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ADVICE #89

Peculiarities of the tax system in Finland

Despite the fact that almost all European countries are committed to the unity of laws and integration in the areas of economic and social policies, tax systems of European countries do not differ with unity.

Russian analysts of the consulting company "Texart Group researched the tax system 38 European countries with developed market economies, and weak, still "wobbly" after the collapse of the socialist states.

Some of the investigated countries are already EU members, others are candidates for membership in the single currency area, but in the meantime, in most States, a United Europe, you may encounter drastic differences in tax systems and the principles of taxation.

If you are going to live abroad and operate your business, you should carefully review the tax code of the country: what size of income tax in this country; the amount of tax "at the source"; VAT; what are the taxes levied on the income of individuals and their property, and more.

We offer to your attention an analytical report with detailed information about the economy, the characteristics of the market, as well as tax rates and the criteria for levying taxes in each country of Europe.

Finland is an EU member since 1995. The economy is characterized as a highly developed, with low inflation and high investment attractiveness. The most developed branches of industry (Finland is a world leader in the production of paper), the high-tech industry and the service sector.

The income tax

Income tax in Finland are subject to resident companies in respect of all profits, as well as non – resident in respect of income from sources in Finland.

The concept of tax residency is not contained in the Finnish legislation; however, it usually understand a company registered in accordance with the laws of Finland. A foreign company having a place of effective management in Finland is not considered a resident.

The basic rate of income tax is 20%.

Income from capital gain is taxed in the composition of income tax at the General rate.

The tax laws of Finland contains transfer pricing rules, in particular, application of the "arm's length rule", under which the calculation of tax liabilities is based on market prices in transactions between related taxpayers.

In certain situations, the profits of foreign companies is taxable in Finland, if a resident of Finland is a controlling person in relation to that foreign company. Under control means the ownership of at least 50% of the votes and the share capital of the company.

Withholding tax

In respect of dividends, interest payments and royalty payments to the resident companies does not apply tax withheld at source of payment. In respect of royalties, residents pay the VAT.

Dividends distributed to nonresidents are subject to withholding tax at the rate of 20%, unless otherwise provided in the EU PSD or SODNOM.

Interest distributions to non-residents are not subject to withholding tax, except in specific situations, for which a tax.

Royalties to non-residents is taxed at 20%, unless otherwise provided SODNOM.

VAT

In Finland, as in other EU countries, there are pan-European rules for the calculation and payment of indirect taxes set out by the European Directives (Directive 2006/112).

The standard VAT rate in Finland is 24%. Use reduced rates (10% and 14%) is possible in respect of passenger transportation, publications, pharmaceutical and medical products, food and feed products.

0% rate applies if export sales, and the sale of ships and aircraft technology.

Taxation of incomes of physical persons

The tax to incomes of physical persons are subject resident in parts of all income and non-residents with respect to income from sources in Finland.

A tax resident of Finland is considered a person who in the country of permanent residence, or not residing continuously for at least 6 months (except when the taxpayer can prove his lack associated with Finland's interests).

Finnish law a progressive scale of tax rates on income: income from 16 € 300 subject to taxation, the income from 16 300 € 24 300 € are taxed at the rate of 6.5%, from 24 300 € to 39 700 € at the rate of 17.5%, from 39 700 € to 71 400 € at the rate of 21.5 per cent, from 71 400 € to 100 000 € – rate 29.75%, more than 100 000 € at the rate of 31,75%. In relation to some types of income can be added for additional fees (for example, from 2013, applies a 6% tax in respect of pensions exceeding 45 000 €). In addition, the income subject to local tax at the rate of 16.50% to 22,50%. Thus, the average effective rate may be 51.25%.

The dividends to individuals-residents are taxed at source at a rate of 25.5% in respect of listed companies, and 7.5% in respect of the other, if the amount of the distributed income does not exceed 150 000 €. Otherwise, the excess amount will be taxed at the rate of 27%.

Interest payments to the address of the resident companies are taxed at source at a rate of 30%.

Withholding tax in respect of royalties to residents is not payable if the taxpayer is registered as a provisional tax payer and the tax rate is 30%.

The real estate tax of individuals

The real estate tax is levied in respect of real property in Finland, with the exception of agricultural lands and territories in the use of local authorities. The tax rate ranges from 0.6% to 1.35%. For residential properties have a special rate range is from 0.32 to 0.75%.

The text prepared by the Russian consulting company TaxArt Group LLC specifically for Banki.ru

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