Taxation in Finland
||This article needs attention from an expert on the subject. (October 2010)|
|An aspect of fiscal policy|
Taxation in Finland is carried out by the State of Finland, mainly through Finnish Tax Administration, an agency of Ministry of Finance. Finnish Customs (Ministry of Finance), Finnish Transport Agency and Finnish Transport Safety Agency (Ministry of Transport and Communications) also collect taxes. All taxes are collected by the state agencies mentioned, who then distribute them to the local authorities, municipalities and the church parishes, and social security institution Kela.1
Earned gross income is taxed by a progressive state tax (tax brackets 6.5% – 30%) and proportional communal taxes paid to municipalities (16.5% – 21.5%, average 19.17%) and parishes (1.00% – 2.00%, average 1.34%). The permanent residents of Finland have also to pay health insurance contributions, medical care fee (1.19%) and daily allowance contribution (0.82%). There is an earned income tax credit for local taxes, making them slightly progressive despite their fixed rate.
The tax-like mandatory insurance fees are withheld from the wages. They are fully credited from the income taxes. The employee's pension and unemployment insurance fees have rates varying according to the person's age but they are usually at 4.7% and 0.6%, respectively.
The total income taxes including the mandatory insurance fees were 29.8% for an average yearly income of 37,400 € in 2010.4
|Taxable earned income (euros)||Basic tax amount||Rate within brackets|
The tax authority collects income taxes from each paycheck, and then pays the difference between tax liability and taxes paid as tax rebate or collects as tax arrears afterward.
There are also indirect tax-like mandatory social security contributions and insurance fees paid by employer in addition to the gross income. The social security contribution is 2.12% of the gross income. The pension and unemployment insurance fees depend on the age of the employee and the size of the employer, they are usually 18.3% and 3.2% of gross income, respectively.
The income from dividends, rents, and capital gains are taxed with investment income tax. The investment income is taxed at fixed rate of 30% or 32% for income that exceeds 50 000 euro.
Whether listed or unlisted limited company, at least 30% of dividends received are categorized as tax free income. Rest of the dividends received is categorized as capital income from listed limited companies and as capital income and/or earned income from unlisted limited companies. Theoretically, the effective dividend tax rate from publicly listed companies is 21% - 22.4% because of a tax credit of at 30% for dividends from listed companies. However practically, recipients of dividends in Finland, paid (year 2011) taxes less than 2 %(two), due of multiple ways of tax reductions, deductions and arrangements provided by the current Finnish law.
The most simple tax credits for dividends from non-listed companies vary depending on the wealth of the company (earned equity) in the company. Part of the dividends may be taxed as earned income in case the equity in a non-listed company is not sufficient. When equity of the company is big enough, each shareholder may receive dividends 60.000 EUR per year tax free, on top of the 30% tax free from the dividends received from dividends in excess of 60.000 EUR per year (Finnish Income Tax Law, Art 33).
A family of four, owning a wealthy unlisted limited company, may receive 240.000 EUR dividends a year 100% tax free income per year. Unlike capital income and earned income, which are both public information, this third category of income (i.e. taxfree income), is currently not public information by law in Finland.
The corporate income tax rate is 24.5%. The corporate tax was fully credited in dividend tax before 2004, but because the neutrality requirements by EU, the tax credits allowed for dividends are now more complex. The corporate tax will be lowered to 20.0% in January 2014.5
Municipal property taxes are low, since municipalities mostly meet their funding needs via direct income taxes and state subsidies. Tax rates are higher for leisure properties like summer cottages. Property taxes are levied annually on present market value. General rates are 0.60–1.35%, 0.32-0.75% on regular housing and 0.50-1.00% on leisure properties.
There is a 4% property transfer tax for property, and 1.6% for stock and housing cooperative shares. First-time home buyers home are exempt.
VAT is levied at a standard rate of 24% (January 2013), and two reduced rates of 13% on food and restaurants, and 9% on transport and accommodation.6
Excise taxes are in place for alcohol, tobacco, sweets, lotteries, insurances, transport fuels and automobiles (2011). Pharmacies pay only the excise tax from their yearly income; no VAT is levied on medications. There is a tax credit for pharmacies that keep subsidiary pharmacies (sivuapteekki).
The mandatory pension fees are paid directly to the pension insurance company selected by the employer or entrepreneur. The pension fees total 23% of the gross income (2011), usually 4.7% is deducted from gross income and the rest of the 23% is paid by the employer in addition to the gross income.
The voluntary pension insurance fees or transfers to a personal pension account are credited in earned income taxation up to 5000 € per year.
Taxes are collected from church members by local church parishes belonging to the two official churches, Evangelical Lutheran Church of Finland and Finnish Orthodox Church, and two country-wide Lutheran parishes, the German parish in Finland and Olaus Petri parish for citizens of Sweden living in Finland. The tax rates vary from 1 to 2% of earned income. A small percentage (2.55% as of 20117) of corporate taxes is also distributed to parishes.
- Finland to lower corporate tax rate by 4.5pc Independent.ie, 22 March 2013.