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Payroll & Tax in Finland

Finland payroll & taxation

Finnish legislation on taxes for foreign employees are not as stringent, although are typically higher given the high levels of social security in the Finnish tax system. Salary earned abroad is exempt from tax in Finland if the Finnish resident works continuously abroad for at least six months, while non-resident employees are only subject to income taxes from Finnish sources. There are some notable consideration with Finnish tax laws that foreign employers must be aware of, such as the different social security contributions, the VAT and withholding tax.

Your Payroll Options in Finland

Remote Payroll

A remote payroll in Finland is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Finland. This applies to both local and foreign employees. One option for a non-resident company to payroll its employees (local and foreign) in Finland is to use a fully outsourced service like a GEO or PEO which will employ and payroll the staff on their behalf.

Local Payroll Administration

In some cases, a company will register their business in Finland under one of the forms available but prefer to have another company administer its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.

Internal Payroll

Larger companies with a commitment to Finland may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete the incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a Finnish payroll and can fulfil all tax, withholding tax and payroll requirements.

This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Finnish employment laws.

Fully Outsourced Payroll & Employment

Companies can outsource the employment and payroll of their staff in Finland to a GEO, like Shield GEO. This is possible for both foreign workers and Finnish nationals. This is the easiest, fastest and safest way to payroll staff in Finland.

Shield GEO manages all aspects of payroll for workers in Finland, including taxes, withholding, social security payments and other statutory requirements. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client.

Staff are paid monthly with tax and social security deducted at source and paid to local authorities. Shield GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions) and a Management Fee. Shield GEO provides the employees with payslips.

Read more about outsourced payroll and employment through Shield GEO.

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Setting up payroll in Finland

Information Explanation
Currency ?

Euro (EUR, €)

Employee Information Required ?

When a new employee starts employment with a new company, there are several pieces of information that the company require in order to set up the employee with the business. These are the following:

  • Employee Name
  • Address/Postal mailing address
  • Phone number
  • Bank account details
  • Tax code number
  • Expected salary
  • Pension details
Tax Registration Requirements ?

Registration as an employer is mandatory if wages or salaries are paid in Finland to at least two employees on a regular basis or to at least six employees at the same time on a temporary basis. The company must withhold tax on the wages it pays to employees, following the instructions printed on each employee’s tax card.

Social Security Registration ?

Before applying for social security coverage under the Finnish social security system, individuals moving to Finland must register at a population register office. Once registered, the individual must then complete form Y 77e, from KELA, the Finish Governments office. This enables the individual to qualify for social security benefits.
A written decision on whether or not the individual will be covered by the Finnish residence-based social security system will be sent to them via post. If your application is not accepted, the individual can appeal the decision.

KELA Card

If the application is accepted, a photoless KELA card is sent to the individual automatically, at no cost. Their KELA card is the individual’s personal health insurance card. By presenting their card at the pharmacy or at many private medical clinics, they will be entitled to on-the-spot reimbursement of their costs.
For a fee individuals can also get an ID card with health insurance data. The ID card can be used as a travel document in many European countries and as authentication when logging into various online government services.

Documentation Required for New Employees ?

When a new employee begins a job role with a business, the employer has the responsibility to provide them with a written statement of employment. The written statement must include a guideline of what will be expected of the employee and general information of the position and business.

 

The employer also has a responsibility to create an employment contract for their new employee. The employment contract can either be an oral collective agreement or a written document.

Tax Figures

Information Explanation
Corporate Income Tax ?

The Corporate Income Tax Rate is currently 20.0%, lowered from 24.5% in January 2014.

Income Tax Rate ?
Grossed income Tax Rate (%)
€0 - €16,300 0
€16,300 - €24,300 6.5 (€8)
€24,300 - €39,700 17.5 (€528)
€39,700 - €71,400 21.5 (€3,223)
€71,400 - €100,000 29.75 (€10,038)
€100-000+ 31.75 (€18,547)

Flat tax amount corresponding to each tax bracket shown in parentheses

Sales Tax ?

VAT (arvonlisävero): Applies to all individuals and companies importing goods into Finland.

VAT rate: 24% as the general rate.
VAT rate: 14% for the supply of foodstuffs, animal feed and restaurant/catering services.
VAT rate: 10% for the supply of books, pharmaceutical products, transportation, accommodation etc.

Withholding Tax ?

Finnish companies are required to apply a 20% or 15% withholding tax on payments to foreign corporations depending on the country, and a 30% withholding tax on payments to non-resident individuals.

 

No withholding tax is levied on dividend payments received by companies in the EU/EEA.

 

Reduced rates are applicable to certain countries engaging in double tax treaties with Finland.

Employee Social Security (EE SS)

Social security contribution for employees in Finland consists of a Medicare contribution and a per diem contribution.

 

  • Medicare contribution: 1.32% of municipal taxable income.
  • Per diem contribution: 0.84% of salary income.
  • Pension insurance premium: 5.55% (7.05% for employees over 53)
  • Unemployment insurance premium: 0.5%.
Employer Social Security (ER SS)

Social security taxes are applied as a percentage of gross wages and salaries. The average total percentage of all contributions for private-sector employers is 23.60%, which consist of:

 

  • Employer’s social security premium: 2.14%
  • Group life insurance premium: 0.067%
  • Pension premiums: 17.75%
  • Accident insurance premium: 1%
  • Unemployment insurance premium: 0.75%

Payments

Information Explanation
Payment Mode ?

There are various ways a business may choose to pay their employees’ salaries. Most large businesses will choose to do it via electronic bank transfer. This is a very fast and efficient way of ensuring that all employees receive their wages on time, straight into their bank accounts.

 

Smaller businesses that only have a minimal number of employees may find it easier to pay their workers salaries by use a cheque or cash.

Frequency of Salary Payment ?

There are a range of different frequencies in which a company may choose to pay their employees these are:

  • Daily
  • Weekly
  • Bi- weekly
  • Fortnightly
  • Monthly
  • Quarterly
  • Annually
Invoice / Payslips required ?

Yes, payslip is required.

Minimum Wage ?

Finland does not have a set national minimum wage. A collective agreement is used in order to calculate a salary for any new employee in a job role. The amount in which the employee is going to be paid is usually determined based on their level of professional skill. The employer must, in connection with payment of wages, give the employee a calculation which indicates the amount of pay and the grounds of its determination.

Employee Entitlements

Information Explanation
Working on Sundays ?

On a Sunday in Finland many businesses choose to close as Sunday is classed as both a religious day and a day of rest. However many businesses such as shops and restaurants do still open. The normal working hours for Sunday workers is 12.00pm- 21.00pm.

 

By law, any individuals required to work on a Sunday are to be paid double pay (100% bonus). They are also required to receive a timetable of the work shifts they are needed to work (highlighting the employees start and end times).

 

Each schedule of work shift has to be handed to the employee at least a week before the work period begins. Work shifts can be changed, of course with the employee’s consent, or when special occasions appear and the employer is unable to let the employee in advance.

Time Off Work ?

In order for a worker in Finland to earn their paid holiday entitlement they must first work a ‘holiday credit year’. This starts on the 1st April every year and ends on the 31st March the following year. An employee will earn themselves 2.5 days of holiday for each month of the ‘holiday credit year they work for, therefore giving them an overall 30 days of paid holiday per year.
Employees that have been working with the company for less that a year will only be able to earn 2
holiday days off work per month, giving them only 24 days per year. Another way holiday allowance can be managed is by using a collective agreement; however it must apply to the Finish holiday laws (as above).

Medical Leave ?

Workers in Finland are entitled to sick pay once they have worked for a company for one month, as long as they are able to provide a doctor’s certificate.
Sick pay during the first month of employment is usually 50% of the worker’s salary. According to Finnish law, workers can earn up to 9 days’ worth of sick pay, though this can be altered by mutual agreement.

 

If an employee uses up their sick pay allowance from their employers, they will receive around 70% of their salary from the Social Insurance Institution of Finland (KELA).
It is the employer’s responsibility to set up an occupational health service for their employees.

Employment Termination

Information Explanation
Severance / Redundancy Pay ?

Suspension from work on medical grounds – The employee must inform the employer of any absence from work immediately. The employer is entitled to ask the employee to present them with a form of proof of sickness, such as a medical certificate.

Termination of Employment ?

There are many reasons for why an employer or an employee may choose to terminate an employment contract. However they both have a legal obligation to give the correct period of notice, stated in the collective agreement. An employer cannot end an employees contract without a weighty and justified reason, however if they feel that their employee is not longer fulfilling their job role correctly, then they have the legal right end their employment without a period of notice.

Other reasons for which an employer may not have to give notice are:

  • Serious breach or neglect of obligations of the employee, or such essential changes in the conditions necessary for working related to the employee’s person
  • The work has diminished substantially and permanently for financial or production-related reasons, or for reasons arising from reorganization of the employer’s operations.
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