Taxes in Finland Fulbright Grantees 28 August 2014

Taxes in Finland

Fulbright Grantees

28 August 2014

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Contents

Case Study 1: 6 months or less in Finland (Student or Scholar)

Taxation of Fulbright Grant

Taxation of housing

Taxation of salary

When do I need to contact the Finnish tax authorities?

Case Study 2: more than 6 months in Finland (Student or Scholar)

Taxation of Fulbright Grant

Taxation of housing

Taxation of salary

When do I need to contact the Finnish tax authorities?


Case Study 1 – 6 months or less in Finland

For Finnish tax purposes you may be either:

Non-resident (limited tax liability to Finland), or

Resident (unlimited tax liability to Finland)

Non-resident:

– A foreign individual is a non-resident in Finland if he/she does not stay in Finland for more than 6 months

– Non-residents only have an obligation to pay taxes only for the income received from Finnish sources (as determined in the Finnish Income Tax Act)

If you stay in Finland for 6 months or less, you are a non-resident for tax purposes in Finland

How is a non-resident taxed?

Fulbright grant not taxable in Finland (taxable only in your home country, i.e. USA)



Taxation of other income

Housing provided in Finland:

Taxable unless the Finnish rules regarding temporary business trip or temporary secondary occupation can be applied.

Always depends on your personal circumstances and should be investigated case-by-case basis!

If housing is taxable, you need to report the housing to the tax authorities on a tax-return. The provider of the housing will also be liable to report the benefit to the tax authorities.

You may file the tax return in advance, but the due date is in the beginning of May (exact date to be informed by the tax authorities) at the latest for the benefits received during previous calendar year

Housing can be tax exempt if:

• You have your main employment in your home country and you stay in Finland for a temporary project or otherwise temporarily

• You are not on leave of absence or leave without pay from the home country employment

• You handle the work tasks related to your main work also while staying in Finland.

If housing is tax exempt, no actions required.



Taxation of other income (cont.)

Salary from a Finnish employer (e.g. lecture fees)

Taxable in Finland

Taxed at 35% flat tax

A deduction of 510 €/month or 17 €/ day can be done by the payer of the salary if you have a tax-at-source card stating the deduction

Please contact the local tax office and apply for a tax-at-source card and present it to the payer of the salary before payment



Summary – what to do?

As a main rule, non residents are not liable to file a Finnish tax return. There are a couple of exeptions (see below)

You only receive your Fulbright grant, no other income

no actions required

You only receive your Fulbright grant and tax exempt housing

no actions required

You receive your Fulbright grant and taxable housing

file a tax return and report the housing to the tax authorities

You also receive salary from a Finnish employer

apply for a tax-at-source card before the payment


Case Study 2 – more than 6 months in Finland

For Finnish tax purposes you may be either:

Non-resident (limited tax liability to Finland), or

Resident (unlimited tax liability to Finland)

Resident:

– Unlimited tax liability (tax resident) in Finland = worldwide tax liability to Finland

– An individual becomes tax resident in Finland when;

■ he/she has the permanent home in Finland or

■ he/she continuously stays in Finland for more than 6 months (in practice a temporary absence of less than 2 months does not cut the continuous stay)

A tax treaty may limit Finland’s right to tax the worldwide income

according to Finnish-US tax treaty Fulbright grant is only taxed in the country of residence (as determined in the tax treaty)


Case Study 2 – What is the country of residence?

■ The country of residence needs to be solved based on the applicable tax treaty – this needs to be analyzed if you stay in Finland for more than 6 months

– The decision is based on your personal circumstances

■ The tax treaty sets the conditions which determine the residency for tax treaty purposes

– Article 4:

■ If you are a resident (based on internal tax law) in both countries (Finland and the US), the country of residence for tax treary purposes is:

– Country where your permanent home is;

– If you have a home in both countries, the country with which you have closer personal and economic ties (centre of vital interests);

■ The most important factor is location of your family

– If the above mentioned does not solve the question, the habitual adobe, nationality or mutual negotiations between the authorities in Finland and the US may determine the country of residence.


Case Study 2 - Taxation of Fulbright grant in Finland

■ If you are considered as Finnish tax resident for tax treaty purposes, Finland will tax the Fulbright grant

■ Taxation of a grant differs from taxation of salary income

■ There is a tax exempt amount of 19,897.24 € per year (in 2014, confirmed annually)

The amount of the grant which exceeds the above mentioned, is taxed as earned income in Finland

Deduction for certain costs related to the work done on the basis of the grant may be available before the taxable amount is set

These may include e.g. buying research material, travel costs, using assistant etc.



Taxation of other income

Housing provided in Finland:

Taxable unless the Finnish rules regarding temporary business trip or temporary secondary occupation can be applied.

Always depends on your personal circumstances and should be investigated case-by-case basis!

If housing is taxable, you need to report the housing to the tax authorities on a tax-return. The provider of the housing will also be liable to report the benefit to the tax authorities.

You may file the tax return in advance, but the due date is in the beginning of May (exact date to be informed by the tax authorities) at the latest for the benefits received during previous calendar year

Housing can be tax exempt if:

• You have your main employment in your home country and you stay in Finland for a temporary project or otherwise temporarily

• You are not on leave of absence or leave without pay from the home country employment

• You handle the work tasks related to your main work also while staying in Finland.

If housing is tax exempt, no actions required.



Taxation of other income (cont.)

Salary from a Finnish employer (e.g. lecture fees)

Taxable in Finland

Taxed at progressive tax rates

- marginal tax rate in Helsinki 2014 is 50.25% including state tax and municipal tax).

- a tax card needs to be applied from the tax office for withholding purposes

Please contact the local tax office and apply for a tax card and present it to the payer of the salary before payment (without tax card withholding is 60%)



Summary – what to do? You only receive your Fulbright grant, no other income

File a tax return

If your country of residence for tax treaty purposes is US, make a claim that Finland cannot tax the grant

You receive your Fulbright grant and tax exempt housing

File a tax return


If you think the housing should be tax exempt, please make a claim for it

You receive your Fulbright grant and taxable housing

File a tax return and report both the grant and the housing to the tax authorities (or check that the provider of the housing has reported the housing and it is stated in the pre-completed tax return form, if you have received one)


You also receive salary from a Finnish employer

Apply for a tax card before the payment

File a tax return, report the grant, possible housing (see above) as well as check that the salary paid by the Finnish employer is stated correctly in the pre-completed tax return form (if you have received one)


Tax rates in Finland – earned income for residents

· The state tax rate depends on the annual taxable income. The 2014 tax table is:

· The municipal tax rate depends on which municipality you live in.

– In Helsinki the municipal tax rate for 2014 is 18.50%

– In Espoo 18.00%

– In Vantaa 19% and Oulu 20.00%

· Church tax is payable only if you belong to the Finnish church. The tax rate depends on which municipality you live in. Church tax in Helsinki, Espoo and Vantaa is 1%.

· If you belong to Finnish social security sickness insurance (daily allowance and medical treatment premiums) is also levied from you with taxes. The rate is 2.16% for 2014

Taxable income Tax on income below bracket Tax rate on income in bracket

16,300 – 24,300 8 6.5

24,300 – 39,700 528 17.5

39,700 – 71,400 3,223 21.5

71,400 – 100,000 10,038.50 29.75

100,000 - 18, 547 31.75


Tax rates in Finland

Earned income for non-residents:

■ 35 % flat tax

■ Tax-at-source deduction 510 €/month or 17 €/day if stated in the tax-at-source card

Capital income:

30 % for capital income up to 40,000 € and 32% for capital income exceeding 40,000 €

lower tax rates may apply due to tax treaty provisions (e.g. for dividends paid from Finland)


Tax return process

Finnish residents are obliged to file a tax return in Finland non-residents only on Finnish-source income if no tax has been withheld

■ Tax returns are filed in May following the tax year (calendar year).

– Prefilled returns are sent out in March/April and need to be filed around 8 or 15 May (exact date to be confirmed by the tax authorities annually)

– Tax returns are filed individually

■ With Finnish tax return you need to report all the income including the capital income received from other countries. A claim for tax treaty exemption needs to be made

– Final tax assessment is made in August – October

– Refund or additional payment due in December

■ Additional tax can be paid voluntarily in advance by your own initiative to avoid interest if no taxes have been withheld during the year


Supplementary payment of tax

No tax is withheld from the Fulbright grant in Finland (exempted from withholding liability)

If the grant will be taxed in Finland, you will need to handle the tax payments yourself

You can make a supplementary payment of tax on your own initiative to cover your tax liability. In this way, you can avoid paying unnecessary interest and penalties.

Interest rates are 0.5% or 2,5% for the year 2014

Interest will be due if the residual tax liability exceeds approximately € 4,784.

If you make the supplementary tax payment before 31 January following the tax year in question, no interest is due.

The supplementary payment has to be made by 30 September – the interest is then calculated until the date of payment.

To check a rough estimate amount of tax due you can use the Tax percentage calculator on the Tax Administration’s website. Go to www.tax.fi, select the section Individuals and click the Shortcut called Tax percentage calculator

http://www.tax.fi/


Finnish Tax Year

January:

■ Make the supplementary payment of tax before 31 January if you want avoid paying interest

April:

■ Prefilled tax returns are sent

■ Check and complete prefilled tax return (if necessary) - the forms in English can be found at www.tax.fi

May:

■ Return completed tax return to Tax Administration

September:

■ Make supplementary payment of tax before 30 September if not done in January (not obligatory)

October:

■ Tax assessment sent to tax payers

December:

■ Pay residual tax or receive tax refund

http://www.tax.fi/


www.vero.fi / www.tax.fi

The tax authorities may also be contacted by phone:Tel. 020 697 024 / International tax issues

http://www.vero.fi/

http://www.tax.fi/

© 2014 KPMG Oy Ab, a Finnish limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

Esa JohnssonTax ManagerPuh. 020 760 [email protected]

mailto:[email protected]

Documents

Taxes in Finland Fulbright Grantees 28 August 2014