Tax Basics in Finland: What Every New Business Owner Needs to Know

Finland’s transparent economy, efficient public services, and stable infrastructure make it an attractive place to start or acquire a business. However, the country’s tax system can seem daunting to newcomers who are unfamiliar with the local language and regulations. Below is a clear overview of the most important tax considerations for a Finnish limited company (Oy), structured with essential headings to help you navigate quickly.

A key point to understand about Finnish limited companies is that they pay 20% corporate tax on their taxable profits. Essentially, the company’s revenue minus its deductible expenses forms the profit figure, which is then multiplied by 20%. This flat rate applies whether your business has a calendar-year fiscal period or operates on a different 12-month cycle.

How Corporate Tax Works

• Calculation of Profit: Start with total revenue and subtract allowable expenses, such as salaries, rent, and any operational costs directly tied to the business.

• Filing Deadline: Most companies submit their corporate tax return within four months of the fiscal year’s end.

• Remaining Profits: After paying the 20% tax, your company retains the balance, which can be used for dividend payouts, reinvestments, or operating costs.

This system can appear straightforward, yet there are nuances regarding deductible items and special cases. For clarity on your specific situation, it’s recommended to consult an accountant or refer to guidelines from the Finnish Tax Administration (Verohallinto).

Another fundamental aspect of Finnish taxation is deciding how to withdraw profits from the company. Typically, you can pay yourself in two main ways: salary or dividends.

Dividends

Dividends come out of the company’s after-tax profits. Under certain conditions, dividends may enjoy preferential taxation at the shareholder’s level, making them potentially more tax-efficient than salary. The rules, however, can be complex. Some dividends are partially tax-free depending on factors like the company’s net assets and the amount of dividend paid per share, so it’s often wise to seek professional advice.

Salary

Taking a salary means you (or any other individual drawing wages) pay progressive income tax in Finland, which increases as your earnings rise. From the company’s perspective, salaries are generally deductible expenses that can lower corporate tax liability. Many business owners combine salaries and dividends to balance their overall tax burden while ensuring a regular income stream.

Most goods and services in Finland are subject to value-added tax (VAT). Although 24% is often cited as the standard rate, 25.5% may apply in certain cases or contractual arrangements. Confirm which rate applies to your industry or product range. In either scenario, you must collect VAT on sales and remit it to the tax authorities.

Adding VAT to Your Prices

When you issue an invoice, you typically add VAT on top of the net price. If, for instance, your net fee is €100 and the VAT rate is 25.5%, your customer pays €125.50 in total. It’s then your responsibility to pass on the collected VAT to Verohallinto in your periodic VAT return.

Deducting VAT on Business Expenses

Finnish VAT rules allow you to deduct the VAT you’ve paid on eligible expenses. For example, if you purchase supplies at a net cost of €80 plus €20 in VAT, you may offset that €20 against the VAT you collected on sales. Essentially, your company acts as a conduit for VAT, ensuring the actual tax burden rests on the end consumer rather than on your business.

Finland’s tax framework outlines specific timelines for reporting and remitting taxes. Missing a deadline can result in penalties, so it’s important to keep track of due dates.

Corporate Tax Returns

Your corporate tax return is normally due four months after the end of your fiscal year. If your fiscal year ends on December 31, the filing deadline is typically April 30. Any tax owed is then calculated and paid based on the final assessment.

VAT Returns

VAT returns can be filed monthly, quarterly, or annually depending on your turnover and what’s approved by the Finnish Tax Administration. Each submission must detail:

• Output VAT: The total VAT collected from customers.

• Input VAT: The total VAT paid on eligible purchases.

You pay or reclaim the difference when filing.

Payroll Obligations

If your company hires employees or you pay yourself a salary, you must withhold income tax and submit employer contributions to the authorities. These obligations typically involve reporting through the Incomes Register (Tulorekisteri) at the time wages are paid, followed by periodic remittances to Verohallinto.

While the Finnish tax system is considered transparent and relatively straightforward, nuances do exist. Entrepreneurs—especially those new to Finland—often find it beneficial to work with a local accountant or a turnkey service provider who handles registration, payroll, VAT, and annual filings. Having a professional guide can minimize mistakes, prevent missed deadlines, and ultimately save you time and money.

If you’re planning to buy a Finnish company or establish a fresh entity, a solid understanding of corporate tax, dividend options, and VAT is vital. Armed with this knowledge and the support of experienced professionals, you’ll be well-positioned to thrive in Finland’s stable, business-friendly environment.