Foreign companies workingin the construction sector in Finland Corporate taxation

Webinar 10 October 2018

Finnish Tax Administration

Visit: tax.fi/workinfinland

Contents

1. Basics of international taxation

– Taxing rights of Finland

– Tax treaties

2. Registration

– Starting business activities in Finland

– Registers

3. Permanent establishment

– General rule

– Construction & installation

4. Income attribution

– Arm's length principle

– Taxable income and deductible costs of the PE

1. Basics of international taxation

1. Basics of international taxation

Taxing rights of Finland

– Foreign corporations operating in Finland are liable to

pay income tax on the Finnish-sourced income

Tax treaties

– Finland has signed tax treaties with some 70

countries

– Restricts Finland's taxing rights

OECD Commentary of the Model Tax

Convention

– Used as an interpretative source

– Not binding

Taxing rights of Finland

National tax legislation

– Foreign companies have a limited tax liability, and as

such are liable to pay income tax on their Finnish-

sourced income only.

Income attribution

– If a foreign company has a permanent establishment in

Finland it must pay tax on all the income that can be

attributed to that permanent establishment (PE)

Tax treaties

Tax treaties

– Objective is to agree on how taxing rights are shared and divided

between contracting states

– When a tax treaty applies, income tax cannot be collected simply

based on national legislation

– Includes provision on the taxation of business income that usually

allow Finland to tax the business income of a foreign company only if

it has a permanent establishment in Finland

Double taxation

– Tax treaties include provisions on how to eliminate double taxation

– Double taxation situations may arise when a taxpayer domiciled in a

treaty country receives income from another treaty country

OECD Model Tax Treaty

Tax treaties are based on the OECD Model Tax

Convention on Income and Capital

OECD Commentary of the Model Tax

Convention can be used for purposes of

interpretation of tax treaties

– Both OECD member and non-member states

Finnish Tax Administration uses the commentary

for purposes of interpretation when there is no

contradiction with the provisions of the applicable

tax treaty.

Not binding

2. Registration

2. Registration

Starting business activities in Finland

– Y-form

YTJ.FI

– Accounting period

Registers

– Prepayment register

– Value added tax register

– Employer register

Registers

Prepayment register

– When work is done by a foreign company who is on the

prepayment register, the payer does not need to

withhold tax of 13%

VAT register

– Foreign companies must become VAT registered if VAT

is to be charged on their sales of goods or services, and

if the operation gives rise to a permanent establishment

for VAT purposes

Employer register

– Will be covered in the next presentation

Registers

Obligations concerning registers

– It is imperative that the company attends to all

obligations and possible information requests

concerning registers and registration

A single assignment in Finland (tax-at-source

card)

– If the company only has a single assignment in Finland,

it may apply for a 0% tax-at-source card for the duration

of the contract instead of prepayment registration. This

card can be issued if the company does not have a

permanent establishment in Finland

– In this case the company does not need to enter any

registers

3. Permanent establishment

Permanent establishment

General rule

– Place of business

– Special situations

Construction & installation

– Construction and installation projects

– Shipyards

Special situations

– Preparatory and auxiliary

– Dependent agent

General rule

Existence of a place of business

– These are examples and not exhaustive.

a) a place of management

b) a branch;

c) a factory;

d) a workshop, and

e) a mine, an oil or gas well, a quarry or any other place for extraction of natural resources.

– A place of business must meet the following conditions:

a) it must be established at a distinct geographical place

b) it must be established with a certain degree of permanence , and

c) the business of the enterprise must be actually carried through the fixed placeof business.

– Any premises used for carrying on business may be interpreted as a place of business

General rule

Fixed place of business

– It is required that the place of business has a fixed location

Permanency of a place of business

– No exact time limit that would define how long a operation of a trade or

business must go on (6 months in OECD Model Tax Convention)

– A temporary and short-lived setup does not usually constitute a PE

Carrying activities through a place of business

– Establishment of a PE requires that the company conducts business

wholly or partially though the place of business

Special situations concerning the general rule

– Home office

– Place of management

Basic definition

of PE

Place of business

At thedisposal

Fixed

Through which the

business is carred on

Construction & installation

Construction & installation projects

– Sites where a construction, installation or assembly

operation is performed may be regarded as a permanent

establishment

– Duration of the site must be 6, 12 or 18 months,

depending which tax treaty is applied

– Temporary interruptions or short periods of inactivity are

normally regarded as inclusive

– If the company has several projects in Finland, each one

of them should be treated separately unless there is a

commercial and geographical connection

– If a project is artificially divided up into several parts, the

projects will be considered as a single unit

Special situations

Shipyards

– Shipyards can become be a permanent establishment in

itself

– Length of individual projects are not taken into account

the same way as in regular installation & construction

projects

Dependent agent

– A dependent agent may create a permanent

establishment

The agent needs to have authority to regularly enter into

contracts and to receive and fulfill orders.

Permanent establishment for the purposes of

VAT is determined separately

Preparatory and auxiliary

Some activities may be regarded as preparatory

or auxiliary

– For example advertising, research, maintenance of a

stock of goods does not necessarily establish a

permanent establishment

Activities cannot be considered preparatory or

auxiliary if they make up an essential part of the

business of the foreign company.

4. Income attribution

Income attribution

Arm's Length Principle

– Income attributed to the PE

Separate entity approach

– A PE should be considered as a separate entity

Obligations of declaration

– A foreign company is obliged to give declarations and

documentation of its business operations in Finland

Taxable income and deductible costs of the PE

– Taxable income and deductible costs

– Losses

Arm's length principle

A situation where the parties are acting as

independent and on equal footing

The principle is applied when determining the

income attributed to the PE

A PE may have dealings with other parts of the

same corporate entity

– e.g. with the head office or a PE in another country

The taxable income of a PE might be adjusted if

its not arm's length

Separate entity approach

A PE should be considered as a a separate

entity from the head office for the purpose of

taxation

A PE as a separate entity can generate profit or

loss regardless of the whole business enterprise

Obligations of declaration

Foreign companies

– Obligation to provide information if the authorities should

ask them to do so

– Estimated taxation

Taxable income of a foreign corporate entity may be

estimated if it has a PE in Finland and fails to file a tax

return

– Official languages are Finnish and Swedish

For example information requests can be sent in English

Decisions are in either of the official languages

Obligations of declaration

Permanent establishment exists

– Must file a tax return

– Corporate tax rate 20% in Finland

– 6U + appendixes

– Deadline four months after the end of the month when

the financial year closes (see registration)

No permanent establishment

– 6U (tax return form) & 80 (account of local operations)

Taxable income and deductible costs

Taxable income

– Income generated by the PE is taxable and defined in

the Business Tax Act (EVL)

Deductible costs

– Business costs related to income generated by a PE are

deductible.

ie. payroll costs of a PE

– Expenses of a PE remain deductible regardless whether

they have arisen in Finland or in other countries

Losses

– Deductible during the ten subsequent tax years

Additional information

Finnish business information systems website

Prepayment register

VAT registration of foreigners in Finland

Obligations of a foreign employer

Form 6U & Form 80

Application for a Tax-At-Source Card

More detailed guidance on income tax returns for foreign corporations

Income taxation of foreign corporate entities

Attribution of income to a permanent establishment

Thank you!

Pause

5 minutes

Foreign companies workingin the construction sector in FinlandTax number, employer obligations, tax liability for employees, construction work reports

Webinar 10 October 2018

Finnish Tax Administration

Visit: tax.fi/workinfinland

1. Tax number for the employees

When and how?

2. Employer obligations

When and how?

3. Tax liability for the employees

When do they pay tax in Finland?

4. Construction work reports

What, when and how?

Contents

1. Tax numberfor the employees

When and how?

1. Tax number for work on a construction site

To work on a construction site in Finland

You must have an identification card with your name, picture and tax number.

You are not allowed to enter the site without one.

Your tax number must be in the public register of tax numbers.

You are not allowed to enter the site without your tax number being in the register.

How to get a tax number

What must an employee do?

Visit the tax office

Get a Finnish identity code

Get a Finnish tax number

Get a Finnish tax card or prepayment tax calculation

depending on whether the employer has a permanent

establishment in Finland or not

depending on the lenght of his stay in Finland.

What documents are needed?

To apply for a Finnish identity code:

Fill in form 6150e

Sign the form later at the tax office.

To apply for a tax number:

Fill in Form 5057e or Form 5042e, print it

out and

Reserve an appointment at a tax office

The employer can also make the

appointment.

Visit the tax office

The employee must visit a tax office so that his/her

identity can be confirmed and he/she can be given

a personal identity code.

Visit the tax office - documents needed

Please bring the following with you:

the forms you have filled in

a valid passport or official proof of identity (not driver’s

licence)

a valid residence permit or visa if necessary

photocopy of your work orders or work contract

photocopy of your work orders or employment contract

Visit the tax office - documents needed

If the work orders/employment contract does not contain the information listed

below, you must show us a written document from your employer describing your

work in Finland:

employer's name, address, identity

name of your employer's customer in Finland

your full name and date of birth

how long you are working, start date, end date

the place where work is done, a short description of what you do

Visit the tax office - documents needed

Photocopy of A1 certificate, if you have one (A1 is a certificate on social

insurance coverage issued by the authorities in your home country).

Visit the tax office.

The Tax Adminstration enters your tax number in the public register of tax

numbers.

The Tax Administration makes sure that your tax matters are in order. We will

send you a tax card or instructions for making prepayments.

2. Employer obligations

When and how?

2. Employer's obligations for taxation purposes

Tax number for the employee

Permanent establishment of the employer:

How the permanent establishment affects the taxation of the employees

Permanent establishment and employer obligations

Everyone who works at building sites or

worksites of installation projects must wear a

name tag with a photo and their individual tax

number printed on it.

The worker’s tax number must be entered in the

tax number register.

Employer's obligations

Give the worker a contract of employment

employer details

the party in Finland who ordered the

work/services

workes's full name and date of birth

length of employment in Finland including start

and end dates

the place where work is done, a short

description of the work to be done.

Employer's obligations

Employer's obligations

Fill in form 6150e

Complete the required information on the work and request a tax

number for the worker on Form 5057e or Form 5042e and print it.

Tell your worker to visit the local tax office.

It is possible to make an appointment to the tax office.

For more details: See above on slide Nr 5.

No permanent establishment

Employer with no permanent

establishment:

No obligation to seek entry in the Register of

Employers

Possible to register on a voluntary basis.

No permanent establishment

Employer with no permanent establishment:

You must file an annual information return for the year 2018 for employees staying

longer than 6 months.

All wages paid to employees staying longer than 6 months must be reported.

No withholding of tax

The employee pays prepayment tax

Employer with a permanentestablishment

You must register your company as an

employer if:

You pay wages to two or more employees on a

permanent basis, or

You pay wages to at least six employees with

temporary employment contracts.

Registration as an employer

For having your company registered as an

employer, submit Start-Up Form Y1, Y2, or

Y3. Visit ytj.fi to download Y forms.

You must withhold money on all wages paid out.

The amount to be withheld is dependent on the

percentage rates printed on the employee's tax card or

tax-at-source card.

Withholding on the gross amount of the wages.

You must pay the employer's health

insurance contribution

if your employees do not have

documentation of being posted

employees

for example certificate A1

Employer with a permanent establishment

Reports of employer's contributions

Annual information return for wages paid 2018

You must also file monthly reports of employer's contributions.

The amount of taxes withheld and employer's health insurance contributions

must be filed and paid monthly to the Tax Administration.

Reported and paid on your own initiative.

Employers with a permanent establishment

Consequences of non-reporting:

Late-payment penalty charge if you report after the deadline.

If no report is filed:

We can estimate the amount of tax to be paid and impose an additional surtax.

Employers with permanent establishment

Consequences of non-reporting:

If you are late or do not follow the formatting instructions:

We can impose a charge for negligence.

If no Employer Payroll Report is filed:

We can remove your from the Prepayment Register.

If no withholding of taxes on wages:

We can collect the taxes from you and remove you from the Prepayment Register.

3. Tax liabilities for theemployees

When do they pay tax in Finland?

Work for a foreign employer

Leased employees

A self-employed person

Employees living or staying in Finland for 6 monthsor less - Employer with no permanent establishment

If the stay in Finland does not last longer than 6 months

the employee is non-resident in Finland

Usually no tax on the wages in Finland

Health insurance premium if the employee do not have A1 certificate or similar and the work

lasts for at least 4 months.

Employees staying 6 months or less in Finland -Employer with a permanent establishment

The employee must pay tax in Finland:

If the employer has a permanent establishment in Finland.

It is important for the employer to contact the Finnish Tax Administration to assure whether a

permanent establishment is constituted or not.

Health insurance preminum if no A1 certificate or similar if the work lasts for at

least 4 months.

Employees staying 6 months or less - employer witha permanent establishment

Final withholding tax of 35% after a deduction of €510 per

month/€17 per day.

To get the deduction the employee needs a tax-at-source card from

the tax office

The employee may also apply for progressive taxation

Complete Form 6148e

Employees staying longer than 6 months in Finland

If the employee stays longer than 6 months in

Finland he/she is considered resident for tax

purposes.

Liable to tax on his/her worldwide income.

– Progressive income tax on wages.

Employees staying longer than 6 months in Finland

If the employer has a permanent establishment.

The employee must get a tax card from the tax office

Give it to the employer.

If the employer has not a premanent establishment in Finland:

The employee must pay prepayment tax himself.

Get a prepayment calculation from the tax office.

Employees staying longer than 6 months in Finland

Fill in Form 5042e in both cases.

– Use the tax percentage calculator to estimate

your taxes

File a Finnish tax return.

Leased employees

If you use leased employees, see:

Employee leasing

If you work as a self-employed person, see:

As a self-employed person

Self-employed persons

4. Construction work reports

What, when and how?

4. Construction work reports

Buyers of construction work must file reports on their construction

contracts:

If a foreign company orders construction work from a sub-contractor for more

than €15,000, reports must be filed.

Project Supervisors must give details on the employees:

Every employer on a shared site must report its employees to the Project

Supervisor.

The reports are e-filed.

Reports on construction work - Contract details

File a report on a contract to the Tax Administration if:

You buy work or sign a contract that is considered construction services under

the Value-Added-Tax Act.

You buy services of setting up and dismantling of scaffolds for a building.

You lease employees to do work that relates to the above.

The contract value exceeds €15,000.

Reports on construction work - Employee reports

You must file details on the employees at the site to the Tax Administration if:

Your company is the Project Supervisor of a construction project at a shared site.

Your company is the builder-developer of a construction project at a shared site and there is

no agreement on who's the Project Supervisor.

The reporting threshold is €15,000 ex VAT in total contract value of the building

contracts.

Check list

Permanent establishment

Registration

Tax number for the employees

Employer's obligations, payments and reports

Tax card or prepayment calculation for the employees

Construction work reports

Useful links

https://www.vero.fi/en/individuals/tax-cards-and-tax-

returns/arriving_in_finland/work_in_finland/

https://www.vero.fi/en/individuals/tax-cards-and-tax-

returns/arriving_in_finland/work_in_finland/working-in-construction/employer-at-

a-construction-site/

The employer obligations of a business enterprise

Working in construction

https://www.vero.fi/en/businesses-and-corporations/file-and-

pay/construction_work_reports/

Contact us

Visit:

tax.fi/workinfinland

Call us

Tax service for individual taxpayers:

+358 29 497 024

Foreign companies:

Income taxation and registration – foreign companies:

+358 29 497 092

Appointments

Personal identity code and tax number for

foreign citizen

groups over 5 person

Personal identity code and tax number for

foreign citizen

single customer

tax.fi/appointments / Make an appointment

Our enquiry numbers are at your service in English,

weekdays at 9.00–16.15, in July 9.00–15.00 (GMT +2 h).