Simple Tax Guide for Americans in Finland
Finland is a beautiful country, with hilly countrysides among many islands in what is the largest archipelago in Europe, and the Northern Lights visible in the winter. American expats are drawn not only to the beauty, but also economic opportunities - particularly in the healthcare and IT arenas. Of course, with economic opportunities come tax concerns. This article will help you understand your tax obligations if you choose to live in Finland as a US expat.
Expat Taxes - Finland
US citizens, as well as permanent residents, are required to file expatriate tax returns with the federal government every year regardless of where they reside. Along with the typical tax return for income, many people are also required to submit a return disclosing assets which are held in bank accounts in foreign countries by using FinCEN Form 114 (FBAR).
The United States is among only a few governments who tax international income earned by their citizens, as well as permanent residents, residing overseas. There are, however, some provisions that help protect from possible double taxation. These include:
- The Foreign Earned Income Exclusion. This exclusion allows one to exclude USD 101,300 (this amount is for 2016 taxes) in earned income from foreign sources.
- A tax credit allowing tax on remaining income to be reduced based on the taxes paid to foreign governments.
- An exclusion on foreign housing that allows additional exclusions from their income for some amounts paid to cover household expenses due to living abroad.
Preparing a quality tax return following proper tax planning should allow one to use these, as well as other strategies, in minimizing or possibly eliminating tax liability. Note that in most cases the filing of a tax return is required, even if taxes are not owed.
Who Qualifies as a Finnish Resident?
You will be considered to be a Finnish resident once you have stayed a minimum of 6 months. This stay will be treated as being continuous, even when you leave the country as long as 2 months. Before living in Finland 6 months, a taxpayer is considered to be a nonresident.
Does Finland Tax Foreign Income?
Nonresidents only pay Finnish tax on revenue earned in Finland. After a taxpayer is considered to be a resident, they will pay taxes on their worldwide income.
Tax Rates for Finland
Income from employment (known as earned income) includes director’s fees, wages, salaries, and any in-kind benefits. This income gets taxed at progressive tax rates, which means they increase as salary increases. There is a special tax system for expatriates, where expats who qualify can choose to pay taxes on their earned income at 35% (flat rate) for a maximum of 48 months, rather than at the progressive rates.
|Taxable Income||Base Tax||Rate in Bracket|
|€ 0 - € 16,300||€ 0||plus||0|
|€ 16,300 - € 24,300||€ 8||plus||6.5%|
|€ 24,300 - € 39,700||€ 528||plus||17.5%|
|€ 39,700 - € 71,400||€ 3,223||plus||22%|
|€ 71,400 - € 100,000||€ 10,039||plus||30%|
|Over € 100,000||€ 18,547||plus||31.75%|
Dual taxation is not an issue in Finland, since they have a tax treaty with the United States.
When Are Finland Taxes Due?
Employees receive a pre-completed return sometime in March and April. If information on the tax return is correct, there is no additional action needed, and the tax return can be considered complete. If adjustments are necessary, they can be entered online prior to mid-March.
Finnish Social Security
There is a tax for Social Security that must be paid by employees, employers, and by the self-employed. The tax consists of a portion for Medicare, and per diem. Per diem tax is 0.74% of income, and the Medicare portion consists of 1.3% on taxable income.
There is an agreement between Finland and the United States, so a taxpayer only pays tax for Social Security to one of the countries.
Capital gains earned by individuals are taxed at 30%. Capital gains in excess of € 40,000 in the calendar year are taxed at a rate of 32%. Any capital gain from selling a house or apartment that was used for a primary home for a minimum of 2 years while it was owned is exempted from taxes.
There is also a tax imposed by municipalities that ranges between 18% to 26% of income, and varies by municipality. The church tax must be paid by the members of some churches, and ranges between 1% and 2%.
Questions About Finland Taxes?
Contact us! We have an expert team to provide tax advice to expats, and give you all the information you need to know to file your United States expat tax return while living outside the country.