Income taxation of wages of leased employees in Finland
There are two categories of tax liability in income taxation: unlimited and limited liability to tax in Finland (= residency and non-residency)....
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The Tax Administration has published an update to the instructions regarding the taxation of employees coming to Finland from abroad.
When a person comes from abroad to work in Finland, he basically pays tax in Finland on the salary he receives here. The taxation of wages received from working in Finland is affected by both the duration of stay in Finland and whether the employer is Finnish or foreign. In addition, international agreements may limit Finland’s right to tax.
A person who comes to work in Finland is subject to general or limited tax liability. According to the Income Tax Act, persons living in Finland and persons living abroad who stay in Finland for more than six months are generally liable for tax. Persons who live abroad and persons who stay in Finland for a maximum of six months have limited tax liability.
The employer collects withholding tax from the salary with limited tax liability in connection with its payment. Withholding tax is the final tax and its amount is 35 percent. Income subject to withholding tax also includes fringe benefits, valued according to the decision of the Tax Administration. If the tax card is not presented, the withholding is 60 percent.
The payer may make a withholding tax deduction from the total amount of cash salary and fringe benefits before collecting the tax. The deduction is 510 euros per month from the total amount of income on which the withholding tax is 35 percent. 17 euros per day is deducted from income accumulated in less than a month. However, the amount of the deduction is at most the amount of the income. In order to get a deduction, the deduction must be mentioned on the withholding tax card.
The employer obliged to collect the withholding tax is responsible for the withholding tax if he has failed to collect the tax after incorrectly applying the provision of the tax agreement. However, the withholding tax card protects the bona fide payer. The Tax Administration has updated its instructions so that in the future the payer is not responsible for the withholding tax if he has submitted the withholding tax in accordance with the tax card delivered to him and he did not know that the recipient has a limited tax liability.
However, to a limited extent, a taxable person can demand that his earned income be taxed progressively instead of withholding tax. In this case, the person subject to limited tax liability is taxed in the same way as those who live permanently in Finland.