The tax obligations for limited liability companies and cooperatives
Regarding taxes in Finland it is best to be up to date to avoid unpleasant surprises, which most of the times will come in the form of extra payments
Starting a business may be a very good option for many foreigners who do not find a job according to their skills but have good ideas and are willing to work hard to get ahead.
But in a super-regulated country like Finland it is not enough to be clear about what we want to do, it is also mandatory to know our obligations in depth. And when we work for ourselves taxes, without doubt, will be our main source of headaches. In any case, regarding taxes in Finland it is best to be up to date to avoid unpleasant surprises, which most of the times will come in the form of extra payments.
One week ago we informed our readers about the main fiscal obligations that private entrepreneurs must fulfill in Finland. This week we want to do the same for the business men (and women) who might be involved with a limited liability company (in Finnish osakeyhtiö) or a cooperative association (osuuskunta), as those are types of businesses also subjected to particular conditions.
The two inescapable rules
First of all, it is worth to remind which are the two basic and inescapable rules for entrepreneurs in Finland when comes to taxation, according to the guide for immigrant entrepreneurs published by the Economic Development Division of the City of Helsinki:
- 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 very 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, either if you are becoming a millionaire (hopefully) of if you do not earn enough for living. The Government will always demand its part and you will have to pay it, otherwise you will be in trouble.
Now let us review the different kind of taxes that you must report to the authorities, each one of them subjected to specific regulation. And remember that this is in general terms. Depending on your field of activity there might be other specific requirements (it is not the same owning a restaurant or importing goods from overseas).
The income tax
This is an earnings-based tax, and it works in the following way:
- If the form of your business is a limited liability company or a cooperative, you can draw a salary for yourself from the company. This salary is earned income and therefore subject to (earnings-based) income tax.
- This earned income is taxed at progressive rates, which means that the more you earn, the higher rate you will have to pay.
- Once you start drawing a salary, request a tax card from your local Tax Office and pay taxes in according to the tax rate which is marked on your tax card.
The advance tax
This tax is calculated based on your projected annual profit. It works like this:
- In addition to the tax on earned income, which is paid by the employees, limited liability companies and cooperatives must also pay a corporation tax based on their projected annual profit.
- The corporation tax rate is fixed at 20%, in other words, it does not vary based on how much profit you make.
- This tax is paid in advance and is referred to as advance tax.
- During the company's first accounting period, the amount of the advanced tax to be paid is calculated based on the profit estimate provided by the entrepreneur.
- Taxes for further accounting periods are estimated based on the result of the previous accounting period.
- The Tax Authority sends the entrepreneur advance tax invoices for the estimated amounts.
The capital income tax
This is the tax that you will have to pay when you draw profits from you limited liability company or cooperative for you own personal use.
- If you wish to draw profits from the company for your personal use, all such amounts are subjected to a capital income tax. The rate of this tax is either 30% or 34%, depending on the amount that is drawn out.
Value Added Tax (VAT)
Of course, there is also Value Added Tax (VAT). The rate depends on your business field. Finnish VAT rates are 24% (standard), 14% (food, restaurant services, catering services and animal feed) and 10% (books, pharmaceutical products, 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.
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.
And finally, never forget:
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, public authorities 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