Finland: Living There - Tax Issues

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INDIVIDUAL TAXATION

Residents in Finland are taxed on their worldwide income. An individual becomes a resident of Finland if he has a primary residence in the country or he is continually present in the country for more than six months. Married couples are taxed separately.

INCOME TAX

Residents in Finland are liable to pay tax on their worldwide income. Taxable income is divided into two categories: income from capital and earned income. The categories are taxed separately at different rates.

Income from Capital

Income from capital includes any yield from capital investment, dividends, interest, capital gains and rental income among others. A flat rate of 28% is levied on the taxable income. Taxable income is generally computed as gross income less income-generating expenses.

Earned Income

Salaries, wages and any other compensation for work fall under this category of income. Taxable income is calculated as gross income less allowable deductions. Individuals with earned income are also liable to pay municipal income tax and church tax.

Tax Credits

• Low and medium income earners are granted a credit of 3.6% of net earned income that exceeds €2,500. The maximum credit is €400. If net earned income exceeds €33,000, the credit is gradually reduced at a rate of 0.9% of the excess.


• Disabled taxpayers are given a credit of €115 against the national income tax due on their earned income.


• Taxpayers are entitled to credit against his national income tax liability 30% of the amount paid for ordinary housekeeping, nursing and provision of care and the maintenance and repair of his primary or secondary residence. The credit is subject to annual maximum of €2,300 and only €1,150 of that amount may relate to the maintenance and repair of his primary or secondary residence.

Municipal Income Tax

Aside from the progressive national income tax, earned income is also subject to municipal income tax. Municipal income tax is levied at varying rates, between 16% and 21%, depending on the municipality. For Helsinki, the rate is 17.5%. Additional deductions and allowances are available for this tax, aside from the ones given for the national income tax.

Deductions and Allowances

• Taxpayers with low and medium income are given a special deduction of 49% of the annual net earned income between €2,500 and €7,230 and 26% of the income over €7,230. The maximum for this deduction is €3,250 and is gradually reduced for income over €14,000 at a rate of 4% of the excess.


• Taxpayers, whose taxable income after deductions does not exceed €1,480, may deduct an amount equal to that of their taxable income. This allowance is gradually phased out at a rate of 20% for taxpayers earning income between €1,480 and €8,880.

Church Tax

Members of the Evangelical-Lutheran Church and the Orthodox Church are liable to pay church tax on their earned income. The tax is levied at flat rates ranging from 1% to 2.25% depending on the municipality. The rate is 1% in Helsinki.

CAPITAL GAINS TAX

Gains from the sale of property are included in income from capital and taxed at 28%. Taxable capital gains are calculated in two ways:

• Gross selling price less acquisition costs;


• Gross selling price less 20% (40% for property owned at least 10 years) in lieu of actual acquisition costs.

Gains from the sale of a dwelling are exempt from capital gains tax, provided that the dwelling was used as a permanent residence of the owner continuously for at least 2 years during the period of ownership. Gains that do not exceed €5,000 are exempt if derived from the sale of household effects that have been in owner’s personal or his family’s use. If the proceeds of the sale of a property do not exceed €1,000, they are also exempt from tax.

Finland - more data and information

• Lawyers (attorneys) with property law practices in Finland

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