Taxation of cross-border commuters
Key terms:
- Date of issue
- 7/30/2019
- Validity
- 7/30/2019 - 12/31/2019
This is an unofficial translation. The official instructions is drafted in Finnish and Swedish languages.
This guidance concerns the taxation of cross-border commuters and the related special issues.
The employer’s procedures described in this guidance concern wages and salaries paid on 1 January 2019 or after. The employer must file information on wages and salaries paid in 2018 according to the previous guidance (record number A223/200/2017).
The act on residence-based social security in cross-border situations (Laki asumisperusteisesta sosiaaliturvasta rajat ylittävissä tilanteissa 16/2019) took effect on 1 April 2019. The act replaced the Act on the Application of Residence-Based Social Security Legislation (1573/1993). On account of this, chapter 6 of this guidance has been updated.
1 Introduction
This guidance concerns the rules set for cross-border commuters in the Nordic tax treaty (26/1997) and the effects these rules have on the tax assessment of an individual who works in a border municipality.
The provision on cross-border commuters can be applied to wage income if the individual in question lives in a municipality located next to the border between Finland and Sweden or Finland and Norway and works in another municipality located next to the same border in the other country. The individual must also regularly stay in their permanent residence in their country of residence. If these conditions are met, the wage income the individual earns for cross-border work is only taxed in the individual’s country of residence. The tax authority of the country where the work is done has the right to assess whether the provison is applicable.
The taxation of cross-border commuters is discussed in protocol VI of the Nordic tax treaty (Finlex, in Finnish and Swedish only).
2 Application of the provision on cross-border commuters
The provision on cross-border commuters applies to wage income received for personal work. The provision is applicable to wages and salaries paid by both public authorities and private employers. The provision is not applicable to artist’s or athlete’s income, social benefits, pensions or business income.
Example 1. An individual living in Tornio works as a nurse for the Swedish municipality of Haparanda. He returns to his permanent residence in Tornio every day after his shift in Haparanda ends. The individual is considered a cross-border commuter and he pays tax on his pay to Finland.
Example 2. A hairdresser lives in Haparanda, Sweden and runs a hair salon in Tornio, Finland. She visits her establishment in Tornio every day. The hairdresser is not considered a cross-border commuter, because the provision on cross-border commuters is not applicable to business income.
The provisions on cross-border commuters can be applied to income received from a personnel fund if the income received is based on work the cross-border commuter has done in a border municipality. The taxation of income received from a personnel fund is discussed in the Tax Administration’s detailed guidance on the taxation of income received from a personnel fund (in Finnish and Swedish only).
The provision on cross-border commuters does not apply to trade income. Income such as family caregiver’s fees and foster care provider’s fees are considered trade income and the provision therefore cannot be applied to them.
3 Home municipality and work municipality
An individual is considered a cross-border commuter if they live in a municipality located next to the border between Finland and Sweden or the border between Finland and Norway and they work in another municipality next to the same border in the other country. The individual’s home municipality and their work municipality on the other side of the border do not need to be neighbouring municipalities.
Based on Article 3, paragraph 2 of the Nordic tax treaty, concepts and phrases not explicitly defined in the treaty will be primarily interpreted based national tax legislation. The tax treaty protocol on cross-border commuters does not define the phrase “living in the municipality”. Therefore the definition of living in the municipality must be based on national tax legislation.
According to Finland’s legislation governing the tax assessment of resident taxpayers who are natural persons, the taxpayer’s municipality of residence is the municipality where they had a permanent place of residence as defined in the act on registered domiciles in the end of the year previous to the tax year (§ 5, subsection 1, act on assessment procedure (Laki verotusmenettelystä 1558/1995)). Therefore, in terms of tax assessment, an individual’s municipality of residence cannot change during the tax year. Because of this, the individual is not yet considered a cross-border commuter during the year when they move in to the border municipality. However, an individual moving away from a border municipality is considered a cross-border commuter for the rest of the tax year, if the other conditions of the provision are still met.
Example 3. An individual has moved from Kemi to Tornio on 1 March and starts working in Haparanda later during the same year. The provision on cross-border commuters cannot be applied on the individual’s pay until the start of the next year.
In Sweden and Norway, an individual’s municipality of residence is considered to be the municipality in which the individual resided on 1 November of the year previous to the tax year (Inkomstskattelag 65 kap. 3 § 2 st. and Lov om skatt av formue og inntekt § 3-1).
Border municipalities between Finland, Sweden and Norway
| Municipalities on the border between Finland and Sweden | Municipalities on the border between Finland and Norway |
|---|---|
| Enontekiö, Kolari, Muonio, Pello, Tornio, Ylitornio | Enontekiö, Inari, Utsjoki |
| Haparanda, Kiruna, Pajala, Övertorneå | Karasjok, Kautokeino, Kåfjord, Nesseby, Nordreisa, Storfjord, Sör-Varanger, Tana |
Example 4. The municipality of Enontekiö is located next to the borders of Sweden and Norway. An individual living in Enontekiö can therefore work as a cross-border commuter in both Swedish and Norwegian border municipalities. An individual living in Tornio can only work as a cross-border commuter in Sweden.
Example 5. An individual living in Inari can work as a cross-border commuter in the Norwegian municipality of Kåfjord even though Inari and Kåfjord do not share a border.
Example 6. An individual living in Utsjoki is working in Kiruna, Sweden. The provision on cross-border commuters cannot be applied because Utsjoki is not located next to the border between Finland and Sweden.
4 Application of the provision on cross-border commuters when moving to and from Finland
When a non-resident taxpayer who has lived abroad moves to Finland, their municipality of tax domicile is considered to be the municipality where they first started living in after their move. If such an individual starts living in a Finnish border municipality as defined in the provision on cross-border commuters, they can be considered a cross-border commuter from the moment of their move to Finland if all the other conditions are also met.
If an individual moves away from Finland, their municipality of tax domicile is considered to be the municipality where they resided before they moved abroad. As long as the individual is treated as a resident taxpayer in Finland, this municipality is considered their municipality of tax domicile. If the individual can prove that their country of residence as meant in the provision on cross-border commuters is Sweden or Norway, the provision on cross-border commuters can be applied to them as soon as the other conditions are met.
Example 7. An individual living in Tornio moves to Haparanda, Sweden in June and continues working in Tornio. After the move, the individual’s permanent residence and home is in Sweden. The individual is considered a cross-border commuter immediately after their move if they present a certificate of residency and tax liability in Sweden provided by the Swedish tax authority.
5 Stay in country of residence
In order to be considered a cross-border commuter in accordance with the provision on cross-border commuters, the individual must regularly stay in their country of residence. Staying is considered to be regular when, in normal circumstances, the taxpayer stays in their permanent residence in their country of residence at least once a week, and these stays last at least two days and one night. A week refers to the time between a Monday and a Sunday. Even a part of a day is treated as a full day. In this context, the “normal circumstances” refer to the taxpayer’s habitual stays in their home in their country of residence when not working. Habitual stays in the country of residence are not interrupted by temporary stays elsewhere due to special circumstances, such as extra work or holidays.
Example 8. A mine worker lives in Kolari, Finland and works in Kiruna, Sweden for a local mining company. He stays in a rental apartment in Kiruna for the duration of his work week, from Monday to Friday. On weekends, he stays at his permanent residence in Kolari. The individual is considered a cross-border commuter and he pays tax on his pay to Finland. He must give a report on his work abroad on a tax return form.
If an individual does not stay at their permanent residence in their country of residence at least once a week, the provision on cross-border commuters cannot be applied.
Example 9. A mine worker lives in Kolari, Finland and works in Kiruna, Sweden for a local mining company. She stays in a rental apartment in Kiruna for the duration of her two-week work periods. After each work period, she gets a week off, which she spends at her permanent residence in Kolari. The individual is not considered a cross-border commuter because she does not stay in Finland every week. She must pay tax on her pay to Sweden. She must also give a report of her work abroad on a tax return form. The wage income she has received from Sweden is taken into account in her Finnish tax assessment in accordance with the progressive exemption method. More information can be found in the Tax Administration’s detailed guidance on the taxation of income earned abroad.
6 Cross-border commuter’s insurance
In general, employees must be insured in the country where they work, even if the tax treaty provisions on cross-border commuters prohibit the taxation of the employee’s pay in that country. Pension insurance contributions and accident insurance contributions must be paid to Finland when the work is done here in the employ of a Finnish employer. Likewise, pension insurance and unemployment insurance contributions must be withheld from the employee’s pay.
If a cross-border commuter’s earnings from work are €696.60 or more during a calendar month (in 2019), they are covered by health insurance in Finland. In addition to the contributions mentioned above, the Finnish employer must then also pay the employer's health insurance contribution based on the employee’s pay. The employer must also withhold the healthcare contribution and earned-income contribution from the pay. In 2019, the healthcare contribution is not withheld and the earned-income contribution is withheld only if the wage income exceeds €14,282 during a calendar year.
The employer is not liable to withhold and pay pension and unemployment insurance contributions or healthcare and earned-income contributions if the employee can present an A1 (E101) or other such certificate they have received from another country.
More information on pension insurance and the A1 certificate is available from pension providers as well as from the Finnish Centre for Pensions. More information on health insurance is available from Kela.
7 Special situations
7.1 Working in a border municipality and outside the border municipalities
In general, wage income (including sick pay, bonuses, etc.) is considered to be based on work done in the municipality where the employee usually works. If the employee relocates outside the border municipality for a certain period of time, the wages and other wage-like compensation paid for this work period are considered to be based on work done in this other municipality.
Example 10. A bus driver living in Haparanda starts his shift at a bus depot in Tornio. His bus route is Haparanda – Tornio – Keminmaa – Kemi twice an hour. The provision on cross-border commuters is applicable to work done in the Tornio area. The provision is not applicable to work done in the Keminmaa and Kemi areas, and the wages earned for the work done in these municipalities is taxable in Finland. The Nordic tax treaty prohibits Finland from taxing work done in Haparanda. The right to tax the bus driver’s work is divided between Sweden and Finland based on his work hours in different municipalities.
Holiday pay and holiday compensation are divided between cross-border commuter’s pay and other pay according to whether they are paid based on work done in a border municipality or outside the border municipalities. This division is calculated for the period during which the income was accrued.
Example 11. An individual living in Pajala, Sweden works for a Finnish company. During the holiday credit year, he has worked five months in Kolari and seven months in Rovaniemi. The company pays him €3,000 in holiday pay and holiday bonus. Of this amount, €1,250 (3,000x5/12) is cross-border commuter’s income and €1,750 (3,000x7/12) is wage income subject to tax in Finland.
However, the provisions on cross-border commuters can be applied on pay received for a business trip outside the border municipality if the trip was relevant to the cross-border commuter’s work, was done for the same employer and lasted for no longer than a few days.
Example 12. An individual working in a border municipality must travel annually to Helsinki to the company’s main office for a training session lasting a few days. The provisions on cross-border commuters are applicable to wages earned during a business trip like this.
7.2 Deducting foreign insurance contributions
According to § 96, subsection 1 of the act on income tax (Tuloverolaki 1535/1992), the taxpayer has the right to deduct statutory employee’s pension and unemployment insurance contributions and earned-income contributions from their net taxable earned income. Contributions paid abroad are also tax-deductible if they correspond to the Finnish contributions. Health insurance contributions paid abroad are tax-deductible in Finland for the part that is supposed to cover loss of income due to illness. The healthcare contribution is not tax-deductible.
The taxpayer is liable to give a report on the grounds for the deduction. If the taxpayer does not present a report on how the contributions are allocated, the amounts that correspond to Finnish contributions can be accepted as deductions. However, the deductible amount cannot exceed the amount paid abroad.
Individuals working in Norway must make a trygdeavgift payment if they are subject to Norwegian social security. The payment covers Norway’s mandatory health care, social security and pension contributions. It has not been explicitly defined how the trygdeavgift is allocated between these. In practice, the maximum amount of trygdeavgift deducted in Finnish taxation is an amount corresponding to the contributions collected in Finland in accordance with § 96, subsection 1 of the act on income tax (Tuloverolaki 1535/1992). Trygdeavgift is not covered by the Nordic tax treaty and it cannot be credited in Finnish taxation as a tax paid abroad.
Taxpayers covered by the Swedish social security system are liable to pay a general pension contribution from their income (allmän pensionsavgift). However, due to the Swedish system of tax deductions, most taxpayers do not actually have to pay this contribution (Skatteverket 2015, Allmän pensionsavgift). If the taxpayer presents a report of the pension contributions they have paid to Sweden, the paid amount can be credited in their taxation.
7.3 Taxation in Finland of foreign employer’s contributions
When an individual is working abroad, their pay, wage supplements and reimbursements for expenses are determined by the legislation of the country where the work is done. However, the pay received by a cross-border commuter is taxed in accordance with the legislation of their country of residence. Therefore, the taxability of the income and reimbursements received by cross-border commuters living in Finland is determined by Finnish legislation.
Example 13. The Swedish employer of a cross-border commuter living in Finland has paid the commuter kilometre allowance. A part of the allowance has been added to the commuter’s wage income. The employer has also given them a certificate of the pension insurance contributions paid to Sweden. In their tax return, the commuter claims a tax deduction for the pension insurance contributions and the kilometre allowance added to their pay.
Whether the kilometre allowance is subject to tax is determined in Finland according to § 71 of the Finnish act on income tax (Tuloverolaki 1535/1992) and the annual decision of the Tax Administration on the tax-exempt reimbursements of travel expenses. The commuter must therefore provide give a report on the grounds for the kilometre allowance (driver’s log, travel invoice, etc.) that states the time of the trip, the route taken, and the purpose of the trip. In addition, they must provide a statement given by their employer or pension provider on whether the pension insurance contributions withheld from their pay are statutory contributions or payments for collective additional pension insurance in order to determine whether the pension insurance contributions are tax-deductible.
8 Guidance on procedures
8.1 Cross-border commuters living in Finland
Foreign employers are not liable to withhold and pay Finnish tax on wages they pay to a cross-border commuter living in Finland. The cross-border commuter must therefore take care of the taxes by requesting from the Tax Administration a tax prepayment for their wage income. Prepayments can be requested from the Tax Administration’s phone service for international matters in individual taxation, in MyTax or with Form VEROH 5010e.
The Tax Administration calculates the prepayment based on the income estimate given by the cross-border commuter and sends them the bank transfer forms for payment. If the estimated amount of income changes, the prepayment amount can also be changed.
A cross-border commuter living in Finland must usually provide the tax authorities of their country of work with a certificate stating their residency and tax liability. This certificate can be ordered from the Tax Administration’s phone service for international matters in individual taxation. The certificate is marked with the municipality where the taxpayer lived in the end of the previous year.
If the employer of a cross-border commuter living in Finland has made an Incomes Register report to Finland for the wages they have paid, the reported pay is included on the taxpayer’s pre-completed tax return. If the income is not included on the pre-completed tax return, the taxpayer must report the wages they have earned in MyTax as foreign income or on Form 16A (VEROH 3063), Statement on foreign income (earned income). In addition, they must add this statement on their form or in MyTax: “The income is cross-border commuter's income, earned in Sweden or Norway”.
Pension insurance and unemployment insurance contributions paid abroad must be reported in MyTax or on the tax return.
8.2 Cross-border commuters living in Sweden or Norway
8.2.1 Taxation of cross-border commuter’s income
If a cross-border commuter works in a Finnish border municipality, they must provide their employer with a tax-at-source card or tax card calculated for this work. Tax-at-source cards are requested with Form 5057e. Tax cards are requested with Form 5042e. In order to get a tax card or tax-at-source card, the cross-border commuter must present a certificate of residency and tax liability provided by the tax authority of their country of residence. This certificate must state the taxpayer’s municipality of tax domicile. The certificate can be the Tax Administration’s template form 6132f or a similar certificate by the country of residence’s tax authority.
Cross-border commuters working in a Finnish border municipality pay to Finland the health insurance contribution and earned-income contribution from their wages. These contributions do not need to be paid if the cross-border commuter present the Tax Administration with a certificate (A1) proving that they are not covered by Finnish health insurance.
The cross-border commuter’s employer reports the wages they pay to the commuter to the Incomes Register on a payroll report. More information on reports to be filed as of 1 January 2019 and their due dates: Reporting data to the Incomes Register: international situations.
Cross-border commuters who are resident taxpayers receive a pre-completed tax return from Finland, and they must check the details on it and make corrections if necessary. Income subject to taxation at source received by non-resident taxpayers is not included in the pre-completed tax return and it does not need to be reported. More information on resident and non-resident tax liability can be found in the Tax Administration’s guidance on tax liability in Finland.
8.2.2 Taxation of income that is not cross-border commuters
If an individual living abroad receives income from Finland that is not cross-border commuter’s income, this other income is usually taxed in Finland. Non-resident taxpayers must pay tax at source to Finland on this income. Non-resident taxpayers can request taxation in accordance with the act on assessment procedure (Laki verotusmenettelystä 1558/1995) instead of taxation at source, in which case their income is taxed based on the progressive State tax and the average municipal tax rate. The income that the taxpayer has earned as a cross-border commuter as well as their other income are taken into account when determining the tax rate on their earned income. More information on the taxation of non-residents can be found in the Tax Administration’s guidance on the taxation of foreign employees coming to Finland.