This article describes the calculation rules for Finnish Taxes, and how to set up the system to calculate the Finnish Tax automatically.

General rules

Finnish residents

The tax rate is received from the person's tax card. The percentage rate is calculated individually based on the income and deductions recorded in the personal tax assessment for the year before last. For example, the percentage rate on the 2022 tax card is based on the income and deductions recorded in the tax assessment for 2020, and 2021 tax cards – based on 2019, etc.

The tax card is provided and updated by the Finnish Tax Administration every year in December or January, the tax card normally takes effect from the 1^st of February.

The income and deductions used for calculating the tax rate are shown in the tax decision enclosed with the tax card.

A person can also request a revised tax card for the past year, then the tax rate for the new year will be calculated according to the information that the person gives for the revised tax card.

Tax cards are delivered to employers electronically from the Tax Administration.

When the Finnish resident employees do not present a tax card to the employer, and the employer has not received the withholding tax information electronically, withholding tax shall be enforced on the salary in accordance with 60%.

Finnish Non-residents

Staying 6 months or less

If a person stays in Finland for no longer than 6 months, they are considered a non-resident taxpayer.

There are 3 schemes of tax withholding for non-resident taxpayers:

1. When a person does not hold a tax card

If a person's employer is Finnish or has a permanent establishment in Finland, and the person does not have any tax card, tax is withheld from the source of income that they receive for the work they do in Finland. The tax at source is usually 35%.

2. When a person holds a Tax-at-source card

The tax card may include a deduction for tax at source: €510 per month or €17 per day.  The employer can make the deduction from income before the tax is withheld.

Example: If you are paid €2,000 per month and you have no tax-at-source card, the tax is 35% or €700. If your employer has received a tax-at-source card from you with instructions for giving you a tax-at-source deduction, the tax is €521.50 (= (€2,000 – €510) × 35%).

The tax at source is a final tax. You do not need to file a tax return to the Finnish Tax Administration.

3. When a person applied for a tax card by progressive scale.

If a person’s country of residence is an EU country, Norway, Iceland, or Liechtenstein, or a country that has a tax treaty with Finland, and if a person holds a Finnish personal ID, they can ask to be taxed progressively.

Progressive taxation means that the tax treatment depends on the income – the more they earn, the more tax they pay. In the progressive scheme, all the income and deductions over the year are taken into consideration when the tax rate is calculated.

The Progressive Tax Scale is updated annually by the Tax Office.

Staying longer than 6 months

If a person comes to Finland temporarily but stays for longer than 6 months, they are treated as a resident taxpayer. This means that they will usually have to pay tax to Finland on all the income they receive. However, their home country and Finland may have signed a tax treaty that prohibits Finland from taxing the income they receive from outside Finland.

If a person has a Finnish employer, they need a Finnish personal ID and a tax card, and their tax depends on the annual gross income according to a progressive scale.

Individuals that stay in Finland for longer than 6 months, must file a Finnish tax return.

How to set up the automatic calculation of Finnish Taxes

Organization setup

The Employee Pool needs to be linked to the National Payroll Code “FI”

Open

Tax Module setup

Go under Payroll Module > Tax Module

• Payroll National Code - select “FI” to define the settings for Finnish Taxes

• Source For Tax Basis - select the Payroll Accumulator that is set up to accumulate the taxable income

• Entry Code to be created for Tax - select the EC that will calculate the tax, note that only ECs in range 900 and over are available for selection, ECs 994-999 are excluded as used for other purposes.

• Source for Tax Days - select the Payroll Accumulator that is set up to accumulate the days when the employee received the taxable income

• Tax at Source Withholding % - define the percentage of tax for the employees holding Tax-at-source cards, currently, it is 35%

• No Tax Card Withholding % - define the percentage of tax for the employees who do not present a tax card to the employer, and the employer has not received the withholding tax information electronically, currently, it is 60%

Open

Employee setup

All employees need to be set up under the Payroll > Constants tab to have the automatically calculated taxes.

Basic Tax Card

The Tax Cards will be imported from the Tax Office with the help of the plugin https://adonishr.atlassian.net/wiki/spaces/AFA/pages/4640964683 . During the import:

• Automatic Tax will be set to “FI”

• Income Type - the income type selected during the import. For the maritime industry, it is usually the income type 25 Merityötuloa

• Percentage - the tax percentage applied on the income below the Income Limit

• Additional Percentage - the tax percentage applied on the income above the Income Limit

• Income Limit - the limit according to which the Percentage or Additional Percentage is applied

• Valid From - the tax card validity start date

If the Tax Card is imported electronically into Constants, all fields appear disabled for modifications.

The Tax Card information can also be set up manually if needed:

Tax-at-source Card

When the employee is taxed at source (non-resident without the Tax Card or with the Tax-at-Source Card), the “Non-resident” option has to be enabled on the employee Payroll Constants to be calculated with 35% tax according to the Tax Module settings.

• Without the Deduction for Tax at Source (no deduction from income before the tax calculation):

• With the Deduction for Tax at Source (€510 per month deduction from the income before the tax calculation)

Tax by Progressive Scale

If the employee is a Finnish non-resident and applied to be taxed by progressive scale, the “Non-resident” and “Taxed by Progressive Scale” options have to be enabled on the employee Payroll Constants:

Finnish residents without Tax Card

When the Finnish resident employees do not present a tax card to the employer, and the employer has not received the withholding tax information electronically, they are linked to the FI Automatic Tax to be calculated with 60% tax according to the Tax Module settings.

Finnish Tax calculation rules

Basic Tax Card

The imported Tax Card has an Income Limit for the entire year. The withholding tax on the income is calculated according to the withholding tax Percentage up to the Income Limit stated on the Tax Card. For the income that exceeds the Income Limit, the withholding tax is calculated according to the Additional Percentage for the remainder of the year (until the new Tax Card is received).

Valid From Date should be interpreted as Valid From month and year, thus the Tax Card is effective from the month and year of the Valid From Date and not from a particular day in the month.

Example: If the tax card Valid From Date is 15/02/2021, the tax card is effective from 202102 (February 2021) and the tax calculation is performed according to this Tax Card details for the whole payroll period 202102.
Finnish tax cards normally are valid from February each year. The card that is valid at the end of the year is also valid in January next year, but the accumulation of the income starts from zero again from January (Employees have the possibility to request a revised tax card that is valid from January).

In Adonis, the Taxable Income (Tax Basis) is saved in the Payroll Accumulator according to the setup of the Tax Module. This accumulator will go to 0 at the year closure, so we are covering the rules that the accumulation of income starts from zero in January.

If Tax Basis Payroll Accumulator (Brought Forward + Current Period Total balance)

• has not reached the Income Limit from the tax card, then
  Withholding Tax = Percentage rate * Current Period Tax Basis

• has reached the Income Limit in the current period, then
  Withholding Tax = (Percentage rate * Current Period Tax Basis under the limit) + (Additional Percentage rate * Current Period Tax Basis over the limit)

• has reached the Income Limit before the current period, then
  Withholding Tax = Additional Percentage rate * Current Period Tax Basis

Tax at Source

Without the Deduction for Tax at Source

When there is no deduction from income before the tax calculation, then Tax at Source Withholding % from the Tax Module settings is applied on the Tax Basis:

Withholding Tax = Tax at Source Withholding % * Current Period Tax Basis

With the Deduction for Tax at Source

When there is a monthly deduction from income before the tax calculation, EUR 510 is deducted monthly only when the employee has worked the full month, and if they worked less, then monthly deduction must be prorated per the number of days they worked as EUR 17 per day (daily deduction EUR 17 is received from monthly deduction EUR 510 divided by the default number of days in the payroll period - 30 payroll days).

The Tax Module settings in the “Source for Tax Days” identify Payroll Accumulator that is set up to accumulate the Tax Days, i.e. the days when the employee received the taxable income.

The deduction according to the performed number of Tax Days is applied on the Tax Basis before the Tax at Source Withholding % from the Tax Module settings:

Withholding Tax = Tax at Source Withholding % * (Current Period Tax Basis - (EUR 510/30 * Tax Days))

Tax by Progressive Scale

Progressive Tax Scale is updated annually by the Tax Office - Ansiotulot - vero.fi

The below scale is valid for year 2021 and has been implemented in Adonis:

The calculation by the Progressive Scale is based on the projection of annual Taxable Income from the current payroll period Taxable Income (Tax Basis).

To project the annual Taxable Income, the Current Period Tax Basis is multiplied by 12. The result is compared to the scale:

• if the projected annual Taxable Income is in category EUR 18 100 – 27 200, but the Tax Basis earned by the Current Period is yet below the lower limit EUR 18 100, which is checked by the Tax Basis Payroll Accumulator (Brought Forward + Current Period Total balance), then
  Withholding Tax = EUR 8,00

• if the projected annual Taxable Income is in category EUR 18 100 – 27 200, and the Tax Basis earned by the Current Period exceeds the lower limit EUR 18 100, which is checked by the Tax Basis Payroll Accumulator (Brought Forward + Current Period Total balance), then
  Withholding Tax = 6% * Current Period Tax Basis

• if the projected annual Taxable Income is in category EUR 27 200 – 44 800, but the Tax Basis earned by the Current Period is yet below the lower limit EUR 27 200, which is checked by the Tax Basis Payroll Accumulator (Brought Forward + Current Period Total balance), then
  Withholding Tax = EUR 554,00

• if the projected annual Taxable Income is in category EUR 27 200 – 44 800, and the Tax Basis earned by the Current Period exceeds the lower limit EUR 27 200, which is checked by the Tax Basis Payroll Accumulator (Brought Forward + Current Period Total balance), then
  Withholding Tax = 17,25% * Current Period Tax Basis

And so on.

No Tax Card

When the Finnish resident employees do not present a tax card to the employer, and the employer has not received the withholding tax information electronically, No Tax Card Withholding % from the Tax Module settings is applied on the Tax Basis:

Withholding Tax = No Tax Card Withholding % * Current Period Tax Basis