INDIVIDUAL TAXES
SIGNIFICANT DEVELOPMENTS
There have been no significant tax or regulatory developments affecting individual taxation in the past year.
TERRITORIALITY AND RESIDENCE
Finland taxes residents on their worldwide income. Residents are taxed according to progressive tax rates for national tax purposes and flat rates for municipal(and church and social security) tax purposes.
A nonresident alien, e. g., one occasionally working in Finland, is taxed on Finnish-source income only. Tax treaties may provide, however, that under certain conditions even this income may not be taxed in Finland.
Nonresidents are taxed at flat rates in accordance with the Nonresidents' Tax Act. Nonresidents do not pay that social security charges to Finland.
Qualified nonresident status with a flat tax rate of 35% for those foreign employees whose work requires special knowledge is available as from January 1, 1996. Other conditions are that monthly cash salary exceeds FIM35,000 and that the length of the assignment is 6 to 24 months.
Individuals are deemed to be resident in Finland if they have their permanent home or habitual abode in Finland or if they are present in Finland for a continuous period of more than six months. A temporary absence from Finland does not prevent a stay from being deemed continuous.
Finnish citizens are ,however, considered resident in Finland for three full calendar years after they have left the country, unless they prove they had no essential connections therewith in the fiscal year in question. Residence may start or break off in the course of a year.
GROSS INCOME
Employee gross income/Taxable personal income of a resident employee includes, interalia ,wages and salaries in money and in kind, directors' bonuses, commissions, employee stock options, options, rental value of employee's free housing, pensions and annuities, living and housing allowances, car benefits, unemployment benefits, and capital gains(if taxable). The income is divided into earned income and capital income.
Earned income tax is imposed at progressive rates. Capital income is taxed at a flat rate of 28%. Dividends for other than stock quoted at Helsinki stock exchange are divided into capital income and earned income.
Finnish-source income of a nonresident alien is taxed definitively at source. Unless lower rates are provided for in a tax treaty, the withholding tax rates are 35% on salaries and pensions and 28% on dividends, on interest and royalties. In principle, no deductions are allowed against the income other than that mentioned above is subject to income tax assessment at flat rates of 35% or at a rate of 28% if it is in the nature of capital income, unless a tax treaty provides otherwise.
Capital gains and investment income/Capital gains are fully taxable at a flat rate of 28%.
A gain from the sale of the taxpayer's home is exempt from taxation if the house or apartment has been the taxpayer's home for at least two years continuously during the taxpayer's ownership.
DEDUCTIONS
Business deductions/Expenses incurred in acquiring or maintaining taxable income are, in principle, deductible items. The maximum allowance for traveling expenses to and from work is FIM23,000, with an own-risk share of FIM3,000. Generally, only traveling expenses using the least expensive means of transportation(public transportation: train, bus, streetcar, or
ship) are deductible. Other deductions for earning income may include expenses for professional literature, own tools, etc., against original payment receipts. Moving, automobile and entertainment expenses are generally not deductible.
A standard deduction of 3% of salary income, but not more than FIM2,100,is granted if the amount of business deductions is less than that.
Nonbusiness expenses/The following deductions are available.
1. Pension premiums-Mandatory pension premiums are wholly tax deductible for both national and municipal tax purposes(see the calculation below).
The deductibility of voluntary pension premiums is limited.
2. Unemployment insurance premiums-Mandatory unemployment insurance premiums are deductible for both national and municipal tax purposes(see the calculation).
3. Interest-Most interest expenses paid are deductible when calculating capital income.
Medical expenses are not deductible.
TAX CREDITS
For their period of residence, Finnish residents can credit national taxes paid abroad a final tax on income against national tax payable in Finland on the same income.
OTHER TAXES
Social security taxes/A sickness insurance premium of 1.5% is paid on income for municipal taxation.
Local taxes on income/Municipal tax is levied at flat rates on taxable income. The tax rate varies between 15% and 19.75%, depending on the municipality.
Church tax/Paid by members of the Evangelic Lutheran and Orthodox churches in
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