not concern employers who have frontier workers working for them for a shorter time than 4 months, or employers who have workers who have presented either an A1 or an E101 Certificate.
A worker arriving to Finland in order to be employed by a Finnish employer is almost always entitled to being social insured immediately when relocating to Finland if this is intended as a permanent relocation or if he or she works in Finland for at least four months. For purposes of calculation, the cut-off date for the four months is not affected by the quantity of days worked during the first, second, third and fourth month of presence.
The provisions governing the obligation of employers to pay social security contributions are laid down in Act no 366/1963 governing Social Security, abbreviated as StmL. If the worker is insured in this country within the meaning of Health Insurance Act, the employer must pay the contribution to the Tax Administration (§ 3.1, Act no 366/1963, StmL).
The health insurance (contributions consisting of an earned-income part and a healthcare premium) is either included in the withholding rate or added to the source-tax rate of withholding. When the income serving as the base is taxable within the source-tax regime, both the social security and health insurance are paid on the gross amount from which the 'source tax deduction' is not yet subtracted.
If the pay of the individual who has arrived from a foreign country is below the minimum agreed by a collective labour agreement or if no such agreement is applicable, stays below €1,165 per month or the hours are below 18 a week, he or she is not covered by the Finnish social insurance for work-related reasons. The employer is then not required to pay social security and withhold a health insurance payment on the individual's pay.
Fees paid to sportsmen are not subject to social security contributions. For other exceptions, see table below.
Sotu-maksun ja sava-maksun määräytyminen ja verotus 2015 taulukkkomuodossa (only in Finnish and Swedish)
Sosiaalivakuutusmaksut vuonna 2015 (st-maksu, minipidätys yms.) (only in Finnish and Swedish)
If an individual's work was originally planned as getting completed in less than four months but it turns out later that he or she will continue to stay and work for full 4 months or longer, the employer must pay up the social security contributions for the entire period (for more information, see the Tax Administration's guidance no A54/200/2013 (available in Finnish and in Swedish)).
In this case, the employer must enter corrections to their Periodic Tax Returns for the first months. We recommend contacting the Tax Administration.
An exception from the above is a situation where the worker was originally supposed to work for less than four months but continues working in Finland and moves on to work for another Finnish employer. His or her employer does not have to pay social security contributions retroactively.
Payers who withhold tax at source must pay it on to the tax office by the 12th day of the following calendar month. For further guidance, see Using the Tax Account.
Employers must complete Periodic Tax Returns giving details of the amounts paid, tax withheld at source, and paid social security contributions. The due date of this tax return is also the 12th day of the following calendar month. However, if you file it on paper, you must ensure that it arrives to the Tax Administration by the 7th of the following calendar month.
If the worker has shown you a nonresident's tax card, read further instructions on how to fill out the Periodic Return form.
Read more about the filing of Periodic Tax Returns.
Tax at source is withheld in amounts rounded out to exact figures of full euros and cents. However, if the total amount you are paying to the beneficiary in the course of a calendar month is so low that the withheld source tax would stay below ten euros, you do not have to carry out the withholding at all (under § 9.3, Act on the Taxation of Nonresident's Income). In these circumstances, if you are a non-regular employer (= a casual employer), you also don't have to pay the employer's social security contribution.
Payers are required to hand out certificate to beneficiaries (§ 5, Decree on the Taxation of Nonresidents' Income). Certificate must have at least the following information printed on it: beneficiary's name, amount paid, category or type of payment, year of payment, amounts of withheld tax, insurance contributions, and your name. We recommend using English. This facilitates any administrative processes in foreign countries, for example, if the authorities of the beneficiary's country of residence were to give credit for the Finnish-paid taxes. We also recommend informing your worker (or other beneficiary) that they should keep their certificates in storage because they might have to enclose them with the income tax return they submit to the tax authority of their country. Click the link below to see a model certificate.
The information you submit after the end of the year must also contain sufficient details for identifying the nonresident. For this reason, we emphasize that you must collect the personal data needed for identification on your workers (other beneficiaries) upfront, before you make any payments to them. If the nonresident you are paying has presented a tax card to you, the sufficient personal details for identification are printed on the card (either a tax-at-source card or a nonresident's card).
If you as the payer don't succeed in gathering the beneficiary's details on their address in country of residence and date of birth (in the case of a natural person), you must always withhold the source tax without implementing any deductions or exemptions based on a tax treaty. The reason for this is that if incomplete details are available regarding the beneficiary's identity, it is deemed that his or her facts remain unclear: it is not certain that he lives in a foreign country and has the right to enjoy the benefits offered by the treaty.
Further guidance on annual information reporting and payments (in Finnish; in Swedish): Sotu-maksun ja sava-maksun määräytyminen ja verotus 2015 taulukkomuodossa
Sometimes the withholding of source tax cannot be carried out because employers only give fringe benefits to their workers instead of paying them in cash. In this case, the employer must still pay the social security contribution on the value of the benefit they give (for more information, see section 4 of this guidance with the descriptions of when no social security payment is required).
Sometimes the employer cannot carry out withholding because they only give fringe benefits to their workers instead of paying them in cash. In these circumstances, the party giving the fringe benefit must report it on an Employer Payroll Report and pay the employer's social security contribution.
In exceptional circumstances it may be that the worker does not perform work in the service of the party giving the fringe benefit at all; instead, he or she only works in the service of their foreign employer company. In this case, if the party giving the fringe benefits passes on the expenses associated with them to a foreign company by issuing invoices to it, the tax office will consider the fringe benefits as being given by the foreign employer company instead. Then the Finnish business is not under the obligation to pay the employer's social security contribution. However, in its capacity as a 'substitute payer' (sijaismaksaja; ställföreträdande betalare), the Finnish business is the party with the obligation to submit an Employer Payroll Report to the Finnish Tax Administration.
If an individual who works for a foreign employer gets paid by a Finnish business for the work he or she does in Finland, the Finnish business is regarded as a 'substitute payer' (sijaismaksaja; ställföreträdande betalare) and must therefore carry out tax withholding and file an Employer Payroll Report. However, such a payer does not have to pay the employer's social security contribution (under § 3.4, Act governing Social Security, StmL). The worker must ask the Tax Administration for a tax card. When the request for the card is being processed, the Tax Administration will also check whether the tax treaty in force has an impact on the worker's taxes.
Illustration no 7: A worker arrived 1 February 2014 and according to his original plan he only expected to stay for a shorter time than six months. However, as it turned out, he stayed longer and continued working for the same employer as in the beginning. During the first part of the year, the employer followed the instructions printed on his tax-at-source card and withheld source tax on his wages. At that time he was also entitled to the 'source tax deduction' that was made. However, the withholding changed during the latter part of the year from source-tax withholding to ordinary withholding; the worker had obtained an ordinary tax card which he handed over to the employer.
The employer had during the first months entered the amounts withheld on Line 606 - tax at source - on Periodic Tax Returns. In spite of this, the employer must now submit the ordinary Employer Payroll Report on Form 7801e to the Finnish Tax Administration, designating the amounts originally reported as tax at source as ordinary withholding. Similarly, the employer must make a correction to the earlier Periodic Tax Return filings, changing the name of the source-tax withholding to ordinary withholding.
However, a foreign company that has a permanent establishment in Finland is comparable to a Finnish employer. Examples of what constitutes a permanent establishment include a long-term building project, an installation job, an assembly operation. It is in the jurisdiction of the Finnish Tax Administration to decide whether a foreign company is treated as having a permanent establishment: Employers that are domiciled in a foreign country but are treated as having a permanent establishment in Finland are employers from which any payments of wages or salaries are taxed in Finland.
If a leased employee is in question coming from a listed country — see the countries listed in section 3.2 of this guidance — or coming from a non-tax-treaty country, Finland may always impose tax the wage income. Finland may tax the wages of the leased employee even if the payer were a foreign employer with no permanent establishment (for more information, see section 3.2 of this guidance).
the recipient is present for a period not exceeding 183 days either in any 12-month period or, depending on the provisions of the tax treaty concerned, not exceeding 183 days within one particular calendar year, and
If the foreign company is not treated as having a permanent establishment in Finland, it is not concerned by the employer's general obligation to withhold tax when paying out wages. Similarly, it is not required to pay the Finnish social-security contribution.
If workers remain present in Finland for longer than six months, the information-reporting requirement associated with the filing of an Employer Payroll Report is always in force. Use Form 7801e. If the foreign employer company provides leasing contracts, sending its employees to work in Finland as leased employees, it must file an annual information return on Form 7809e also for the nonresidents on its payroll. To file the report there is no need to be registered in Finland.
Employers and workers may in some circumstances signed agreements on having the worker contact the insurance companies and buy the contracts on the employer's behalf. However, in this case it is required that the contracts are made in the employer's name, not the worker's. The worker is only entitled to the tax deductions that concern the worker's shares of the paid insurance premiums.
For more information, see Obligations of a foreign employer.
Page last updated 9/8/2015