The tax obligations for private entrepreneurs in Finland
You may find easily help, guidance and even public support to develop your business. But you must also bear in mind that any entrepreneurial action is highly regulated, so the list of obligations is long and extensive
If you have just moved to Finland and you cannot find a permanent job according to your skills or if you have been already unemployed for some time, you may be thinking of setting up your own business.
If so, you should know in advance that you have had a good idea, because in Finland you may find easily help and guidance and even public support in order to develop your business. But you must also bear in mind that any entrepreneurial action in this country is highly regulated, so the list of obligations is long and extensive.
In this article, you will be told what the tax obligations of any private entrepreneur (in Finnish, toiminimi) are, in general terms, according to the guide for immigrant entrepreneurs published by the Economic Development Division of the City of Helsinki.
Remember that depending on your field of activity there might be other requirements (it is not the same having a restaurant or being a photographer than importing goods from overseas).
Let us start with the two inescapable rules:
- The first thing should know anyone who wants to set up a business in Finland is that every single entrepreneur is liable to pay taxes from the first day. This means you will pay taxes starting from the date on which the company/business is established. For that purpose, it is mandatory to provide the Tax Administration (Vero) with all the requested information and also report any changes to previously provided information.
- The Tax Administration does not care how little the income from your business is. It will always be taxed.
There are different kind of taxes that you must report to the authorities, each one of them subjected to specific regulation.
Value added tax
- Finnish Value added tax (VAT) rates are 24% (standard), 14% (food, restaurant services, catering services and animal feed) and 10% (books, pharmaceutical product, passenger transportation and accommodation...); only very few industries are exempt and apply a VAT rate of 0%.
- VAT must be paid by every company, no matter what its form.
- VAT must be collected from customers and delivered to the Tax Administration.
- If the company has been entered in the VAT register, the VAT it has paid for its purchases can be deducted from the VAT it is liable to pay based on its sales.
- A company is not liable to pay VAT if its annual turnover is 10,000 euros or less. However, once this amount has been surpassed, VAT must be paid on all annual sales, not only on those that exceed this figure.
This is a salary-based tax. Therefore, it will not affect you because if you have established your company as a private entrepreneur (toiminimi), you may not draw a salary from your company. You can only draw money from this kind of company in the form of personal income. And such income is drawn from the company's profit after all taxes are paid.
For this reason, the persons running such businesses are not subjected to earnings-based income tax as other entrepreneurs are (for instance those who own limited liability companies or cooperatives). Private entrepreneurs must instead pay the so-called Advance tax.
This is a tax on your projected annual profit. According to the guide published by the city of Helsinki, it works in the following way:
- Private entrepreneurs are primarily taxed based on their projected annual profit.
- Progressive taxation is applied instead of a fixed-rate, so the amount of taxes paid depends on the financial result.
- This tax is paid in advance and is referred to as an advance tax.
- During the company's first accounting period, the amount of advance tax to be paid is calculated based on the profit estimate provided by the entrepreneur.
- Taxes for further accounting periods are estimated according to the results achieved in the previous accounting period.
- The Tax Administration sends the entrepreneurs advance tax invoices fro the estimated amounts.
Final taxation/back taxes
- If your company's turnover and profit projection change over the course of the year, you must report it to the Tax Administration, so that your company's advance tax can be readjusted. By doing so, you will avoid the displeasure of receiving later bills.
- At the close of an accounting period, you must file a tax return in which you report the full turnover and profit of the accounting period in question.
- Final taxes are always calculated and charged based on this information.
- As a result, you may receive a tax refund or be liable to pay a back tax.
You must also know
When you live permanently in Finland, no matter if you run a business or work as an employee, the Finnish Tax Administration has the right to check all your records and accounts at any time and may even carry out surprise inspections on your earnings/income.
Therefore, the Economic Development Division of the city of Helsinki and all public authorities in general recommend you to ensure that everything is updated and in order.
If you want to know more about how to manage your taxes in Finland, you can get further information HERE
If you have any further questions concerning taxation, you can contact the Tax Administration HERE