Brexit’s impact on taxation
The United Kingdom’s exit from the EU took full effect on 1 January 2021. The EU-UK Withdrawal Agreement included a transition period that lasted until the end of 2020. The EU and the UK have also signed a trade and cooperation agreement.
Read more about the relations between the EU and the UK on the European Commission’s website
Impact on citizens
The Withdrawal Agreement safeguards lifelong rights of residence, employment and social security for EU citizens living in the UK, and for UK citizens living in the EU, if they have settled in the UK or the EU before 1 January 2021. Their status and rights remain as they were, under the key EU legislation, at the end of 2020. Freedom of movement does not apply to citizens who have settled in the UK or the EU after the end of 2020. Their other rights are limited, as well.
The UK’s withdrawal has no direct impact on individual taxpayers’ income taxes
The income tax treaty between Finland and the United Kingdom continues to be in effect. The UK’s withdrawal from the EU has no impact on how the tax authorities apply the agreed provisions and clauses. For example, no changes are made to the way tax is imposed on employment income earned by workers moving between Finland and the UK. If you are a Finnish tax resident and you get a job assignment to the UK, there are no changes to the way the tax authorities impose income tax on your wages.
However, in some situations your taxation may be affected by whether the source of income is an EU/EEA country or an outside country, or whether your tax deduction relates to expenses that have arisen in an EU/EEA country or in an outside country. After 1 January 2021, the UK’s withdrawal affects the following items of income and the following deductions:
If you are a tax resident of Finland
- You pay trade income to a company for work carried out in the UK: the Finnish credit for household expenses is not available.
- You have a voluntary pension insurance contract, signed with a pension provider in the UK: deductions for your contributions are not available.
- You have a voluntary pension insurance contract that your employer has arranged for you from a UK pension provider: the contributions are taxable earned income for you in their entirety (without a tax-exempt portion).
- Your employer has arranged for a collective supplementary pension scheme where the pension provider is from the UK: the contributions are not deductible for you.
- Lottery prize income from a UK source (including poker-game winnings): you are liable to pay tax on this type of income.
- You are paid dividends by a UK company or profit-surplus by a UK cooperative society. If the company or cooperative paying them pays less than 10% UK tax on its profits: the amount of dividends or surplus you receive is treated as your earned income. For further guidance on the taxation of dividends, see Taxation of dividends (section 2.3 Dividends distributed by a foreign corporate entity, in Finnish and Swedish, link to Finnish).
- You donate an amount of money to a UK-located university, institute of higher education or a university fund: the deduction for a donation made by a private individual is not available.
- If you move to the UK, it affects the tax treatment of any capital gains that you may receive in a share exchange. Read more: Taxes on transfers of securities (section 21.4 Exchange of shares, in Finnish and Swedish, link to Finnish).
If you are a UK resident and you receive income from Finland
- If you are an artist or an athlete and a non-resident taxpayer in Finland, you cannot claim deductions in taxation at source for any direct expenses arising from personal activity related to income you have received from Finland.
- If you are a non-resident for Finnish tax purposes, you can still demand progressive income taxation of your income in Finland. However, you cannot invoke the 75% rule unless you have a residence permit under the Researcher Directive. More information on the progressive taxation of non-resident taxpayers can be found in the guidance Taxation of foreign employees coming to Finland (section 2.4).
Health insurance contributions withheld from wages starting 1 January 2021
Health insurance contributions are imposed on the worker in the country that issued the worker’s A1 certificate, provided that the certificate’s validity extends past 2020.
A1 certificates issued before 1 January 2021 are in force until the end of their validity. The employer or the employee can also request the certificate retroactively from the Finnish Centre for Pensions. An A1 certificate can be valid after 1 January 2021 if the Withdrawal Agreement is applicable to the person’s situation and if the person’s work continues to be cross-border in nature.
Starting from 1 January 2021, the Trade and Cooperation Agreement is applied to new job assignments to the UK. An employee posted in the UK can still, under certain conditions, be covered by the social security of their country of origin for a period of 24 months. To be covered by Finnish social security, the posted employee must have an A1 certificate from the Finnish Centre for Pensions.
Read more about applying for an A1 certificate (etk.fi).
Health care contributions on pensions starting 1 January 2021
If you reside outside of Finland but receive pension from Finland, you must pay the health care contribution to Finland. Check the health care contribution on pension and benefit income. Your obligation to pay the contribution will be waived if you obtain a certificate from Kela confirming that
- you are not insured in Finland and
- under the EU regulation on social security, Finland is no longer liable to reimburse your health care costs to your new country of residence.
If you receive pension from Finland and Finland is accountable for your health care costs, you must still pay the health care contribution to Finland. It does not matter if you have lived in the UK before 2021 or if you have moved there later.
If you are a tax resident of Finland and you receive pension from the UK, the health care contribution to Finland will be imposed. For more information, see Taxation of pensions in cross-border circumstances (section 5.11. available in Finnish and Swedish, link to Finnish).
Impact on businesses
The free movement of goods between the UK and EU ended 31 December 2020. The Withdrawal Agreement includes the Protocol on Ireland and Northern Ireland. Under the Protocol, the EU’s VAT and excise duty rules on goods trade continue to be applied in Northern Ireland after 1 January 2021. In other words, sales and purchases of goods between EU countries and Northern Ireland are taxed as intra-Community supply and intra-Community acquisition. Intra-Community supply of goods is reported on the VAT return.
Supply and acquisition of services with Northern Ireland are taxed as if Northern Ireland were a non-EU country from the VAT perspective. Services trade is not included in the Protocol on Ireland and Northern Ireland. Read more at: VAT rules on place of supply in service trade.
In excise taxation, Northern Ireland is included in the duty suspension arrangement. The movement of goods subject to harmonised excise duty under the duty suspension arrangement between Northern Ireland and EU countries is controlled by the EMCS.
The Protocol continues to be in effect until 31 December 2024. The House of Representatives of Northern Ireland decides whether the Protocol continues to be applied after that. Read more: Protocol on Ireland and Northern Ireland, section What is the consent mechanism? (europa.eu)
An XI-prefixed VAT identification number is used in goods trade between the EU and Northern Ireland. In addition to goods trade, the VAT number is used in the VAT refund procedure.
Additional information about how companies are taxed after 1 January 2021:
All goods moving between the UK and the EU must be cleared at Customs. Goods brought by a company from the UK to Finland are regarded as imports.
Goods sold by a company from Finland to the UK are regarded as exports.
Note: If you are importing goods from the United Kingdom to Finland or exporting goods to the United Kingdom, your company will need an EORI number for its Customs transactions. You can apply for the EORI number from Customs (tulli.fi).
Deliveries in progress that started before 2021
If the delivery or transport of goods between the UK and an EU Member State began before the transition period ended, the rules on intra-Community supply and acquisition were followed. It does not matter when the delivery or transport ended.
Example: A company is liable for VAT in Finland. The company bought goods from a UK seller and receives an invoice that the seller has made out for an intra-Community sale. The invoice is dated 30 December 2020. The delivery began in the UK on 31 December 2020, but the goods arrived in Finland in January 2021. Because the transport of the goods from the UK began before transition period end date, the authorities in Finland treat the purchase as an intra-Community acquisition.
VAT recapitulative statement
An intra-Community supply of goods is reported on the VAT return. In addition, the VAT recapitulative statement must be filed. The intra-Community supply of goods is usually considered to have taken place in the calendar month following the month of delivery. If the buyer is issued an invoice in the month of delivery, the supply is considered to have taken place in the month of delivery.
For example, if the seller delivered goods in December 2020 but had issued an invoice in advance or did not issue an invoice until January, the intra-Community supply should have been included in the report prepared for January 2021. In this exceptional case, however, the Tax Administration recommended that the intra-Community supply to the UK should be allocated to December 2020, because the last recapitulative statement information that the Finnish Tax Administration sent to the UK was for December 2020. Previously filed reports can still be corrected.
The VAT recapitulative statement is used to report supply of goods and triangulation when the destination is Northern Ireland and the XI-prefixed VAT number is used. Supply of services to Northern Ireland cannot be reported on the recapitulative statement. The first such recapitulative statement could be filed for January 2021. Read more about filing the EU recapitulative statement
Call-off stock notification
Goods moved to a call-off stock operated by the buyer or a third party must be supplied to the buyer within 12 months from the date when they were moved to the call-off stock. If the goods were moved to the call-off stock before the end of the transition period and the right of ownership transfers to the buyer as the transition period ends, the supply is regarded as an intra-Community supply and an intra-Community acquisition.
Example:A Finnish company moved goods to a call-off stock in the UK before the end of the transition period in November 2020, and the right of ownership transferred to the buyer in July 2021. This was an intra-Community supply. However, it could not be reported as an intra-Community supply for July 2021 on the VAT return or the VAT recapitulative statement. It had to be reported as turnover taxable at zero VAT rate. It is important that the list of call-off stock goods is up-to-date.
Example: A British company moved goods to a call-off stock in Finland in April 2020, and the right of ownership transferred to the buyer in March 2021. This was an intra-Community acquisition. Companies have been required to report intra-Community acquisitions on the VAT return since March 2021. It is important that the list of call-off stock goods is up-to-date.
Sales of services to the UK are sales to a non-EU country. These sales are taxed in accordance with the provisions of the VAT Act concerning the country of supply. If a service has been sold in the UK, the VAT treatment of the sale must be determined with the UK tax authorities.
Report the sales of services to non-EU countries in the VAT return’s “Turnover taxable at zero VAT rate” section.
Read more:
Question:
If a British company wants to voluntarily register as liable for VAT for their business activities in Finland, does the company have to name a representative in Finland (Value Added Tax Act § 173 a)?
Answer:
Yes, it does.
The VAT numbers of British trading partners (with prefix GB) can no longer be validated after 1 January 2021.
You can validate the XI-prefixed VAT numbers of Northern Irish trading partners starting 1 January 2021 in the following ways:
- in the VAT number validation service
- by phone: 029 497 051 (standard call rates apply)
- by e-mail: eu.vies(at)vero.fi.
The company must be able to present its accounting records or otherwise prove that it has been entitled to VAT-exempt intra-Community supply to the UK or that it has made an intra-Community acquisition from the UK before 2021. This applies to any other transfers of assets that the company may have conducted to or from the UK before 2021.
How to request refunds of VAT from the UK and Northern Ireland
You can request a VAT refund for acquisitions of goods from Northern Ireland in MyTax. Northern Ireland’s transition period ends on 31 December 2024.
Requests for VAT refunds for other acquisitions from the UK or Northern Ireland cannot be submitted electronically. Please contact the UK tax authority (Gov.uk) for instructions on VAT refunds.
More information: VAT refunds to Finnish self-employed individuals
Requesting VAT refunds from Finland
Companies from Northern Ireland can continue to submit requests for VAT refunds for acquisitions of goods from Finland in the e-service provided by their country’s tax authorities. Northern Ireland’s transition period ends on 31 December 2024.
Companies from the UK must submit Form 9550 to the Finnish Tax Administration to request refunds of VAT for acquisitions from Finland. Companies from Northern Ireland must use the same form if the acquisition in question is for services.
Application for foreign businesses outside EU for requesting refund of VAT (9550)
More information: Refund of VAT to foreign businesses established outside the EU
Sales that take place in the UK can no longer be reported in the VAT special scheme. These sales must be reported and paid directly to the UK. For more information, please contact the UK tax authorities.
Because the UK is no longer a Member State of identification, and because the due date for making corrections has passed, returns filed in the special scheme for sales made in Finland can no longer be corrected.
After the withdrawal from the EU, the UK no longer operates in the EU internal market and is therefore not within the scope of the duty suspension arrangement.
If the company receives goods subject to harmonised excise duty from the UK in Finland, the goods must go through the import procedure according to the instructions of the Finnish Customs
After this, either excise duty is paid on the goods or the goods are reported in the EMCS as falling under the duty suspension arrangement.
Goods subject to harmonised excise duty that are delivered to the UK are reported in the EMCS as exports. Export declarations will then have to be submitted as instructed by Customs.
Information on EU rules in the field of excise and the post-transition period rules applicable to Northern Ireland (Commission notice, pdf)
SEED on Europa service
In the SEED on Europa service, you can validate excise numbers and product details of an authorisation. The details of British trading partners are no longer available for validation after 1 January 2021.
The United Kingdom has exited the EU, and it is no longer a member of the European Economic Area (EEA), either. Because of this, Finnish legislation that provides for tax treatment based on the EU or EEA membership of a foreign company’s country of residence does not apply to payments received from or paid to the UK. Further, the provisions do not apply to mergers and acquisitions (M&A) involving companies whose country of residence is the United Kingdom. However, the tax treaty between Finland and the UK concerning income taxation alleviates the effects of the UK’s exit from the EU.
Dividends, interest and royalties
Dividends that Finnish organisations receive from companies residing in EU or EEA countries are exempt from tax under certain conditions. Because the UK is not a member of the EU or the EEA, dividends that a Finnish company receives from the UK are not exempt from tax under Finland’s national tax legislation.
In accordance with the tax treaty between Finland and the UK, however, dividends are exempt from tax in Finland if the dividend recipient holds at least 10% of the votes in the company distributing dividends. Because of the tax treaty, Brexit has no effect on taxes imposed on dividends, interest and royalties in the country of source.
Applying the M&A provisions of the act on the taxation of business income
The provisions (§ 52 a–f) of the act on the taxation of business income (Laki elinkeinotulon verottamisesta 360/1968) that are based on the EU Merger Directive are applied, on certain conditions, to mergers and acquisitions where the domicile of a party is in an EU or EEA country that is other than Finland. These provisions are therefore generally not applicable to arrangements involving companies domiciled in the UK.
Mutual agreement procedure
Taxpayers can ask for a mutual agreement procedure (MAP) to be initiated if they have been taxed contrary to the provisions of a tax treaty. MAP can be used in a procedure according to the EU Dispute Resolution Directive, in a procedure according to a tax treaty and, in the case of transfer pricing and allocation of a permanent establishment’s income, in a procedure according to the EU Arbitration Convention. As of 1 January 2021, if the UK is one of the countries involved in a MAP, only a procedure according to the tax treaty can be used.
The UK’s exit from the EU has no effect on car tax collected on vehicles imported from the UK to Finland.
If you import a vehicle from the UK to Finland, please read the section Changes to tax assessment and reporting of goods trade.
Read more about customs clearance:
An insurer established in the UK is not regarded as an operator conducting insurance activities in Finland under the act on the tax payable on certain insurance premiums (Laki eräistä vakuutusmaksuista suoritettavista veroista 664/1966). This applies to insurance policies issued by insurers in the UK on or after 1 January 2021. If the insured party has taken out an insurance policy from an insurer in the UK on or after 1 January 2021 and the policy is subject to the tax on insurance premiums in Finland, the insured party is liable to pay tax.
If the insurance company’s registered office is in the UK, it can establish a branch office in Finland. In this case, the branch office is the insurer and therefore liable to pay tax on the insurance policies taxable in Finland. The branch will need a licence from the Financial Supervisory Authority in order to conduct insurance activities in Finland.
Read more about the insurance premium tax (available in Finnish or Swedish, link to Finnish)
Read more
Further information on the European Commission’s website: Market Access Database: Information on trading with third countries
Information on The European Council’s website: Timeline - The EU-UK withdrawal agreement
Information on other authorities’ websites:
UK authorities:
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