Taxes in Finland

1. Taxes in Finland • FulbrightGrantees • 28 August 2014

2. Contents • Case Study 1: 6 monthsorless in Finland (Student orScholar) • Taxation of Fulbright Grant • Taxation of housing • Taxation of salary • Whendo I need to contact the Finnishtaxauthorities? • Case Study 2: more than 6 months in Finland (Student or Scholar) • Taxation of Fulbright Grant • Taxation of housing • Taxation of salary • Whendo I need to contact the Finnishtaxauthorities?

3. Case Study 1 – 6 months or less in Finland • For Finnishtaxpurposesyoumaybeeither: • Non-resident (limitedtaxliability to Finland), or • Resident (unlimitedtaxliability 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-residentsonly have an obligation to pay taxes only for the income received from Finnish sources (as determined in the Finnish Income Tax Act) Ifyoustay in Finland for 6 monthsorless, youare a non-resident for taxpurposes in Finland • How is a non-residenttaxed? • Fulbrightgrant nottaxable in Finland (taxableonly in your home country, i.e. USA)

4. Case Study 1 – 6 months or less in Finland • Taxation of otherincome • Housingprovided in Finland: • Taxableunless the Finnishrulesregardingtemporary business triportemporarysecondaryoccupationcanbeapplied. • Alwaysdepends on yourpersonalcircumstances and shouldbeinvestigatedcase-by-casebasis! • If housing is taxable, youneed to reportthehousing to the taxauthoritieson a tax-return. The provider of the housingwillalsobeliable to report the benefit to the taxauthorities. Youmayfile the taxreturn in advance, but the duedate is in the beginning of May (exactdate to beinformedby the taxauthorities) at the latest for the benefitsreceivedduringpreviouscalendaryear • Housingcanbetaxexemptif: • 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. Ifhousing is taxexempt, no actionsrequired.

5. Case Study 1 – 6 months or less in Finland • Taxation of otherincome (cont.) • Salaryfrom a Finnishemployer (e.g. lecturefees) • Taxable in Finland • Taxed at 35% flattax • A deduction of 510 €/monthor 17 €/ daycanbedoneby the payer of the salaryifyouhave a tax-at-sourcecardstating the deduction • Pleasecontact the localtaxoffice and apply for a tax-at-sourcecard and presentit to the payer of the salarybeforepayment

6. Case Study 1 – 6 months or less in Finland • Summary – what to do? • As a main rule, nonresidentsarenotliable to file a Finnishtaxreturn. Thereare a couple of exeptions (seebelow) • YouonlyreceiveyourFulbrightgrant, no otherincome  no actionsrequired • YouonlyreceiveyourFulbrightgrant and taxexempthousing  no actionsrequired • YoureceiveyourFulbrightgrant and taxablehousing  file a taxreturn and report the housing to the taxauthorities • Youalsoreceivesalaryfrom a Finnishemployer  apply for a tax-at-sourcecardbefore the payment

7. Case Study 2 – more than 6 months in Finland • For Finnishtaxpurposesyoumaybeeither: • Non-resident (limitedtaxliability to Finland), or • Resident (unlimitedtaxliability 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)

8. 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 yourpersonalcircumstances • The taxtreatysets the conditionswhichdetermine the residency for taxtreatypurposes • Article 4: • Ifyouare a resident (based on internaltaxlaw) in bothcountries (Finland and the US), the country of residence for taxtrearypurposes is: • Country whereyourpermanent home is; • Ifyouhave a home in bothcountries, the country withwhichyouhavecloserpersonal and economic ties (centre of vitalinterests); • The mostimportantfactor is location of yourfamily • If the abovementioneddoesnotsolve the question, the habitualadobe, nationalityormutualnegotiationsbetween the authorities in Finland and the US maydetermine the country of residence.

9. Case Study 2 - Taxation of Fulbrightgrant in Finland • If you are considered as Finnish tax resident for tax treaty purposes, Finland will tax the Fulbright grant • Taxation of a grantdiffersfromtaxation of salaryincome • There is a taxexemptamount of 19,897.24 € per year (in 2014, confirmedannually) • The amount of the grantwhichexceeds the abovementioned, is taxed as earnedincome in Finland • Deduction for certaincostsrelated to the workdoneon the basis of the grantmaybeavailablebefore the taxableamount is set • Thesemayincludee.g. buyingresearchmaterial, travelcosts, usingassistant etc.

10. Case Study 2 – more than 6 months in Finland • Taxation of otherincome • Housingprovided in Finland: • Taxableunless the Finnishrulesregardingtemporary business triportemporarysecondaryoccupationcanbeapplied. • Alwaysdepends on yourpersonalcircumstances and shouldbeinvestigatedcase-by-casebasis! • If housing is taxable, youneed to reportthehousing to the taxauthoritieson a tax-return. The provider of the housingwillalsobeliable to report the benefit to the taxauthorities. Youmayfile the taxreturn in advance, but the duedate is in the beginning of May (exactdate to beinformedby the taxauthorities) at the latest for the benefitsreceivedduringpreviouscalendaryear • Housingcanbetaxexemptif: • 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. Ifhousing is taxexempt, no actionsrequired.

11. Case Study 2 – more than 6 months in Finland • Taxation of otherincome (cont.) • Salaryfrom a Finnishemployer (e.g. lecturefees) • Taxable in Finland • Taxed at progressivetaxrates • marginaltaxrate in Helsinki 2014 is 50.25% includingstatetax and municipaltax). • a taxcardneeds to beappliedfrom the taxoffice for withholdingpurposes • Pleasecontact the localtaxoffice and apply for a taxcard and presentit to the payer of the salarybeforepayment (withouttaxcardwithholding is 60%)

12. Case Study 2 – more than 6 months in Finland • Summary – what to do? • YouonlyreceiveyourFulbrightgrant, no otherincome • File a taxreturn • Ifyour country of residence for taxtreatypurposes is US, make a claimthat Finland cannottax the grant • YoureceiveyourFulbrightgrant and taxexempthousing • Filea taxreturn • Ifyour country of residence for taxtreatypurposes is US, make a claimthat Finland cannottax the grant • Ifyouthink the housingshouldbetaxexempt, pleasemake a claim for it • YoureceiveyourFulbrightgrant and taxablehousing • File a taxreturn and reportboth the grant and the housing to the taxauthorities (orcheckthat the provider of the housinghasreported the housing and it is stated in the pre-completedtaxreturnform, ifyouhavereceivedone) • Ifyour country of residence for taxtreatypurposes is US, make a claimthat Finland cannottax the grant • Youalsoreceivesalaryfrom a Finnishemployer • Apply for a taxcardbefore the payment • File a taxreturn, report the grant, possiblehousing (seeabove) as well as checkthat the salarypaidby the Finnishemployer is statedcorrectly in the pre-completedtaxreturnform (ifyouhavereceivedone)

13. 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

14. Tax rates in Finland Earnedincome for non-residents: • 35 % flattax • Tax-at-sourcededuction 510 €/monthor 17 €/dayifstated in the tax-at-sourcecard Capital income: • 30 % for capital incomeup to 40,000 € and 32% for capital incomeexceeding 40,000 €  lowertaxratesmayapplydue to taxtreatyprovisions (e.g. for dividendspaidfrom Finland)

15. Tax return process Finnishresidentsareobliged to file a taxreturn in Finland  non-residentsonly on Finnish-sourceincomeif no taxhasbeenwithheld • 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

16. Supplementary payment of tax • No tax is withheldfrom the Fulbrightgrant in Finland (exemptedfromwithholdingliability) • If the grantwillbetaxed in Finland, youwillneed to handle the taxpaymentsyourself • 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. • Interestratesare 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

17. FinnishTaxYear • 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

18. www.vero.fi / www.tax.fi The taxauthoritiesmayalsobecontactedbyphone: Tel. 020 697 024 / International taxissues

19. Esa Johnsson TaxManager Puh. 020 760 3394 esa.johnsson@kpmg.fi