Contracting in Finland – overview for UK contractors
Home to Nokia, Lapland and saunas, Finland is a nation that is extremely popular with international contractors – and it’s not hard to see why, writes Michelle Reilly, chief executive of overseas contracting specialists 6CATS.
Finland for contractors: in a nutshell
As (reputedly) the happiest and safest country in the world, the nation also boasts a booming economy, with a reputation for innovation, cutting-edge technology, and favourable conditions for workers.
In addition to this, Finland is subject to a significant skills shortage, with an aging population meaning the generation gap is being keenly felt. In fact, reports from the Confederation of Finnish Industries (EK) reveal that businesses in the country are struggling to source the required talent, with 67% of respondents stating that they have faced ‘considerable to moderate’ difficulties finding skilled workers.
While opportunities are rife for UK contractors, it’s important to remember the country’s unconventional attitudes on a number of issues. For instance, Finland’s approach to speeding fines is calculated on the basis of an offender’s daily disposable income – generally their daily salary divided by two! This has led to huge fines, with penalties of €54,000 (£48,000) being handed out – but with some even facing charges of a reported €116,000! The country’s tax system is also not without its quirks, and there are several things contractors need to be aware of. So, what do you need to know?
Contracting in Finland: the legal bit
For contractors with their hearts set on making the move to Scandinavia, there are a few key compliance concerns to bear in mind.
Firstly, while EU nationals don’t currently need a work permit when relocating to the country, UK residents may find that this changes following Brexit, with the current confusion around the issue making it crucial that all workers consult local or international authorities prior to making a move.
In Finland specifically, tax is split in two: state tax, with a top rate of 31.75%, and municipal tax that ranges from 16.5% to 22.1%, depending on your location. Self-employed contractors are subject to social security payments levied at 23% of their taxable income. Please note, you cannot operate under a UK-registered PSC in Finland -- we explain why below.,
Contractors will also need a fixed address in the country in order to register with the local office – the ‘Maistraatti’ – which will have to be done within a week of arrival in the country. Workers will then be issued with a Finnish social security and tax number. Finally, when any placement ends, contractors will be required to de-register via a letter to local authorities.
Limited company usage -- and other options
A contractor working in Finland for less than six months, will have a limited tax liability in the destination, meaning they are only taxed on income sourced in the country. For professionals working in Finland, the income generated from this activity is classed as ‘sourced in Finland’ and therefore taxes are due.
If an individual is present in the country for more than six months, they are liable for tax on their worldwide income. On this basis, regardless of contract length, income is taxable in Finland from day one of the contract. From my experience, many contractors using a UK Ltd. company will try to use the 183-day rule, meaning they don't pay income taxes in the country of work. This is not compliant as the 183-day rule does not apply to personal service companies or independent contractors.
However it is possible to register a UK limited company in Finland. Please note though, this is more costly and complex than other options. It is also possible to set-up a Finnish limited company, but the share capital alone is €2,500 so this may not be commercially viable for short term contracts and the process is admin-heavy. The most popular options -- to maintain compliance in the country while working in a hassle-free, financially viable way, is setting up as a self-employed/sole trader in Finland, or working as an employee of a Finnish payroll company.
Change to tax cards
Another aspect of contracting in Finland to bear in mind is the recent legislation changes affecting the way that tax is paid in Finland, with new laws stipulating that the tax income cards issued to workers in the country will have a set earnings limit for the year -- rather than individual parameters for each payment cycle.
Where this figure is exceeded, end-hirers will be responsible for applying a higher rate to the individual. Separate tax cards for additional employment will also be removed with a single tax rate now being applied to all work through the tax year.
As a result, any professional receiving payment from multiple jobs throughout this time will be subject to one annual tax rate. While on paper this should streamline processes for contractors, individuals shouldn’t fall into complacency.
No room for complacency
While the information above may be helpful for contractors looking to work in Finland, it is still only a brief overview of the compliance factors for seeking work in this unconventional destination. As with many countries around the world, tax and legislative requirements are not only complex, but also subject to regular changes.
With the introduction of initiative such as the Common Reporting Standard, Criminal Finance Act, and EU blacklists, countries across the world are taking tax and compliance more seriously than ever, and are better-equipped to do so. Therefore, if you want to avoid the wrath of Finnish authorities, (the same ones that are prepared to hand out speeding tickets of over €100,000!), then it’s important that no complacency is allowed to creep in over compliance.
Whether this is achieved through the company that is employing you, or by contacting a third-party contractor management firm, contingent workers will need to make this a top priority and unfortunately, by going it entirely alone in Finland, we believe that workers are exposing themselves to a huge amount of unnecessary risk.