Taxation of work abroad

This is an unofficial translation. The official instruction is drafted in Finnish and Swedish.

If a person who resides in Finland works in a foreign country, their income is in principle taxable in Finland. This guidance covers the taxation in Finland of income earned abroad, the elimination of double taxation, and health insurance.

Entered into force on 1 April 2019, the act on residence-based social security in cross-border situations (16/2019) replaces the Act on the Application of Residence-Based Social Security Legislation (1573/1993). Chapter 8 of the guidance has been updated to correspond with the regulations of the new law. In addition, steering has been added to section 9.2.2 regarding the procedure to eliminate double taxation from the prepayment of tax when using the exemption method.

The employer’s procedures described in this article concern wages and salaries paid on 1 January 2019 or later. The employer must file information on wages and salaries paid in 2018 according to the previous guidance (record number of the official Finnish/Swedish version: A259/200/2017).

1 Foreword

If an individual resident in Finland works in a foreign country, their income is normally taxable in Finland. However, in some cases, the provisions of our national legislation treat such income as exempted from taxes. Similarly, the provisions of international conventions may restrict Finland's taxing rights.

Both national legislation and tax treaties are discussed in this guidance from the perspective of Finnish income taxes on an individual's employment income from foreign sources. Normally, income is not only taxable in Finland but also in the country of work. This guidance does not contain further information on the taxes to be paid in the country of work. It focuses on the question of whether that country has the taxing rights under the provisions of the applicable tax treaty. Relief for double taxation is provided in the country of tax residence. If Finland is the country of tax residence, double taxation is eliminated in accordance with the provisions of tax treaties or Finland's national legislation.

Insurance coverage is an essential part of working in a foreign country. This guidance only covers the health insurance contributions collected by the Tax Administration.

We also give instructions to employers and employees on the nature of the mandatory reporting to the Finnish Tax Administration in a situation where an employee has started working in a foreign country. However, this guidance only addresses the reporting to the authorities of the country of work in the case that the individual works in another Nordic country. For this reason, the employer and the employee must take action independently in order to ascertain what facts and information the country of work will require and what the deadlines for reporting are.

2 Resident and non-resident tax liability

2.1 Resident tax liability

Under income tax act, section 9 (1535/1992, TVL), individuals who live in Finland are Finnish tax residents. Separate provisions of income tax act define 'living in Finland'. If an individual has their permanent home in Finland, they are treated as Finnish tax residents under income tax act, section 11. Similarly, people who stay in Finland for more than six months are treated as Finnish tax residents. The matter has been discussed in greater detail in the Tax Administration’s guidance Tax residency and nonresidency. The guidance in question also describes the treatment of a number of special groups (individuals who are employed by a Finnish diplomatic mission abroad, employees of Business Finland Oy, others in the service of the State of Finland, employees of international organisations or the European Union as well as seafarers and crew members on board Finnish aircraft or vessels).

Residents are under the obligation to pay Finnish tax on income sourced in Finland and other countries (income tax act, section 9.1.1). This means that in principle, all employment income from foreign sources is subject to Finnish tax regardless of whether it is subject to tax in the country of work, or subject to tax in a third country.

The income may be exempted from Finnish taxes if the six-month rule is applicable (for more information, see section 4 below). The nature of the income may be, as provided in income tax act, section 76, an exempted compensation, an exempted wage or fee (for more information, see section 6 below). In addition, the tax treaty between the country of work and Finland may restrict Finland's taxing rights on foreign income.

2.2 Non-resident tax liability

People who have not lived in Finland during the tax year are treated as having a limited liability to tax (income tax act, section 9.1.2). Reference is made to income tax act, section 11, that defines 'living in Finland'. Finnish citizens are normally treated as non-residents only after three years have elapsed since the calendar year when they left Finland (this is known as the three-year rule; see section 2.3 below).

Citizens of other countries are normally treated as non-residents as soon as they have left Finland and started living elsewhere on a permanent basis. However, if a foreign citizen's absence from Finland is temporary and they continue to have a permanent home in Finland, they can still be treated as a Finnish tax resident, generally liable to Finnish tax.

In Finland, non-residents are only liable for tax paid on income earned in Finland. The income tax act, section 10, contains a list of income earned in Finland. It is not an exhaustive list; however, the categories that are included in it have been regarded as being part of a complete list under standard tax-assessment practices. Separate provisions apply to the wage income and pensions of the employees who work on board a Finnish ship or aircraft (income tax act, section 13).

Examples of Finnish-sourced income include wages received from a Finnish public organization or body. Similarly, other wages received for work mainly done in Finland for a Finnish employer, is income from a Finnish source. What is meant by 'Finnish employer' is a business enterprise in Finland or the permanent establishment of a foreign business enterprise in Finland. What is meant by 'work mainly done in Finland' is that more than half of the work is carried out in Finland. The comparison must be made specifically for each payday.

The wages received by a non-resident are not subject to Finnish tax if they mainly work in a foreign country, for an employer that is not a Finnish public body. However, when they mainly work in Finland for an employer that is not a Finnish public body, wages are fully subject to Finnish tax. However, if part of the wages was earned working in a foreign country, the applicable tax treaty may prevent Finland from collecting tax on that part.

If the employer is a Finnish public body (for definitions, see section 4.1 below), wages paid to a non-resident are subject to Finnish tax under income tax act, even if the work is done in a foreign country. Nevertheless, the provisions of a tax treaty may restrict Finland's taxing rights. Tax treaties often contain a provision to the effect that the wage earner's country of residence, as defined by the tax treaty, is the country that has the taxing rights. This requires that

• The work is done in the country where the employee is resident; and
• The employee is a citizen of that country or has not become its resident merely for the purpose of doing the work.

Various tax treaties have provisions that differ from one another. Consequently, each case must be looked into separately when determining which one of the two countries gets the taxing rights, and on what grounds.

2.3 Three-year rule

When a citizen of Finland moves to another country, they are normally regarded as a Finnish tax resident during the year when they move away and during the three following years. However, if they present evidence that they no longer have strong ties with Finland (within the meaning of income tax act, section 11.1), they may already, prior to the end of the third year, be treated as a non-resident. The three-year rule and the essential ties contained in it have been described in greater detail in the Tax Administration’s guidance Tax residency and nonresidency.

3 Residence in accordance with a tax treaty

It may be that an individual taxpayer is fully liable to tax (i.e. a resident, for tax purposes) in many countries at the same time. In this case, the question of taxing rights is resolved by determining where the individual taxpayer is resident under the provisions of the relevant tax treaties.

Finland has made an income tax treaty between two or a greater number of states with more than 70 states (Current tax treaties). The treaties not only address the ways to avoid double taxation but also the criteria that must be fulfilled by one of the contracting states for becoming the country treated as the country of residence. That country normally has taxing rights with respect to the individual's income from worldwide sources. The other contracting state will then only have the taxing rights on the income sourced there.

If a citizen of Finland has moved to a foreign country, their country of residence under the tax treaty may be the country where they work. That country will then have the taxing rights on the income sourced there and in other countries. This gives Finland only the taxing rights of a country of source, which means the right to collect tax only on Finnish-source income, and taking account of the restrictions imposed by the provisions of the treaty. If a citizen of Finland works in a foreign country for an employer that is not a Finnish public body, Finland does not have the taxing rights on the income. If part of the work is done in Finland, it may be that Finland has the taxing rights for that specific income.

If a citizen of Finland works in the service of a Finnish public body, the wages are usually subject to Finnish tax. This is because the majority of tax treaties give Finland the taxing rights with respect to wage income from a Finnish public body although the wage earner were, for treaty purposes, a resident of the other country. An exception from this rule are the employees with local contracts, i.e. people who have already lived in the country of work before signing an employment contract with the Finnish public body. They must normally pay tax to that country.

Tax treaties have provisions that vary, both on the subject of residency and on the subject of how taxing rights are divided. For this reason, we recommend that you re-check the content of the provisions of each relevant tax treaty carefully. Residence in accordance with a tax treaty has been described in greater detail in the Tax Administration’s guidance Tax residency and nonresidency.

4 Six-month rule regarding exemption from taxes on salary

4.1 General

Income tax act, section 77 provides for an exemption period of six months that applies to receipts of wages for work done abroad if the following conditions are fulfilled:

• The work to be done abroad is the reason for the individual's stay abroad; and
• The duration of the work is at least six months, and the employee does not stay in Finland for more than six days per each month of work; and
• The country of work has the taxing rights on the income, under the tax treaty, if Finland has entered into a tax treaty on income taxes with that country.

The six-month rule only applies to wage income. Consequently, other income such as social benefits, royalties or non-wage compensation (=trade income) are not exemptible. Similarly, the regulation is not applied to wages received from a Finnish public body, from Business Finland Oy or from work done on board a Finnish ship or aircraft.

Finnish public bodies include, for instance, the State of Finland, municipalities, federations of municipalities, the Evangelical-Lutheran Church and related parish, the Orthodox Church and related parish, their federation of parishes or other federations of parishes, the Bank of Finland, Kela, the Academy of Finland, the Arts Promotion Centre Finland, and the Natural Resources Institute Finland. As of 1 January 2010, for purposes of income taxes, Finnish universities no longer have the status of 'public body'.

For the six-month rule to be applicable, the reason for the individual's presence in the foreign country must be related to the work being done. So, if the presence is connected with family reasons or with academic studies, the rule cannot be applied. It is possible that circumstances change, and the reason for an individual's presence in a foreign country is no longer the same as at the beginning. For example, someone may have left Finland and started living abroad because the person’s spouse started working there. Later, if they sign an employment contract with a local employer and begin work, the reason for their presence in the foreign country is considered as having changed: when they begin working, the reason is deemed as being the work they do.

4.2 Continuous work

4.2.1 Minimum six-month residence due to work

The six-month period within the meaning of income tax act, section 77 is not related to the start and end of calendar years. This means that, for example, the period from 15 November 2018 to 14 May 2019 is acceptable from the perspective of the six-month rule. The counting of time is based on actual work time. If the individual spends the final days of the employment contract on vacation (or has a vacation at the beginning), it does not make the work-related period longer.

However, the date of arrival in the country of work just before they start working as well as the date of departure after the work is over are treated as being related to the work done in the foreign country. The end date of an employee's work in the foreign country is deemed as being the date when the employee could have left the country, i.e. the date when the work no longer required their presence. The Supreme Administrative Court’s ruling no. 1541 from 27 August 1998 deemed that a residence abroad due to work would last for a minimum of six months:

Ruling no. 1541 from 27 August 1998
A plumber had arrived in Sweden on 2 April 1995 to work there between 03/04 and 30/09/1995. The plumber’s working time on 30 September 1995 had ended at 5 p.m. Things were packed and the plumber’s rental flat was relinquished on 1 October 1995, whereupon the plumber headed back to Finland. The plumber’s residence in Sweden due to work had lasted from 2 April to 1 October 1995, that is, at least six months consecutively. The plumber’s income earned in Sweden was not income subject to tax in Finland. Tax year 1995.

Income tax act, section 77.1

It may be that an employee first works in one foreign country and then another. The Supreme Administrative Court’s ruling no. 2015:120 applies to a situation like this:

Supreme Administrative Court’s ruling No 2015:120
The taxpayer had worked consecutively in three different countries in such a manner that the work abroad has lasted for more than six consecutive months. Finland did not have a tax treaty with any of the countries in question. Between changing the country of work, the taxpayer had resided, for instance, in Finland. The Supreme Administrative Court deemed that when assessing the consecutiveness of the work abroad in accordance with the Income tax act, section 77, it was irrelevant that the taxpayer, after residing in Finland, had not returned to the same country of work where the taxpayer had resided before coming to Finland. Tax years 2009 and 2010.

Income tax act, sections 77.1 and 77.3

4.2.2 Staying in Finland for a few days

The work-related presence abroad is regarded as continuous although the employee spends max. six days in Finland per each month worked.

Example 1: An individual works in a foreign country from 15 January to 11 August This period includes six full months. So, the individual can spend the total of 36 days in Finland and the presence in the foreign country will still be regarded as continuous.

The reasons for visiting Finland or to the number of such visits are not important for purposes of this rule. This way, the visits made back to Finland strictly because of work are also included in the counting of the average 6 days per month. The six-month rule is applicable to the wages on the conditions that it is for work done in Finland, the wages are received from the same employer, the work is directly connected with the employee's foreign work, and the work in Finland should only last for a few days.

Supreme Administrative Court’s ruling no. 1987-B-565
For a seafarer working on a foreign ship, residence in Finland included the time during which the ship stayed in Finland for loading or unloading.
Tax year 1987, advance information

Income tax act, section 22b.2

Ruling no. 5030 on 31 December 1992
A seafarer working on board a foreign going ship registered abroad was not deemed to be residing in Finland during the time the ship was travelling in the Finnish waters between ports.
Tax year 1988.

Income tax act, section 22b

Nevertheless, staying only for an hour or two in Finland does not increase the total of the days spent in Finland.

Supreme Administrative Court’s ruling no. 1986-B-II- 554
For a paramedic working in an ambulance in the Soviet Union, the days spent in Finland by the paramedic as the ambulance visited Finland in connection with an accident were not deemed to constitute days spent in Finland, where the visits lasted for approximately one hour at a time.
Tax year 1986, advance information.

Income tax act, section 22b

Weekends and other days off are not included in the total of the days. Similarly, under a number of rulings of the Supreme Administrative Court, annual holidays spent in the country of work or in a third country are not included (rulings 5 June 1981 Court record no 2620; 31 May 1988, Court record no 2288; and 2001:22).

Supreme Administrative Court’s ruling No 2001:22
Person A was working in the United Kingdom. During that time, they also took holidays in Sweden and Denmark. The Supreme Administrative Court deemed that a stay in third countries that constitutes spending days of leave directly linked to the work abroad is not comparable to residence in Finland, pursuant to the Income tax act, section 77.2 (1535/1992). The Supreme Administrative Court also referred to the grounds of the verdict given by the Central Tax Board regarding the same case, according to which section 77.2 of the income tax act only limits the number of days during work abroad with regard to stays in Finland. The Government proposal (229/1985 vp) also states that the number of days pertaining to the limit shall only apply to stays in Finland, and that days of leave spent abroad are not comparable to stays spent in Finland.
Tax year 2000. Preliminary ruling. Voting 4-1.

Income tax act, section 77.2

If the employee's work in a foreign country has consisted of several separate periods, but the waiting times in between and any other stays in Finland are not longer (on average) than six days per month, the work periods may be added up and treated as one continuous period.

Example 2: A person works on board a foreign ship from 1 February to 30 April and from 1 June to 31 August Total duration of the employee's work is seven months, and the maximum total number of days spent in Finland is therefore 42. The waiting time between the work periods was 31 days. Taking this into account, the employee's work can be treated as one continuous period, and they still have 11 more days that can be spent in Finland.

During a longer employment contract in a foreign country, the days spent in Finland may go over the threshold if the total number of such days is counted for the entire employment contract. However, if there is a period inside the length of the employment in the foreign country when all the requirements for exemption are fulfilled, as listed in section 77 of income tax act, the pay for that period is exempted from taxes.

It is customary to treat the day of arrival in Finland as a day spent in Finland, and similarly, the day of departure is also a day spent in Finland.

Example 3: An individual had started working abroad on 15 April 2017, and the final day of work was 30 March 2018. The person has stayed in Finland from 1 July to 3 August 2017 and from 19 December 2017 to 2 January 2018. The days of travel are included in the dates. The number of full months worked abroad is 11 (15 April 2017 – 14 March 2018). Total permissible total number of days that can be spent is Finland is 66, which would fulfil the specific requirement of the exemption. The individual spent 34 days in Finland in the summer and 15 days at Christmas and New Year: the sum total is 49 days. In this example, the individual is treated as having spent at least six consecutive months abroad.

4.2.3 Unexpected interruption of work abroad

For the purposes of counting the length of the period worked abroad, it is not seen as an interruption if the employee must return to Finland for a reason which is unexpected, serious, and unrelated to the employer or employee. In addition, if such a reason causes the employee to stop working, the wages paid will not be subject to tax, though the six-month threshold would not be reached. Nevertheless, the requirement for exemption continues to be that the country of work has the taxing rights under the relevant tax treaty or that the country of work has no tax treaty (see section 4.3).

Examples of an unexpected reason for the above purposes:

• Unexpected serious illness of the employee, a family member or next-of-kin.
  • Family members include the employee's wife or husband or co-habitant if they live in the same household, the employee's spouse in a registered partnership, the employee's or the spouse's children, adopted children and foster children.
• Attending the funeral of next-of-kin.
• Changes in the circumstances that prevail in the country of work if life or health is at risk due to the new circumstances.
  • For example: war, political unrest, an accident at a nuclear power plant, epidemic
• Exceptional difficulties in obtaining a visa for the employee.

If the Finnish employee has been a draftee in the military and is summoned to a reserve-service assignment afterwards, the days spent there do not entitle the employee for extra days to be spent in Finland, because anyone who is summoned is normally always given leave if they ask for it on the grounds of their work abroad.

4.3 Taxing rights of the country of work

One of the requirements of the six-month rule is that if the tax treaty signed with Finland covers income taxes, the country of work must be in possession of the taxing rights under the tax treaty with respect to the wage income received there. However, it is not a requirement for the exemption that the country of work would actually impose tax on the income.

Normally, the treaties grant taxing rights to the country of work with respect to wage income received for work done in that country. However, an exception to this rule is "the mechanic's exception", which prevents the country of work from imposing tax if:

• The employer is not domiciled in the country of work; and
• The pay does not cause an increase of payroll expenses in a permanent establishment located in the country of work; and
• The employee does not stay longer than max. 183 days in the country of work during a certain period of time.

Such a period may be, depending on the applicable tax treaty, the calendar year, the customary taxable year in the country of work, or a consecutive 12-month period.

Tax treaties where the residence is tied to the calendar year:

Belgium, Egypt, Spain (until 31 December 2018), the Philippines, Italy, Japan, Republic of Korea, Kosovo, Greece, Croatia, Luxembourg, Malaysia, France, Zambia, Switzerland, Tanzania, Hungary, Serbia and Montenegro.

Tax treaties with consecutive 12 months:

The Netherlands, Armenia, Australia, USA, United Arab Emirates, Argentina, Azerbaijan, Barbados, Bermuda, Brazil, Bulgaria, Spain (from 1 January 2019 onwards), South Africa, Georgia, Guernsey, Hong Kong, Indonesia, Ireland, Iceland, India, United Kingdom, Israel, Austria, Jersey, Canada, Kazakhstan, China, Kyrgyzstan, Cyprus, Latvia, Lithuania, Macedonia, Malta, Morocco, Mexico, Moldova, Norway, Pakistan, Poland, Romania, Sweden, Singapore, Germany, Slovakia, Slovenia, Sri Lanka, Tajikistan, Denmark, Thailand, Czech Republic, Turkey, Turkmenistan, Ukraine, Uruguay, Uzbekistan, Belarus, Russia, Vietnam and Estonia.

In accordance with the treaty with New Zealand, the residence is calculated for the duration of the tax year. In New Zealand, the tax year is from 1 April to 31 March.

Some of the treaty countries include any short absences from the country of work in the length of stay: this means that days of absence must be included when counting the 183 days. In the above circumstances, not only the foreign tax assessment but also the tax assessment in Finland can be based on the view that the country of work has received the taxing rights.

No importance is attached to the purpose of the stay in the country of work. 'Stay' refers to actual physical presence. It may consist of a longer single period or several shorter periods. All the days when the employee is present in the country of work are counted. This means that if they are in the country, any days off are counted that have been spent there prior to working, during the work period, or after it. In most cases, even a few hours within a calendar day are included in the count: for example, if an aeroplane arrives on Sunday night at 11.30, the entire Sunday is included in the length of stay.

When wages are earned for construction and building work in the Russian Federation, the length of the employee's presence does not give rise to the taxing rights being transferred. Russia would only obtain the taxing rights if the employer has a permanent operations outlet in Russia. Circumstances that give rise to a permanent establishment include a situation where the employer pursues a construction, installation or assembly activity in one Russian location – or supervises such activity – for at least 12 months; or 18 months, if the building to be constructed is an industrial building.

Other factors that affect the taxing rights include the various relief clauses contained by tax treaties. These clauses usually concern students, teachers and academic researchers who arrive in a contracting state to work there.

If an individual is treated as residing in the country of work for treaty purposes, that contracting state is always in possession of the taxing rights with respect to the individual's income sourced there. In this case, the total number of days of presence is not important.

The link below is for a table that summarizes the requirements of the six-month rule:

The six-month rule application test (pdf, only in Finnish)

4.4 Special circumstances

4.4.1 Employee leasing

Employee leasing is an arrangement by which one company provides employees to another (the hirer) under a leasing contract. Between the leasing company and the hirer, there is a contractual relationship under contract law.

The actual employer continues to have the tax obligations of an employer. This is so even though the normal employer obligations related to the performance of work are transferred to the hirer. Examples of the latter include the employer obligations related to occupational safety and to maximum regular hours of work. Work is usually done in the hirer's premises, under the hirer's control and direction, using the tools, materials and supplies provided by the hirer. However, as the employees are 'leased', their employment contracts are with the leasing company, which also is the company that pays them.

The tax treaties concluded with a number of countries include special provisions on employee leasing (including the Nordic tax treaty and the treaties signed with Estonia, Latvia and Lithuania). The provisions allow for the taxing rights always being granted to the country of work, regardless of the leased employee's days of presence, if the conclusion is made that the employee who works at a Finnish company is a leased employee. If a leased employee needs to prove the existence of a leasing contract, they must present the Finnish Tax Administration sufficient proof in order to show that the country of work, based on the provisions referred to above, actually collects tax on the income.

4.4.2 The economic employer

Some countries interpret the provisions of tax treaties under the 'economic employer' principle. In these countries, it is deemed that if an employee actually works for a company operating in said country and the employee’s wage encumbers or should encumber the company operating in said country, the wage has been paid by an employer operating in this country even if in practice, the wage has been paid by a foreign (e.g. Finnish) employer. If an employee presents proof that the country of work applies the 'economic employer' principle and that their wages have been taxed there, the country of work can be treated as having the taxing rights.

4.4.3 Working in a third country or Finland

Working in the territory of a third country can be treated as work abroad for purposes of income tax act, section 77. However, it must be taken into account is that the employee's presence in a country that is not the primary country of work may lead to a situation where the primary country does not receive the taxing rights under the tax treaty. Under the circumstances, the employee may stay less than 183 days in the primary country and also in the secondary country; then the six-month rule stops being applicable to the wage income received from either country.

Example 6: Ms 'A' works in Sweden as an employee of a Finnish company. She left Finland for Sweden on 1 September 2017, and the date when she comes back is 1 July 2018. During her work period in Sweden, she travels to Norway on various assignments and spends 70 days there. Similarly, she spends a total of 30 days in Denmark, and 25 days in Finland. The employer company does not have a permanent establishment in Sweden, Norway or Denmark. Ms 'A's presence does not go over the threshold of 183 days in any of the three countries Sweden, Norway and Denmark. As a result, none of them gets the taxing rights under the provisions of the tax treaty. Her receipts of income from the work are not exemptible under the six-month rule.

Wages paid for work done in Finland are usually subject to taxes in Finland. If an individual works in a foreign country as an employee of a Finnish company, they may be required to work in Finland during the assignment, and this accumulates some days of presence in Finland. Such days are known as "reportable days". They are included in the total number of days spent in Finland. However, the six-month rule can be applicable to the pay if the following conditions are fulfilled: it is for work done in Finland, it is received from the same employer, the work is directly connected with the employee's foreign work, and the work must not last longer than a few days. This way, the wages received for the 'reportable' days can be exempt from Finnish tax if the customary requirements of the six-month rule are fulfilled.

4.4.4 Wages received from a secondary occupation and other payments deemed wages

If an individual receives wages for secondary employment, it is exempted from taxes if presence in a foreign country is required for work-related reasons and if the country of work has the treaty-based taxing rights. For example, the fees received for writing columns for a Finnish newspaper by an employee who works abroad can be exempted if the writing work requires that some facts are collected in the foreign country. However, another treatment of such newspaper fees is that they are seen as royalties; in this case, the taxing rights depend on what is provided in the treaty article on royalty income (Art. 12 of the OECD Model Tax Treaty). In this case, the six-month rule does not apply.

Supreme Administrative Court’s ruling no. 1996-B-518
During the tax year, X has worked as a UN peacekeeper in the Golan Heights. At the same time, X has held a sideline as a claim adjuster for A in Israel and Syria. The employment lasted from 12 December 1990 to 19 December 1991. In order to gain the extra income, X has had to stay in the country of work. The wages received from a secondary occupation by the person working abroad for more than six months were subject to the six-month rule, even though the wages received for the primary occupation from a Finnish public body did not. Tax year 1991.

Income tax act, section 54

Example 7: An individual is employed by a Finnish company. She works in a foreign country for a longer time than six months and, while there, she handles a bookkeeping assignment for another Finnish company. Because the bookkeeping does not require that she be present in a foreign country, her second-job wages are subject to Finnish taxes. However, treaty provisions may restrict Finland's taxing rights.

Other payments to be equated with wages, making the 6-month rule applicable:

• The wages paid to an individual who participates in a traineeship program or a work-introduction program abroad, if such a program is directly connected to their work in a foreign country. The start date of work abroad would in this case be the start date of the traineeship.
• Wages for work in a foreign country even if payment were made after the employee has stopped working there
• Vacation pay that has the same period of accrual as the wages for work in a foreign country even if payment were made later
• Bonus payments inasmuch as they relate to the employee's work in a foreign country
• Various expense coverage payments going to the employee even if they were taxable reimbursements, because if reimbursement for an expense is taxable, it is treated as wages
• Payment for general relocation expenses, received by the employee when starting their work in a foreign country
• Employer-paid sick leave
• The payment known as "palkkaturva" financed by Finnish Ministry of Labour, if related to the employee's work in a foreign country
• Income arising from a signing bonus if the six-month rule is applicable to the work under the contract.

The six-month rule is not applicable to the following types of reimbursement paid to the employee – examples:

• Kela-paid sick leave,
• Reimbursement based on accident insurance and motor vehicle insurance, and
• Wages and allowance for maternity leave (also in cases where payment is made retroactively)

4.4.5 Return compensation when returning to Finland

When an employee returns to Finland, the employer may pay him/her an amount intended to cover some general expenses. If such an amount is paid on condition that the employee must continue to work for the same employer that sent them abroad, it is treated as wages for work done in Finland. The six-month rule does not apply.

4.4.6 Leaving Finland to work abroad, working from home

The six-month rule is normally not applicable to work-from-home because the employee's presence in the foreign country is not due to the work they do. For example, their presence may be due to studies or due to their spouse's foreign assignment in the country. If the work done from home does not require the employee's presence abroad, there are no grounds for applying the six-month rule. The country of work may be given the taxing rights by virtue of the relevant tax treaty. In this case, the country that will relieve double taxation is the employee's country of tax residence.

4.4.7 Compensation paid at the end of employment

It may be that a severance amount is received by an employee. Payment sizes and reasons vary. The six-month rule may sometimes apply. Severance payments connected with an employment contract that terminates may be a lump sum, wages for a period of notice etc.

The OECD Commentary to Article 15 of the Model Tax Treaty presents a number of recommendations for the tax treatment of such pay. However, the national legislation of the country of taxation provides the rules for the final decision on how the income should be characterised, on whether it is subject to tax, and on how the period is determined when the income had accrued. If the country of work had collected tax on the income, following the recommendations of the OECD, but differently from what is generally accepted under Finnish case-law, Finland will relieve the resulting double taxation because it is the country of tax residence .

Frequently, the length of the employee's career with the employer is a factor that affects the severance pay. However, this does not mean that the principle of accumulation of earnings during work abroad would necessarily apply to a lump-sum payment. This is an amount paid to the employee upon termination, with direct effects and grounds that relate to the time when it is paid and also to the employee's circumstances after receiving it; it is a measure to compensate for the loss of earnings. Due to the above reasons, the six-month rule is normally not applicable to such income.

Supreme Administrative Court’s ruling no. 1993:2671
A was employed by X Ltd from 1 September 1983 to 31 July 1992. Of this period, A was on an international assignment in France since 15 February 1989. As compensation for the termination of employment, X Ltd had paid A a one-time total payment of 278,000 Finnish marks on the basis of the length of the employment in 1992. The one-time payment received by A was A’s taxable income. The lump-sum payment based on the length of employment, part of which applied to A’s international assignment, could not in this respect be considered wages paid for work abroad, in accordance with section 54.1 of the income and capital tax act.
Tax year 1992, advance information.

Income tax act, sections 43 and 54

The wages paid to an employee during their period of notice can be treated as tax-exempt wages for work in a foreign country, on the condition that a connection is established between the payment and the foreign-based work.

Central Tax Board’s decision No 141/1991
An employee had worked abroad since 1987 for the whole duration of the person’s employment. On 3 January 1991, the employer terminated the employment contract, which included a 13-month period of notice, due to difficulties in the export business. According to the contract between the employee and the employer, the employee would be paid wages until the end of 1991. The entirety of the wages received during the period of notice were tax-exempt income due to working abroad.

However, the one-time payment based on the length of employment received upon the termination of employment may not necessarily be treated as wages to which the six-month rule applies, even if it applied to the employee’s international assignment period.

Supreme Administrative Court’s ruling no. 2001:1133
A had been employed by the global consultation agency C Inc., working in Sweden from 3 August 1991 to 30 June 1992, in Finland from 1 July 1992 to 31 March 1993, in Australia from 1 April 1993 to 31 May 1994, and in Finland from 1 June to 31 December 1994, at which point A’s employment at said company ended. When A’s employment at C Inc. ended, A was paid, from the US to Finland, an amount that comprised investments made by the employer between 1991 and 1994 in the Profit Sharing Retirement Plan (hereinafter referred to as ‘PSRP’) retirement fund maintained by the employer and the return on investment minus 30% U.S. tax and bank fees.

Pursuant to the income tax act, section 77 applicable to income received for work abroad, wages received for work carried out abroad are not taxable income subject to the requirements of the section above. Subsequently, the funds withdrawn by A from PSRP should not be deemed income received for work abroad in accordance with the section above, even to the degree that the funds in question have accrued on the payments made by C Inc. to PSRP for the duration of A’s period of working abroad. The income, including the return on investment, should be deemed a benefit or compensation received by A instead of pension income pursuant to the income tax act, section 61.2, which A should be deemed to have received at the end of employment and which is earned income.
Tax year 1994.

Income tax act, sections 61.2. and 77

The treaty between the governments of Finland and the United States for the avoidance of double taxation applicable to income and capital taxes as well as the prevention of tax avoidance (SopS 2/1991)

5 Specific tax-exempt compensations related to working abroad

5.1 Local allowances and other compensations received from the State of Finland and Business Finland Oy

The income tax act, section 76, decrees the exemption from tax of specific compensations related to working abroad. If the State of Finland pays a local allowance or comparable amounts designed to cover the employee’s additional expenses when stationed abroad and the employee has a direct employment contract with the State while working abroad, it is not subject to tax (income tax act, section 76.1.1).

Supreme Administrative Court’s ruling no. 1990:3375
The preparation allowance received by a secretary employed by the ministry for road and water construction for work taking place in Vietnam was not the employee’s taxable income. Tax year 1985.

Income tax act, section 22.1.10

People who are hired locally are not regarded as 'stationed'. For this reason, their receipts of reimbursement are not exempted under this rule. For more information on 'locally hired' and 'posted' (stationed) employees, see section 7.4 below.

Similarly, if Business Finland pays a local allowance or comparable amounts designed to cover the employee’s additional expenses when stationed abroad and the employee has a direct employment contract with Business Finland, it is not subject to tax. However, if the size of the compensation exceeds that of similar compensations paid to the staff of a Finnish mission abroad, the part exceeding this threshold is taxable. (Income tax act, section 76.1.2).

5.2. Consultation fee from UN or salary from specialised agencies

A salary or fee paid by the United Nations (UN) or its specialised agencies for a consultation task carried outside Finland is tax-exempt in Finland (income tax act, section 76.1.3). Similarly, a daily allowance paid by the UN for such a task is tax-exempt, regardless of the party who pays the actual salary. On the other hand, the pension accrued for the task is taxable income in Finland (Supreme Administrative Court’s ruling no. 1978-B-II-556).

The exemption from tax can only apply to a payment paid by the UN or its specialised agency. A salary paid by the Ministry of Defence for service in the Finnish UN Battalion is taxable income in Finland (Supreme Administrative Court’s ruling no. 1978-B-II-514).

The regulations pertaining to the exemption from tax of salary earned as an official or clerical worker of the UN, its specialised agencies or other international organisations are listed in specific treaties between states, such as the treaties on the privileges and immunities of the European Union or the specialised agencies of the UN. Examples of other treaties between states are the minutes of the Treaty of Lisbon, which include regulations pertaining to the exemption from tax of EU staff, and the privileges granted to the members of the European Human Rights Chamber by the agreement to protect human rights and basic freedoms.

5.3 Compensation received to cover specific costs and additional living expenses in crisis management operations

Compensation paid by the EU, an international organisation, the State of Finland or the executor of a crisis management operation (CMO) to cover the specific costs and additional living expenses of personnel in an employment relationships pursuant to the act on the participation of civilian personnel in crisis management (1287/2004) (income tax act, section 76.1.3a) is not taxable income. According to the above-mentioned act, compensation related to special circumstances is paid to cover the specific costs and additional living expenses as long as a daily allowance or other compensation paid by the EU, the international organisation or the executor of the CMO does not cover them.

In accordance with the Government proposal (206/2004 vp), the special circumstance allowance and other tax-exempt expense allowances cover, for example, accommodation costs and additional living expenses including the cost of communications to Finland, as well as the cost of personal visits to Finland. For this reason, accommodation costs and other living expenses or the cost of visiting Finland do not constitute tax-deductible income-earning costs.

5.4 Wages received by a non-resident employee of a diplomatic or other mission abroad

Wages or fees paid by the State of Finland to non-residents who work for a Finnish diplomatic or other mission abroad are not taxable in Finland. The precondition is that the income earner is not a Finnish citizen. (Income tax act, section 76.1.4)

5.5 Expense allowance received from the EU

The national experts working for the European Commission receive their wages from an employer in their home nation. Usually, the experts are members of different ministries or other public sector employees. If a Finnish resident works as a national expert, some of the allowances received by them from the European Commission constitute tax-exempt income (income tax act, section 76.1.4a).

From 1999 onwards (227/1999), the exemption from tax of such allowances shall also apply to parties who are not experts working for the European Commission. However, it must then be a case of an expert role approved by the Commission and linked to the European Union’s expansion project or development of current and future border areas.

National experts and twinning operations are used in various EC-funded programmes (Government proposal 201/2002 vp). Such programmes include PHARE, CARDS, TACIS, ISPA, SAPARD and MEDA. Out of these, especially PHARE, TACIS and CARDS are programmes that have requested experts from the Finnish government.

Tax-exempt allowances include a living allowance, a fixed bonus allowance, travel allowance, compensation for moving, reimbursement for various costs arising from a specific task, and other similar allowances.

There may also be Finns working for the EU’s area committees and social committee. Membership is a position of trust for which no specific allowance is paid. The expense allowances received by a member from the Commission is tax-exempt (income tax act, section 76.1.4b). Tax-exempt allowances include the generic expense allowance, travel allowance and other equivalent allowances.

Nonetheless, if the employer receives support from other EU programmes, the wages and allowances paid to the employee shall be subject to the standard Finnish regulations.

5.6 Certain allowances arising from working abroad paid by the employer

Normally, the employer cannot pay tax-exempt compensation for an employee’s living expenses. However, some forms of compensation related to the living expenses linked to working abroad are exempt (income tax act, section 76.1.5). The employer can pay tax-exempt compensation for the moving and travel expenses for the employee and their family, the term fees for children's customary education, and the expenses for hiring private service personnel if this is local practice. In addition, it is also exemptible to provide accommodation in the foreign country that exceeds the usual norms set out by the Official Decision of the Tax Administration on the valuation of fringe benefits.

If an employee has a special travel insurance contract during the period when they work abroad, having the employer pay for it may also be regarded as exempted because it may be seen as being part of moving and travel expenses.

For more information (in Finnish and in Swedish), see the Tax Administration's guidance on "Employer-provided risk insurance" – Työnantajan ottamien vapaaehtoisten riskihenkilövakuutusten verotus; and the chapter on "travel insurance" – 4.6 Matkavakuutus. The requirements have been explained in greater detail in the Tax Administration’s guidance on the taxation of voluntary personal risk insurance policies taken out by an employer (‘Työnantajan ottamien vapaaehtoisten riskihenkilövakuutusten verotus’), section 4.6 Travel Insurance.

Customary education for children means education corresponding to Finnish comprehensive school and upper secondary school. The employer may compensate, for example, for the term fees of a corresponding international school in the country of work exempt from tax.

Customary private service personnel means staff that, in view of the circumstances in the country of work, can be considered as local practice. Staff like this may include, for instance, a nanny, maid, cook, gardener, chauffeur or security guard.

The above-mentioned compensations are tax-exempt, even if the salary paid by the employer in Finland were subject to tax and the work took place at the actual work place.

Living expenses are not deductible in taxation, and the provision of section 76.1.5 is not to be understood as an extension of the scope of deductibility. From this follows that the types of expenses listed in that provision are not deductible if the employer is not paying them.

6 Elimination of double taxation

When a Finnish resident works in a foreign country, the income from such work is subject to tax in Finland under domestic legislation, unless it has specifically been declared exempted by definition of law. Similarly, the country of work may impose tax on the income under the provisions of its own national legislation.

If the individual works in a country that has signed a tax treaty, it is Finland's responsibility to provide relief for any double taxation if Finland is, for treaty purposes, the country of residence and if, for treaty purposes, the country of work has the taxing rights. Double taxation may also be relieved in situations where people work in a country with no tax treaty with Finland.

If a treaty is in force between Finland and the country of work, double taxation is eliminated either by credit or by exemption, depending on the provisions of the treaty. Treaties do not contain definitions of calculation formulas for the credit method and the exemption method. Instead, further provisions governing this are found in national legislations.

Finland has a legal act on how double taxes must be eliminated – the act on the methods to be used when granting relief (1552/95, menetelmälaki). This act is also applied when the country where work is performed is not a tax-treaty country. In this case, only the credit method is in use.

The calculations provided by the act apply to income taxes going to the State of Finland, corporate income tax, municipal income tax, and church tax. Treaties contain provisions that list the taxes that must be included in the eliminations. For example, under the provisions of the convention between the United States of America and Finland for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, American taxes paid to U.S. states are not creditable in Finland. If there is no treaty, only the taxes paid to the foreign central government can be included in eliminations, under the Finnish act on the methods of relief. Neither the act nor the tax treaties are applicable to health insurance contributions.

Under the act on relief, double taxation is removed by subtracting the foreign-paid tax from the tax payable in Finland on the same income; this is the 'credit method'. If a tax treaty is in force, double taxation is eliminated either by credit or by exemption, depending on the provisions of the treaty. The exemption method means that no tax is collected in Finland on the foreign income. However, the foreign income affects the tax percentage rates of the taxpayer's other income if they are taxable here.

The taxpayer must lodge a claim for relief for double taxation and provide an account detailing the taxes paid to the foreign country, including the tax basis concerned. It is possible for taxpayers to lodge such claims when they ask for their prepayment calculation for the current year. Another possibility is to fill in the claim on the year's tax return.

If wage income is treated as exempt by virtue of the six-month rule, no double taxes are paid.

Further information on double taxation (in Finnish and Swedish): Kansainvälisen verotuksen käsikirja, luku 4.4 – Kaksinkertaisen verotuksen poistaminen.

7 Exceptional situations related to working abroad

7.1 Students, teachers and researchers

The pay received for work done abroad by students may be covered by the six-month rule; the income is then exempted from Finnish taxes. This requires that the student's presence in the foreign country is necessary due to the work concerned.

Another precondition of the application of the six-month rule is that the country of work has the right to tax income. Some tax treaties include provisions that limit the country of work’s right to tax the student, researcher or teacher’s income. In the case of graduate students, it is also worth noting that the definitions of 'researcher' and 'student' may vary from country to country. For example, the country of work may treat a Finnish academic researcher as a student. In this case, it is the interpretation of the country of work that counts.

7.2 Working on board a foreign ship

The six-month rule cannot be applied on receipts of income from work on a Finnish ship. What is regarded as a 'Finnish ship' also includes a rented foreign ship if the Finnish employer is renting it, and there is only a limited foreign crew or no such crew at all.

However, receipts of income from work on foreign ships can be exempted by virtue of the six-month rule. Under tax-treaty provisions, the pay received on board a ship sailing international maritime routes, which is commissioned by an enterprise resident in a contracting state, is normally taxable either in the country of residence of that enterprise or in the country where its management exists. Under the multilateral tax treaty between the Nordic countries, seafarer's income is taxable in the ship's country of residence, and Finland must relieve double taxation by giving credit for the taxes paid to the country concerned.

If Finland and the country of work have not signed a tax treaty, the exemption for the receipts of such income requires that the individual works abroad for at least six consecutive months and that their stays in Finland are not longer than six days per month (for example: 6 months × 6 days = 36 days), on average.

If the country of work has treated the pay as seafarer's income, it is also treated so for Finnish tax purposes, unless facts and circumstances arise that give rise to the conclusion that it cannot be regarded as seafarer's income. If the conditions set out by income tax act, section 97 are fulfilled, the income earned on foreign ships may entitle the seafarer-employee to the deduction granted to seafarers.

7.3 Airline employees

Depending on tax-treaty provisions, the pay received on board an aircraft flying international routes is usually taxed in the employer company's country of residence or in the country where its management exists. Under the multilateral tax treaty between the Nordic countries, the only country that taxes your income from airline work is the country where you live.

We recommend that you check the specific provisions in each applicable tax treaty in order to ascertain the definitions of 'international traffic', especially from the perspective of airline routes flown inside the contracting state. There are several airline companies that fly inside foreign countries; the routes can be within the territory of the other country entirely.

If you are a tax resident, you are generally liable to tax on your worldwide income. If for the purposes of the relevant tax treaty you are a resident of the other contracting state, the treaty will restrict the assessment of Finnish taxes on your wages. Finland is then only able to tax the wages from the work you do in Finland. Only the flights flown on domestic routes are treated as work done in Finland. Working on board an aircraft flying international routes is not treated as working in Finland, even if the pre-flight work is performed in Finland and the aircraft flies in Finnish airspace for some of the time.

7.4 Employees of the Finnish diplomatic mission abroad

If you are a Finnish tax resident and receive wages from a Finnish mission located aboard, it is taxable income in Finland. Similarly, it is taxable income paid to a non-resident from a Finnish source within the meaning of income tax act, section 10.3 if you are a Finnish tax non-resident. However, if you are a non-resident who is not a citizen of Finland, the income is not taxed in Finland under the provisions of section 76.1.4. In addition, provisions of tax treaties may restrict Finland's taxing rights.

People in the service of Finland's diplomatic and other missions abroad may either be posted there or hired locally. The Ministry of Foreign Affairs has specified who of those working must be treated as posted, and who must be treated as locally hired.

Finnish citizens treated as posted are Finnish tax residents for the entire length of their service contracts (under income tax act, section 11.2.1). If a person is not a member of the Finnish mission, they are locally hired. In this case, the person in question is in another permanent full-time employment of the Finnish government abroad (income tax act, section 11.3). People treated as locally hired are Finnish tax residents for the entire length of their service contracts if they had been that immediately before they started work. Under the circumstances, the three-year rule is not applied.

However, a locally hired employee may be treated as a non-resident taxpayer should they demand it and if the employee is able to demonstrate that they have not had substantial ties to Finland during that tax year.

The provisions of the treaty article on public service are applied on the wages received for the work (Art. 19, OECD Model Tax Treaty). Under the general rule contained by the majority of treaties, the pay from a public body is primarily taxable in the payer's country. However, such pay can only be taxed in the country of work if the employee is a resident of that country; and

(a) The employee is also a citizen of the country; or

(b) The employee has not become a resident of the country merely for the purpose of performing the work concerned.

Example 8: An individual has lived in Austria for many years. He is a Finnish citizen and does not have the citizenship of any other country. He has worked for a private-sector employer in Austria. He has become a person with limited tax liability – a non-resident – in Finland. Starting 1 January 2019, the Finnish Embassy in Germany offers him employment to work in Berlin as a locally hired employee. He leaves Austria for Germany. He continues to be a non-resident. The treaty between Germany and Finland does not prevent Finland from collecting tax on his income. For this reason, he becomes liable to pay tax to Finland on the pay from the Embassy.

Example 9: An individual has lived in Germany for 10 years. She is a Finnish citizen and does not have the citizenship of any other country. She is a non-resident. The Finnish Embassy in Germany offers her employment as a locally hired employee. She presents a document issued by the German tax authority that as of 2019, she has been treated as a resident in Germany for treaty purposes. In this case, she does not become a person resident in Germany within the meaning of the tax treaty only because of the employment at the Embassy. For this reason, Finland does not have the taxing rights on her pay from the Embassy.

See section 5.1 above for information on the treatment of the special reimbursement and allowances paid to people employed by Finnish diplomatic and other foreign missions.

7.5 MEPs and EU staff

7.5.1 Members of the European Parliament

Following the European Parliament election in June 2009, a new Statute for Members of the European Parliament (2005/684/EC) entered into force. From 1 July 2009 onwards, the salaries of MEPs have been paid from EU funds, and the fees are subject to tax to the EU. Members who were already MEPs before the entry into force of the new rules and who are re-elected may choose the previous national system for the whole duration of their term of office, in which case the salary is paid by Finland.

According to the new statute, the member states have been provided with the option to apply their national tax legislation to the MEP fees and the pensions paid. Hence, if the six-month rule does not apply to the salary, the salary will be subject to both the EU’s own tax and the national Finnish tax. In Finland, double taxation can be eliminated by using the compensation method (1552/95, section 1, menetelmälaki). Those who chose the previous national system pay their taxes solely to Finland.

7.5.2 EU staff

EU officials, who are subject to the protocol on the privileges and immunities of the European Union, should, in accordance with section 13 of said protocol, be for taxation purposes considered to be residents of the country where they lived when they began their term of office at the EU. When a Finnish resident taxpayer becomes employed by the EU, they will remain a Finnish resident in accordance with Finland’s internal legislation as well as the tax treaty between Finland and the country of work.

Pursuant to the protocol on the privileges and immunities of the European Union, an official who has left Finland to become an EU official shall remain a Finnish resident taxpayer even if more than three years have passed since the year they moved abroad. In this respect, the provisions of the protocol on the privileges and immunities of the European Union regarding tax liability override the provisions of internal legislation. This was the verdict given in the Supreme Administrative Court’s ruling no. 2011:88. Before issuing the ruling, the Supreme Administrative Court requested a preliminary ruling from the Court of Justice of the European Union, which, in its ruling no. C-270/10, decreed that an EU official shall remain the resident of their country of origin for the duration of their term of office.

Supreme Administrative Court ruling No 2011:88
Finnish citizen A moved to Luxembourg in spring 2003 with her family, when A’s spouse started working as a translator for the European Parliament. Taking nursing leave from her job, A took care of the family’s child while in Luxembourg. A was not in gainful employment while in Luxembourg. For the tax year 2007, A was still considered a Finnish resident taxpayer on the basis of the protocol on the privileges and immunities of the European Union (8 April 1965), section 14.

Treaty on the Functioning of the European Union, section 267
Protocol on the privileges and immunities of the European Communities (8 April 1965), section 14
Income tax act, sections 9 and 11

Based on the protocol, the spouses and children of EU officials are Finnish resident taxpayers if they are not in gainful employment of their own. If the spouse works for a local employer, even in a limited manner, the matter of their residence shall be decided on the basis of the general rules.

Often, the officials and other clerical workers working for the institutions of the EU pay a separate tax to the EU. Income subject to such tax is tax-exempt in Finland. A report must be submitted in Finland for taxes collected by the EU. If the EU does not collect tax for the salary, it will be taxed in Finland, unless subject to the six-month rule.

The assistants of Finnish MEPs working in Brussels, Strasbourg or Luxembourg have been included in other EU staff since 1 July 2009. They are directly employed by the European Parliament and have to pay a corporate tax.

Income taxed by the EU that is not subject to a national tax in the member states cannot be taken into account in Finland even using the progression-based exemption method. This is based on the decision by the Court of Justice of the European Union from 1960 in the case of Jean Humblet v. the state of Belgium (C-6/60).

7.6 Reporters

The six-month rule pertaining to the exemption from tax only applies to earned income. In order for the rule to be applied to the income earned by a reporter, the reporter in question must be employed by a Finnish newspaper.

If the reporter takes a more permanent residence in a foreign country, a situation may arise in which the reporter no longer resides in Finland for tax purposes and thereby does not have tax liability to Finland for income earned abroad.

Instead of earned income, reporters may receive, e.g. a copyright fee, which is classified as a royalty for tax and international purposes. Royalties are taxable income in Finland. Tax treaties include various provisions regarding the right to tax royalties. If Finland is the reporter’s country of residence with regard to the tax treaty, Finland will eliminate the double taxation.

Royalties paid from Finland are also taxable income for non-resident taxpayers if the tax treaty does not limit Finland’s right to taxation.

7.7 Employee stock options

During the period when stock options are offered to employees, it may be that they work in Finland and in foreign countries. However, receipts of wages for work in foreign countries can be exempted by virtue of the six-month rule, under income tax act, section 77. Under such circumstances, the six-month rule may also be applied on employee stock options, as they constitute a benefit. According to Supreme Administrative Court ruling no. 2013:93, the accrual period of the option is from the time the option was granted to the time it was vested.

Supreme Administrative Court ruling No 2013:93
Finnish citizen A had been living and working abroad since 1987. From 2000 onwards, A had been employed by X Ltd’s subsidiary in Italy until 15 July 2003, at which point A and A’s family moved back to Finland and the person was employed by another subsidiary of X Ltd until 12 July 2004. A and A’s family moved to France on 14 October 2004.
---
While living and working in Italy, A had obtained the employee stock options in accordance with X Ltd’s two employee stock option schemes. The option right earning periods had ended on 30 March 2003 and 30 March 2004 respectively, at which point the options became free to transfer in accordance with the terms and conditions of the options. A had sold the option rights on 1 March 2006.

A had worked in Italy for the entire period of the 2001 option scheme, from the time of receiving the options to the time the earning period ended. The benefit gained on the basis of the option scheme was deemed part of the total compensation paid for the work carried out in Italy for the time A had been a non-resident taxpayer in Finland. As the income gained via the option scheme could not, according to the income tax act, section 10.4, be deemed even partly as income earned in Finland, no tax was payable for the income in Finland.

Of the income gained via the 2002 option scheme, the part corresponding to the period A had worked in Finland of the period from receiving the option certificates to the end of the option right earning period was income subject to tax in Finland.

The six-month rule can be applied on the benefit arising from stock options only if:

There is a tax treaty between the country of work and Finland;

The income from stock options is taxed in the country of work as wage income (or in a similar way, i.e. as 'earned income'); and

The taxpayer presents sufficient proof of having reported the stock-option benefits to the tax authorities of the country of work

A factor that may prevent Finland from collecting tax on foreign-sourced wages is that a Finnish-resident individual becomes, for purposes of the relevant tax treaty, a resident of the other contracting state, or that they become a Finnish non-resident. Under the circumstances, it is normally no longer possible to impose Finnish tax on a stock option benefit received for the corresponding period of time. Usually, the country of work is in possession of the sole taxing rights for the wage income if a Finnish-resident individual is to be treated, for purposes of the tax treaty as a resident of the other contracting state.

Exceptions from this rule are the treaties made with some countries (including Germany) where the question of double residency is covered by a specific provision that grants Finland the taxing rights for Finnish-resident citizens for their worldwide income, also in a situation where the applicable tax treaty would make them treatable as residents of the other contracting state. Correspondingly, wages received from work abroad during a period of non-residency are not treatable as income from a Finnish source (income tax act, section 10.4). Nevertheless, the compensation paid to someone for membership of a Finnish company's board of directors or similar is treated as Finnish-sourced, though the work may be done outside of Finland (income tax act, section 10.4a).

8 Social security contributions

8.1 General

The Health Insurance Act (Sairausvakuutuslaki 1224/2004, SVL) contains provisions on the required premiums and contributions. The premium collected from the insured party consists of two elements: a healthcare contribution (sairaanhoitomaksu) and an earned-income contribution (päivärahamaksu). The act on employers' health insurance contributions (Laki työnantajan sairausvakuutusmaksusta 771/2016) requires employers to pay their contributions.

In addition, both employees and employers must pay other charges related to social insurance. The rules of calculation for pension insurance and unemployment insurance may be different from those for health insurance.

The legal rules affecting payment sizes include the provisions of Finland's legislations, the Regulation (EC) No 883/2004 — on the coordination of social security systems, including its Implementation Regulation No 987/2009, and international conventions.

From the perspective of payments, it is significant whether an individual's country of work is located in EU territory, in EU/EEA territory, whether it is a signatory country of the international convention on Social Security, or another country.

• When the country of work is in the EU/EEA, all premiums are paid to a single country only.
• When the country of work is a signatory country of the Social Security convention, the beneficiary country of each insurance (pension, accident, unemployment and health insurance contracts) depends on what kinds of benefits are involved; as a result, pension insurance and health insurance may be payable to different countries.
• When the country of work is none of the above, the internal legal rules of both countries must be followed, and payments may therefore have to be made to different countries.

List of EU countries: Belgium, Bulgaria, Spain, Ireland, United Kingdom, Italy, Austria, Greece, Croatia, Cyprus, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Poland, France, Romania, Sweden, Germany, Slovenia, Slovakia, Finland, Denmark, Czech Republic, Hungary and Estonia.

EEA states are Norway, Iceland and Liechtenstein.

A specific treaty is in force with Switzerland on the applicability of the EU Regulation on the coordination of social security systems.

If it is required that employees' social security must be arranged as is customary in the foreign country, premiums and employers' taxes must be paid to that country under local rules.

There are differences between internal legislation, the EU Regulation, international conventions, on the one hand, and tax laws and tax treaties on the other hand, which make for situations where tax is collected in Finland, but the income on which it is collected is not subject to the payment of the health insurance premium of the insured, for example. Similarly, it also may be that the health insurance contribution must be paid in Finland but at the same time, the taxing rights for the income are in the other contracting state.

The current rules governing health, pension, unemployment and accident insurance fall in the jurisdiction of the Finnish Centre for Pensions, the Unemployment Insurance Fund and the Social Insurance Institution. For more information on social insurance, see the guidance issued by these public organisations.

8.2 Being covered by the social security system of Finland

In accordance with the Health Insurance Act, a person who works, is self-employed or lives in Finland in accordance with the act on residence-based social security in situations where limits are exceeded (16/2019) is insured in Finland. Obligations to pay the premiums may be relieved under the EU Regulation No 883/04 and under the specific conventions on social security that Finland has signed with some countries. However, provisions of tax treaties do not affect the payment of insurance premiums. Being a person who lives in Finland within the meaning of social insurance laws may be a different concept than the 'residency' the income tax act and tax treaties refer to.

Insured parties who take up a temporary residence abroad are Finnish residents as long as the residence abroad lasts for a maximum of six months (the act on residence-based social security in situations where limits are exceeded, section 6). If a Finnish employer sends an individual who lives in Finland to work in a country that is not in the EU/EEA or a signatory country of a convention for longer than six months, the employee will remain a Finnish residence as long as Kela is notified of the matter. This is also the case when a person is sent to work for a parent company or subsidiary.

Similarly, some multilateral conventions on social security may provide that an employee who is posted to a foreign country continues to be covered by the Finnish health insurance system (and be treated as 'living here' for social security purposes) for an even longer time than what is said above.

Persons who are posted to a foreign mission also continue to be covered by Finnish insurance. The same applies to persons who have lived or worked in Finland immediately before their employment began and who are employed abroad by the Finnish Government, or is a private servant of such a person. If a Finnish public organization pays wages to a foreign citizen who works in a foreign country, they may be treated as 'a person living in Finland', e.g. because they have an employment contract with such a Finnish public organization.

As a rule, for tax purposes, a person or employee who is a Finnish resident taxpayer in accordance with the income tax act should be considered as covered by the social security system of Finland. This means that the employee will have to pay the health insurance premiums of the insured, and the employer must pay the health insurance contribution collected from employers. The treatment under this principle does not apply if the resident taxpayer is able to prove that they are not covered by the Finnish system by presenting an ‘A1’ certificate (formerly E101) obtained from an EU/EEA country. The A1 certificate may cover the countries of the EU and EEA, and Switzerland.

Other countries that have a convention with Finland on social security can issue certificates with the same effect. However, some of the conventions do not contain provisions on the insured party's health insurance premiums and employer contributions.

Normally, someone who continues to be a tax resident of Finland but has moved to another Nordic country to live there permanently normally does not need the certificate. People in the Nordic countries are expected to submit notifications to the authorities of the Nordic country of departure, and the Nordic country or arrival if they move from one country to another. This also takes care of insurance coverage.

The health insurance premium of the insured is also collected from non-resident employees if deemed covered by the social security system of Finland under the Health Insurance Act (sairausvakuutuslaki 1224/2004, SVL).

Example 10: A Finnish company has sent an employee off to another country, and work is expected to continue for a few years. The employee has already become a non-resident taxpayer in Finland but is still insured in Finland. The wages received by a non-resident are exempted from Finnish taxes unless the payer is a public organisation. In spite of this, the Finnish company that pays the wages to her must withhold the insured party's health insurance premium and pay the employer's health insurance contribution.

8.3 Insured person’s health insurance contribution

The premium collected from the insured party consists of two elements: a healthcare contribution (sairaanhoitomaksu) and an earned-income contribution (päivärahamaksu). The healthcare contribution will be determined on the basis of the income taxed in municipal taxation. The daily allowance sum will be determined on the basis of the taxable earned income. The earned-income contribution depends on the individual's wage income subject to tax, and also on the individual's work income for purposes of insurance. If the six-month rule applies on the wage income of a resident, their work income for purposes of insurance will serve as the basis for healthcare and earned-income contributions.

We recommend that employers agree with their employees, prior to the start date of the work in a foreign country, on what the amount of work income should be (for purposes of the pension insurance act / Työntekijän eläkelaki 395/2006). Work income for these purposes refers to a wage amount that an employer in Finland would pay for similar work.

If the requirements of the six-month rule are fulfilled, the employer will pay a minimum withholding to the Tax Administration based on the work income, reflecting the employee's health insurance premium and the employer's health insurance contribution. In addition, work income is the basis for the employee's pension insurance and unemployment insurance payments. For more information on the concept of 'work income', contact the Finnish Centre for Pensions, or contact a pension insurance company.

If no "work income" has been agreed, the basis for healthcare, earned-income, and employer's health insurance contributions will be the employee's pay subject to tax withholding within the meaning of income tax act, section 77, and prepayment act, section 13 (Ennakkoperintälaki 1118/1996, EPL).

If the employee is a non-resident, the applicable Finnish legal statute is the act on the taxation of non-residents' income (Laki rajoitetusti verovelvollisen tulon verottamisesta 627/1978) and its provisions on tax to be withheld at source. In this case, the basis for healthcare and earned-income contribution payments will be the employee's pay within the meaning of act on the taxation of non-residents' income, section 4. If the employee has been posted from Finland to work abroad and has become a Finnish tax non-resident, though still covered by Finnish social security, the basis for the contributions will (by way of exception) be their work income.

If the employee carries an insurance in accordance with YEL or MYEL laws governing pension coverage (e.g. the employee is a shareholder-entrepreneur), the basis for healthcare and earned-income contributions will be the agreed annual income for the YEL/MYEL contracts also when the employee works in foreign countries. Employees carrying this type of insurance do not have work income for the purposes of insurance.

8.4 The employer's health insurance contribution

Under act on employers' health insurance contributions, section 4 (Laki työnantajan sairausvakuutusmaksusta 771/2016), employers must pay health insurance contributions if the employee concerned is covered by the Finnish social security system under Finnish law governing health insurance.

If the six-month rule applies on the wages earned by the employee, the basis for the employer's health insurance contribution is the “work income” for purposes of insurance (=vakuutuspalkka; försäkringslön). If the six-month rule is not applicable, the basis for the employer’s health insurance contribution is wages, within the meaning of prepayment act, section 13, although other payments, including pension insurance contribution, are based on the “work income”. Wages within the meaning of prepayment act, section 13 are also the basis for the employer’s health insurance contribution if no “work income” has been agreed for purposes of insurance.

If the employee receives other wages which are exempted from taxes under Finnish national legislation, such wages do not serve as a basis for employer's health insurance contributions. On the other hand, even if a tax treaty prevents Finland from imposing tax on the wages, Finland can still impose the health insurance contribution.

If the employee is a non-resident taxpayer, the basis for payment will be the employee’s salary in accordance with the act on the taxation of non-residents' income and capital. If the employee has been posted from Finland to work abroad and has become a Finnish tax non-resident although still covered by Finnish social security, the basis for the contributions will (by way of exception) be their work income.

If the employee carries an insurance in accordance with YEL or MYEL laws governing pension coverage (e.g. the employee is a shareholder-entrepreneur), the employer's health insurance contribution will be based on an amount that would equal their pay subject to withholding. This is due to the fact that employees carrying this type of insurance do not have a work income for purposes of insurance.

8.5 Social security regulations of the EU

If a controversy exists between national legislation and the provisions of EU Regulations, the latter will prevail. If an employee starts working abroad and is, under EU rules, covered by Finnish social security, it is required that all the social insurance contributions are paid to Finland for the period when the employee works abroad. Similarly, if the employee is covered by the social security system of the country of work, the contributions must go to that country (if contributions are collected there) and they must not be paid to Finland.

The EU Council Regulation 88/04 on social security came into force 1 May 2010. It also covers the countries of the European Economic Area and Switzerland. If an individual is deemed as being covered by another country under the new rules than under the old rules on international coordination of social security, the European regulation that was in force previously (1408/71) will continue to be applied on this individual for as long as the circumstances stay the same; however, not for longer than 10 years. It is possible for an individual to submit a request for having the new Regulations and legislation apply on the case.

The Social Security Regulation contains definitions of what EU countries are regarded as the ones where employees moving from one EU country to another are covered, with specific provisions on employees, civil servants, and the self-employed. The Regulation also provides specific rules on the EU country whose laws are applicable on people who are outside working life but have moved from country to country.

8.5.1 Country of work as the general rule

The country of work has been given central importance in the EU Regulation on social security. The reliance on the country of work is the reason why a Finnish resident who starts working in a foreign country for an employer that is not their original Finnish employer (who would have sent them there as a 'posted employee') is normally covered by the social security system of the country of work and does not have to pay Finnish health insurance contributions on the basis of the wages earned for the work.

However, if the employee has been posted from Finland to work abroad, they will continue to be covered by the social security system of Finland. 'Posted employee' means someone who is sent to a foreign country by their employer on a temporary basis, for max. 24 months, to perform work for the benefit of the same employer. The work is deemed as being done for the employer who sent them on the condition that it is performed for this employer, and that a connection is maintained between the employee and the employer for the entire period when they work abroad. Similarly, the employee is considered 'posted' when they have become hired for the purpose of working in a foreign country. If an employee has been hired locally in the country of work, they cannot be regarded as 'posted'.

The authorities of the sending country and the country of work may enter into various mutual agreements on exceptions from the rules governing insurance. It may be that a posted employee remains covered e.g. for five years by the social security system of the sending country. The posting employer and employee together should submit a request to obtain the posted employee’s certificate (A1 certificate).

8.5.2 Work in several countries

People who work in two or more countries or who work for different employers are employees who change from one country to another. Examples of these employees include drivers, installation mechanics, and artists. In the same way as other employees who move from one country to the next, they are also covered by the social security system of only one country at a time. The country where individual employees are actually covered is determined by whether or not they carry out a considerable part of their activity in their country of tax residence.

People who work in two or more EU countries are covered by the social security system of their country of residence if a considerable part of their work is done there. This means that an important quantity (at least 25%) of all work is done there. When the authorities determine the proportions of the work done in various countries, they look into working hours and/or pay.

If a considerable part of an individual's work is not done in the country of residence, either the legislation of their country or that of the employer's country must be applied, depending on the nationality of the employer or employers. In practice, the 'A1' Certificate is used for purposes of verifying the country that covers the social security system.

8.5.3 Seafarers

Seafarers are applicable to the flag rule; i.e. they are subject to the social security system of the country under whose flag the ship they work on sails. If someone is a seafarer on board a ship registered in another EU/EEA country, the seafarer is usually covered by that country's social security, even though they may be a permanent resident of Finland. All seafarers who begin working on board a ship sailing under the flag of another EU/EEA country must inform Kela of their circumstances.

If the seafarer's country of residence and the domicile country of the company paying him wages is one country (within EU/EEA), but the ship where they work sails under the flag of another country, the principle based on the nationality of the ship's registration is not applicable. In such circumstances, the seafarer is covered by the social security system of their country of residence. The seafarer is in this case is expected to ask the Finnish Centre for Pensions for the 'A1' Certificate proving that Finnish social security is covering him during the period when they work on board the foreign ship.

If a seafarer is regularly working on board ships sailing under two different flags or if a seafarer, besides their seafaring work, also has an employment contract or self-employed operations in Finland or elsewhere, they must contact the Finnish Centre for Pensions.

Under the rules in force at present, the EU/EEA country that covers the social security of crew members of aircraft is the one where their 'home base' is located.

8.5.4 Airline employees

The flight crew and cabin crew members have a 'home base', defined under the provisions of EEC Regulation 3922/91, as the location appointed by the operator for the crew member from where they normally begin and end a duty period or series of duty periods, and where, under normal conditions, the operator is not responsible for the accommodation of the crew member concerned.

It is necessary to obtain an 'A1' Certificate for a crew member in circumstances where the home base is located in a country that is not the country where the crew member lives.

8.5.5 Public servants

Persons employed by the Finnish Government or public organisations who are posted to another EU/EEA country continue to be covered by the Finnish social security system, regardless of the length of their employment in the country (A1 certificate).

8.6 Social security treaties

Finland has concluded bilateral conventions with the following non-EU, non-EEA countries: Australia, Canada (plus a separate convention with Quebec), Chile, China, India, Israel, South Korea, and the United States. However, not all conventions contain agreements on sickness insurance. For this reason, pension insurance contributions and health insurance contributions may have to be paid to two distinct countries.

The insured party's health insurance and the employer's health insurance are only included in the conventions made with Israel, Quebec and the United States. When it comes to other contracting countries, the treatment of these payments is the same as with countries that have no convention with Finland.

Similarly as in the EU, the international conventions on social security also follow the principle that an employee should be covered by the social security system of the country of work. Posted employees may be covered by their sending countries for a certain period. However, the length of such coverage varies among the conventions signed with the countries involved. The conventions also contain specific provisions on civil servants and crew members who travel in their work. For more information on health insurance premiums, contact Kela; for more information on pension insurance, contact the Finnish Centre for Pensions.

9 Instructions

9.1 Employee

9.1.1 Reporting obligation

A Finnish resident taxpayer must submit a tax return on all income, including income pertaining to work abroad (The Tax Administration’s decision on submitting a tax return and a property information report, section 4 and The Tax Administration’s decision on information reported on a tax return, section 1, available in Finnish and Swedish, link to Finnish).

Income earned abroad and the taxes paid to countries outside Finland must be reported. The information on how much tax was paid to foreign countries is needed for providing relief for double taxation. If the income is exempted in Finland, foreign-paid taxes are not important and the employee does not have to detail them.

Employees must also inform the Tax Administration of how long they have worked abroad; this must be specified by country, by names of employers and by the number of days spent in Finland. Finnish employers that have applied the six-month rule must submit information to the Incomes Register.

The Finnish Tax Administration must also be notified of contact information during a period working abroad if a change of address notification has not been submitted when moving abroad. The Tax Administration does not receive temporary address changes from the Population Register Centre automatically.

9.1.2 Withholding and prepayment

Unless the wage income is tax-exempt in Finland, Finnish employers must withhold tax on the wages they pay to their employee who works abroad. If the six-month rule applies, the employer will act upon it independently, on the employer's initiative; there is no need to ask the Tax Administration to prepare a revised tax card for the employee.

It is the employer's responsibility to apply the six-month rule correctly. Before they can apply the rule and refrain from withholding, they are expected to ascertain that all the requirements are likely to be fulfilled. In addition, they must monitor the employees' work in the foreign countries in order to make sure that the requirements continue to be fulfilled. The employee, in turn, must give the employer enough information (including details on the visits made to Finland).

If the country of work has taxing rights, we recommend that employers find out whether withholding must be carried out in the foreign country involving payments to the foreign tax authority or whether the employee must pay prepayments. Similarly, employees must also familiarise themselves with the tax obligations they may have, by contacting the foreign tax authority at the country where they work.

If the six-month rule is not applicable on the wage income and the country of work has taxing rights also, relief for double taxation may be given already at the stage when tax is being withheld (or prepayments are being paid). In this case, the employee must request a revised tax card, which takes into account the elimination of double taxation using either the compensation method or the exemption method. The employer may also withhold the tax paid to another country from the tax withheld in Finland. For more information on this process, see section 9.2.2 of this guidance.

When work is started it may still be unclear whether the six-month rule can be applied and whether the pay would be treated as exempted in Finland. In this case, the employer must withhold taxes as usual up to the time when it becomes known that the requirements for the exemption will be met. The employer may then, already during the income year, adjust the size of the withholding, i.e. effect refund of the excess amounts withheld. An exception from the above process is a situation where work is done in a Nordic country: in these circumstances, it is prohibited for employers to pay out refunds.

If no withholding on the pay has been carried out because of the six-month rule, but the employee stops working in the foreign country unexpectedly, the employer must resume the withholding as soon as it becomes obvious that the pay will be subject to Finnish tax. If wage income becomes subject to tax due to changed circumstances, we recommend that the employee ask the Tax Administration to revise their tax-card calculations and obtain a changed rate of withholding, which makes an allowance for the earlier amounts on which nothing was withheld. Otherwise, they may have to pay back taxes later.

9.1.3 Excessive withholding in case of tax card changes and subsequent refunds

If the employer does not make an adjustment in order to change an excess withholding, the Tax Administration may include the too high amounts that had been withheld when revising the employee's tax card for any other income. This approach can be used e.g. in situations where the employee has already stopped working abroad and has returned to Finland, earning wages that are subject to Finnish tax as usual. The exempted pay for the first months of the year will exert an impact on the progression of income tax.

When employees ask the Tax Administration to give them a new tax card, they must give details on whether or not the requirements of the six-month rule were fulfilled and on the fact that their employer will not pay a refund for the excess withholding.

Withheld amounts cannot be refunded during the withholding year i.e. the income year. However, the year after that (the assessment year), if the employee requests it, the Tax Administration may pay back the excess withholding already before the stage is reached when tax assessment is officially closed (under prepayment act, section 22). If the employee does not request such refunding specifically, any excesses are refunded to them in due course, as a normal refund payment.

If the employee had worked in a Nordic country, the amounts that had been withheld are usually not refunded. Instead, the Nordic tax authorities are expected to transfer them to the other Nordic country where the work was done. This way, they will be included in their tax assessment for the employee's benefit.

9.2 Employer

9.2.1 General

If you are an employer sending an employee abroad, we recommend that you contact the Finnish Centre for Pensions or the Social Insurance Institution (Kela) before your employee starts working. They will look into your situation and give an opinion on whether the employee is covered by the Finnish social security system during the foreign assignment. In case they are covered, you must continue to pay Finnish employer contributions for them.

Concerning taxes in Finland, you must determine whether the six-month rule can be applicable on their pay (see section 4 of this guidance). If the rule is applicable, pay is exempted from Finnish tax and, apart from the minimum withholding in some cases (see '8.3' above); it is then unnecessary to withhold tax in Finland.

If the employee is covered by Finnish social security and the payer of their wages is a foreign subsidiary or similar company with which you as the Finnish sending company have an associated relationship, you do not have to withhold tax in Finland. In this case, it is not even necessary to carry out the minimum withholding in connection with health insurance.

However, as the Finnish sending company you must pay the employer's health insurance contribution based on the employee's "work income for purposes of insurance" (vakuutuspalkka; försäkringslön). You make this payment on behalf of the foreign company. You will also have to file reports to the Incomes Register in Finland. If no calculation has been made in order to determine the "work income for purposes of insurance", the basis for employer contributions will be the actual pay, up to the amount that it would be subject to withholding if the work were performed in Finland.

Starting 1 January 2019, the employer must submit reports on paid wages to the Incomes Register. More information on the reports to be filed and their due dates

Reporting data to the Incomes Register: international situations

9.2.2 Employees sent abroad for less than six months

If an employee from Finland works abroad for a Finnish employer and does not stay longer than six months, their pay is taxed in Finland. As employer, you must withhold tax at the rate printed on their tax card in the usual way, pay social security and file the required reports to the Incomes Register. Usually, the country of work has no taxing rights in this case.

If you send your employee to a Nordic country, you must provide facts and information (the NT1 information) to the Incomes Register when work in the other Nordic country begins. The Tax Administration will issue an acknowledgement to you, the employer, and also to your employee, that the NT1 information was submitted satisfactorily. The employee can use the acknowledgement in the Nordic country where they work if it turns out to be necessary to present proof that Finland is receiving the amounts withheld. This helps to ensure that another Nordic country will not demand prepayment.

Even if the work in a foreign country is only for a short period, it is normally required that a certificate is obtained from the Finnish Centre for Pensions proving that the employee is treated as a 'posted employee'.

If your company is treated as having a permanent establishment in the country of work or if you conduct an employee-leasing activity, that country can usually impose tax on your employee’s pay; under the usual provisions of tax treaties. The country of work may do so in circumstances where no tax treaty between Finland and the country exists. In such circumstances, we recommend that you, the employer, contact the local authorities to learn more about your employer obligations.

If withholding were to be carried out both to Finland and to the country of work, you may wish to advise your employee to ask the Tax Administration for a revised tax card, on which the withholding rate would be lowered so as to prepare for the elimination of double taxation.

Once double taxation has been eliminated by means of the exemption method, the employer does not have to submit the tax withheld to the degree that the earned income is taxed in the country of work. For this, the revised tax card issued by the Finnish Tax Administration should include a note regarding the matter.

Alternatively, you as the employer may independently lower the withholding in Finland in order to make the necessary adjustment because tax was withheld in a foreign country, too. This requires that the elimination of double taxation – with the credit method – is carried out in Finland. In this case, the employee must ask for a revised tax card to be prepared for the withholding on the pay for the foreign work; the text on the card must indicate that the employer is entitled to subtract the foreign-withheld amounts from what the employer withholds in Finland.

When your employee submits their application for the revised card, they must provide proof for the tax office that under the relevant treaty, the country where they work has the taxing rights. In addition, foreign-paid amounts cannot be subtracted at all unless the employer really paid them in the country concerned. The maximum amount to be subtracted is the amount equal to the withholding in Finland. However, if the employee is insured in Finland, at least enough must be withheld and paid to Finland that the health insurance contribution is covered.

9.2.3 Employees sent abroad for at least six months

If you are a Finnish company that sends a Finnish resident individual to work in another country, the six-month rule may affect tax treatment as it provides for exemption (under income tax act, section 77).

Before you start applying the rule and can refrain from withholding, you must make sure that all the requirements are likely to be fulfilled. In addition, you must follow up the work in the foreign countries for making sure the requirements continue to be fulfilled. The party responsible for correct withholding is the employer. You as the employer may be held responsible for the consequences of neglected withholding if negligence turns out to be the reason.
When the six-month rule applies, the employer's health insurance contribution will depend on the work income, determined for purposes of insurance. To cover the insured party's healthcare premium, you must withhold an amount called the minimum withholding on your employee's pay.

If you do not carry out withholding in Finland because you have made the conclusion that the six-month rule will apply, you must send the Incomes Register the required NT2 information. You must do so by the fifth day after the first payday when you paid your employee and did not carry out withholding. If your employee moves on to work abroad in another foreign country but under the circumstances, the six-month rule will still continue to be applied, you must send a new set of NT2 information to the Incomes Register.

If you assess the circumstances and find that the six-month rule applies on the employee's wage income, you must also look into the tax-treaty in order to make sure that it does not prevent the country of work from collecting tax on the wages earned by your employee there. If the country of work has the taxing rights, tax obligations must be dealt with in that country.

In order to learn more about the tax obligations in force, you as the employer, or your employee, must take action or let a representative do so for contacting the foreign tax authorities at the foreign location. This is the recommendable way to ascertain how prepayments must be paid and where; and also to find out how tax returns must be submitted in the country concerned.

In some countries, employees are expected to make prepayments themselves, sending money from a post office or bank. Even in these circumstances, it is possible that the party bearing responsibility for fulfilled payments is the Finnish employer. Because the processes vary from country to country, we recommend that you contact the tax authorities of the country of work for exact guidance and instructions.

9.2.4 Employer’s report on periods spent in Finland

The periods of the employee’s stay in Finland, as listed by the employer, must contain the start and end dates when your employee spends time in Finland during the assignment. The periods can be reported to the Incomes Register no later than by the end of January following the year of payment. Normally, the periods are usually not yet known when the wages are paid. For this reason, the employee should inform the employer of them afterwards. However, information on periods of presence can be sent to the Incomes Register immediately after the assignment has ended, or by pay period during the assignment. In the latter case, however, you must ensure that the information is submitted for the entire tax year.

9.2.5 Exemption of tax not confirmed until during the work

Although you as the employer might withhold tax and pay it to Finland at the first stage, it may be known later, i.e. when the employee has already started their work abroad that the six-month rule is applicable and the pay is to be exempted from Finnish tax. When this has become certain, you can change your procedure and start paying the minimum withholding only. This does not require a revision of the employee's tax card. However, you as the employer must send the required NT2 information to the Incomes Register when you refrain from carrying out withholding for the first time.

Unless work in a Nordic country is in question, you can pay your employee back the amounts you had withheld, taking into account that the minimum withholding must be carried out for every month. In the case of Nordic work, it is not permissible to adjust the withholding this way. This is due to the multilateral Nordic tax treaty that provides for transferring any paid-in withholding to the other Nordic country, i.e. the country where your employee's income is taxed.

9.2.5.1 Employers’ procedures when adjusting the withholding

If you establish that the six-month rule applies to your employee’s income, you can re-calculate the amounts to be withheld, taking account of the six-month exemption, and pay your employee a refund for the amounts that had been withheld unnecessarily. In these circumstances, you must enter the appropriate corrections to your payroll accounting, too. You must submit a replacement earnings payment report to the Incomes Register for the tax periods that are concerned by the corrections. You should deduct the refundable amount from the withholding for the later months of the same calendar year.

If there are no longer any paydays and amounts to be withheld during the calendar year, the Tax Administration will refund an amount to you corresponding to the excess withholdingIt is not necessary to file a specific request for this because the Tax Administration uses the information on the submitted earnings payment reports.

It may be that the circumstances are changed when your employee is in the foreign country. Then the six-month rule may cease to be applicable to the income for which you did not carry out withholding. In this case, you may withhold a higher amount on the paydays that follow; this requires that they are within the same calendar year. However, you are not entitled to raise the withholding by more than 10 percent of the amount to be paid. Earnings payment data submitted early in the year must be corrected by submitting a replacement earnings payment report.

9.2.5.2 Employer does not adjust the withholding

If it turns out later that withholding was unnecessary but the employer does not make an adjustment, the employer does not have to submit replacements for the earnings payments reports. In this case, the employee will not receive refund for the unnecessary withholding until the year when tax assessment is completed. If an employer refrains from adjusting the earlier withholding but applies the six-month rule on more recently paid-out wages, the employer must give exact details for the Incomes Register on start and end dates of work abroad and on the visits made to Finland, covering the entire period when the six-month rule had been applicable.

9.3 Employees sent to Nordic countries

In principle, if you are an employer sending an employee to another Nordic country, your procedure is the same as that required in other circumstances involving work abroad. This section discusses the special characteristics associated with work in Nordic countries.

A multilateral treaty on income tax is in force between all Nordic countries. It provides that tax must be paid either to the employee's country of residence or to the country of work. Employers and employees are not able to select the country that taxes the income. Instead, the selection is made on the basis of treaty provisions. In addition, a multilateral treaty on prepayments and withholding, the TREKK treaty, is also in force between the Nordic countries. TREKK provides that an advance amount must always be paid to one of the Nordic countries.

If you, the Finnish employer, do not carry out withholding in Finland, some type of prepayment must be made in the country where your employee works. TREKK requires that the parties involved must give the NT1 information, and NT2 information, as appropriate. This also is a method of ensuring that payment of tax to two countries for the same wage income is prevented.

However, if withholding or final taxes have already been paid to a Nordic country that does not have the taxing rights on the income in question, there is no payment of refund to the taxpayer. Instead, the amounts are transferred to the other Nordic country by the tax administrations concerned. This is normally carried out in connection with the employee's final tax assessment or in connection with a readjusted assessment if appropriate.

The TREKK agreement has been described in greater detail in the Tax Administration’s guidance Nordic Agreement Concerning the Collection and Transfer of Tax.

9.3.1 NT1 and NT2 information

When you send an employee from Finland to work in a Nordic country you must give the Incomes Register either the NT1 information (when you will withhold tax in Finland) or the NT2 information (when you will not withhold tax in Finland). You must do so by the fifth date after the first payment date of wages for work in another Nordic country.

The wages you pay to your employee are not always exemptible under the six-month rule. Alternatively, it may remain unclear whether the rule applies or not. In this case, you must withhold taxes in Finland. If work in a Nordic country is in question, you must give the NT1 information. The Finnish authorities send it on to the country where your employee works. The Finnish authorities also send you an acknowledgment, with a copy to your employee, stating that the NT1 information has been sent. The employee can use the acknowledgement in the Nordic country where they work if turns out to be necessary to present proof that Finland is receiving the amounts withheld. This ensures that in most cases, they cannot make a demand for tax withholding in the country of work.

The requirement to give the NT1 information and NT2 information does not depend on which one of the countries will have the taxing rights of the final tax assessment. This means that in some circumstances, the country of work may demand that money is withheld there even though that country would not get the taxing rights for purposes of final assessment. In these special circumstances, the country of work will refund the withholding later. If the tax authority of the country of work has presented a statement that employee leasing is in question, the protection granted by a set of NT1 information will not prevail.

9.3.2 Exemption from tax is established later

Although you, the employer, may withhold tax and pay it to Finland at the beginning, it may, however, later become clear that the six-month rule is applicable. After the date when this is established, you should take necessary action to ensure that prepayments are started in the country of work. In case you are not obligated to carry out withholding to the foreign country, you should give instructions to your employee to ask for a calculation of prepayments to be made by the local tax office, and to start paying them as required.

When the collection of prepayments has begun at the country of work, you may cease the withholding in Finland on your initiative. However, you are required to make the minimum withholding if your employee is covered by the Finnish social security system. This does not require a revision of the employee's tax card. Revised cards are only necessary in circumstances where the exemption in Finland is only based on the provisions of a tax treaty and where the six-month rule is not applicable. However, you must submit the NT2 information to the Incomes Register.

Because work in a Nordic country is in question, you cannot pay your employee back the amounts you had withheld. This is due to the multilateral TREKK provisions. It is required by TREKK that the Nordic authorities carry out the transfers of the amounts that had been withheld unnecessarily, sending them to the country of work. The authorities of that country will use the withholding for the benefit of the employee, deducting it from the accrued tax collected there.

9.3.3 Permanent establishment

It is advisable to find out at an early stage whether the tax authorities of the country of work will treat the employer company as having a permanent establishment there. In some circumstances, the existence of a permanent establishment is not established until the employee is working in the country.

If you, the Finnish employer, receive a written notice from the tax authority of a Nordic country stating that you are treated as having a permanent establishment, you must begin carrying out withholding in that country. For further instructions and guidance, contact the tax authority of the country.

When you are required to pay the amounts withheld to another Nordic country, the TREKK provides that your obligations to withhold tax in Finland ceases for the wages you pay to the employee. However, the employee's Finnish tax card must be revised and the Finnish tax office must be given a copy of the written notice from the Nordic country stating that you are treated as having a permanent establishment.

If you had withheld tax on the employee's wages in the beginning, you are not entitled to pay the withholding back to the employee now. This is due to the multilateral TREKK provisions. They require that the Finnish Tax Administration carry out the transfers of the amounts that had been withheld unnecessarily, sending them to the country of work as coverage of your employee's tax liability there.

9.3.4 Employee leasing

It is common especially in the construction sector that Finnish companies doing business in the Nordic countries must deal with the concept of 'employee leasing'. If a Finnish company has sent an employee to work at a company in Norway (including a permanent establishment in Norway of a foreign enterprise) and bears no risk or responsibility for the results of the work, it may often be the standard treatment, especially in Norway, that the employee is deemed a leased employee. Before deciding on the matter, the authorities will also look into the circumstances concerning which one of the companies has the right to direct and control the work, give the employee the tools, and determine how many employees are necessary.

If the local authorities of the country of work decide that employee leasing is in question, the wages paid to the employees will always be taxed there. Tax is collected there, even in cases where the employee's period of employment in the country is very short. If employee leasing is in question, not only the final tax but also the prepayments must be paid to the country of work, even if a complete set of NT1 information may have been presented in that country.

However, if a Finnish employee, for example, has been sent to Norway and has an A1 certificate received from Finnish authorities, it will prevent the payment of Norwegian social insurance contributions also in situations of employee leasing.

9.3.5 Agreement regarding mutual assistance between authorities

There is also an intra-Nordic treaty on giving assistance to the authorities of any Nordic country in order to recover overdue taxes from taxpayers. If delinquency of payments either by employers or employees occurs, the local authorities of the country of work will receive administrative assistance from the Nordic country where the employer or employee is resident.

9.4 Permanent establishment

By virtue of national legislation, foreign countries may have taxing rights with respect to business profits and employee's employment income, if the company conducts operations in the country. However, if a tax treaty exists, the usual way to apply its provisions is that taxing rights are given to the foreign country only if the Finnish company is to be treated as having a permanent establishment. The treaty article that contains the definition of 'permanent establishment' is important.

If the Finnish company is treated as having a permanent establishment in a foreign country, it must pay tax to that country on the business profits attributable to the permanent establishment, and it normally also must face various employer obligations.

Payroll expenses entered in the accounting books of the permanent establishment always result in taxable wage income for the employees: such income can always be taxed in the foreign country and prepayments on the tax may also have to be made. Tax may be collected there even in cases where the employee's period of employment in the country is very short.

9.4.1 What gives rise to a permanent establishment?

A permanent establishment is a fixed place of business through which the company runs some or all of its operations. Examples of such a place include an office or branch of a Finnish company in a foreign country.

A building site or a construction or installation project constitutes a permanent establishment only if it lasts longer than what the applicable tax treaty has defined as the time limit. In the majority of treaties, the limit has been set at 12 months.

The following is a list of tax-treaty countries where a six-month time limit is in force: Argentina, Australia, Barbados, Brazil, Bulgaria, China, Egypt, Estonia, Georgia, Greece, India, Indonesia, Korea, Latvia, Lithuania, Malaysia, Mexico, Morocco, New Zealand, Pakistan, Philippines, Singapore, Sri Lanka, Tanzania, Thailand, Turkey, Ukraine, Vietnam and Zambia.

The treaties with the following countries have nine months: Armenia, United Arab Emirates, and Uzbekistan.

The treaty with the Russian Federation provides that no permanent establishment will exist unless building, construction, assembly, installation and related supervision work – in connection with a project for a factory, power plant or other industrial building – lasts longer than 18 months.

The length of time must include any design work at the beginning and any supervision work at the end. It is not acceptable to circumvent the rules on permanent establishment, e.g. by setting up a series of shorter construction jobs if, in reality, the construction work would last for 12 months or more.

For purposes of counting the time, if the Finnish company were to use the services of a subcontractor in the foreign country, the subcontractor's work must also be included in the count. If in turn, the Finnish company is a subcontractor, the counting of whether or not a 12-month threshold is reached will only be based on the work performed by the Finnish company independently.

Operations in connection with oil research and other natural resources may, in some circumstances, give rise to a permanent establishment in 30 days.

The practice is not to treat a company as having a permanent establishment in a country simply because its subsidiary or parent company is located there.

The national legislation of the foreign country, and the provisions of the relevant tax treaty are important when addressing the question of whether the prevailing circumstances give rise to a permanent establishment for a Finnish company operating a business abroad. For this reason, if the foreign country has stated that a permanent establishment exists, Finnish tax authorities will fall in with that statement. However, the authorities in Finland will refrain from making appraisals on whether a company will or will not be treated as having a permanent establishment in a foreign country.

9.4.2 Deciding whether a foreign company should be treated as having a permanent establishment

The tax authorities of the country of work might be contacted, through an agent if not otherwise, in order to learn more about what factors are seen as important according to the local practice when they decide whether a foreigner should be treated as having a permanent establishment. In some circumstances, the existence of a permanent establishment is not established until the employee is working in the country.

If the employer company has a permanent establishment in the country of work, the employee must pay tax on their wage income in that country. If the six-month rule applies, the employer may cease to withhold tax on the employee's pay (only carrying out the minimum withholding where applicable). If the rule does not apply, i.e. the income is taxable in Finland, the employee can ask the Tax Administration to prepare a revised tax card on which the double taxation is relieved because foreign tax has been paid by the employee. The employee should enclose a photocopy of the letter from the authorities of the country of work with the tax-card application, including documentation that shows that their wage income is entered as a cost in the accounting books of the permanent establishment.

Countries of work often expect foreign permanent establishments to withhold tax on the pay of a foreign employee. For more information on the procedures, contact the tax authorities of the country.

9.5 Non-wage compensation for work

If the employee receives non-wage compensation, the procedures of the payer are the same as if the work were done in Finland. If the employee does not show the payer a certificate of prepayment registration, 60% of the compensation must be withheld in Finland, unless other instructions have been received from the tax office. You are not required to pay health insurance contributions on non-wage compensation.

9.6 A Finnish public body as an employer

If the employer is the Finnish Government or a Finnish public body, tax will be normally withheld in Finland from the salary of the employee posted from Finland. The six-month rule does not apply and the country of work does not normally have the right to tax the earned income.