Expat Tax for Americans in Finland – What You Need To Know

Expat Tax In Finland – Expat Living In Finland

With a population of just 5.5 million in the eighth-largest country in Europe, Finland is one of the most sparsely-populated countries globally, a perfect place for the ex-pat looking at emigrating to Finland for some peace and quiet. Read on to discover important tips on US Expat Tax In Finland.

Finland is a northern European country that borders Sweden to the west, Norway to the northwest, and Russia to the east. It sits on the Baltic Sea and the Gulf of Bothnia, and to the south, across the Gulf of Finland, you’ll find neighboring Estonia.

Finland’s education system has a reputation as one of the best globally and there are many benefits. This extends not only to primary and secondary students but also to university studies. Expat life in Finland is a rewarding and relaxing one, giving an attractive and sometimes awe-inspiring backdrop to any working life. Like many other Scandinavian countries, the standard of living here is high, with new infrastructure and social services built and maintained to a modern and meticulous standard.

The Top 10 Cities In the Finland for expats: (in no particular order):

• Helsinki
• Rovaniemi
• Oulu
• Espoo
• Turku
• Tampere
• Jyväskylä
• Vantaa
• Savonlinna
• Rauma

About Finland

It is famous for its closeness to nature and modernity. Also, it attracts tourists with its lakes and islands.

There are about 300 islands on the shoreline and many with bridge connections. Eight high-class universities help bring students and expats.

Finland is among the most tolerant countries in the world. Citizens are free to express themselves, practice their religion, and choose a spouse in peace. They also enjoy the best freedom of speech on the planet. All these factors combined make Finland a hot country to make a home. Two-thirds of Finland is natural forest, and 40 national parks span across the lakes, coastline, forests, and meadows. The possibilities for enjoying hiking, biking, boating, and camping in the great northern outdoors are nearly endless. As of 2018, 402,600 foreigners reside in Finland, which corresponds to 7.3% of the population. Estimates are that by 2050, there will be 1–1.2 million foreigners in Finland.

Guide To US Expat Tax In Finland

The Tax Samaritan country guide to U.S. expat tax in Finland provides a general review of ex-pat tax in Finland. And how that will impact your U.S. expatriate tax return as a U.S. Expat In Finland.

As a U.S. taxpayer, all worldwide income is subject to taxation and reporting. Generally, you have a requirement to file a U.S. tax return annually on April 15. June 15 if you are residing overseas on the April 15 deadline. The tax treatment for different classes of income can vary greatly from Finland and the U.S. For example, certain benefits may be tax-free or excluded from taxable income in Finland. Still, in the U.S., these benefits are likely to be non-qualified benefits. This means they are subject to being included as taxable income in the U.S. As such, there are several considerations related to the U.S. expat tax in Finland. This brief article will address a few of those considerations.

Finland Expat Income Taxes

Who Is Liable For Income Taxes In Finland

Finland taxes residents on their worldwide income. Earned income received by residents is taxed at progressive tax rates for national tax purposes. And a flat tax rate for municipal (and church and social security) tax purposes. In progressive taxation of a non-resident’s earned income, the non-resident’s worldwide earned income (i.e., salary income, pension income, and social security benefits) is taken into account when calculating the taxable income earned in Finland (exemption with progression).

However, the income from abroad or income from Finland that is not taxable in Finland per provisions of an applicable tax treaty is not applicable if the individual lives within the EEA or holds a residence permit with a researcher status. The taxable earned income from Finland is at least 75% of the individual’s total earned income.

Residency

An individual is a resident if they have a permanent home or habitual abode in Finland or otherwise stay in the country/jurisdiction for a period of more than 6 months. When moving abroad, a Finnish citizen is a Finnish tax resident for the year they move abroad and the following 3 full calendar years. Unless they produce evidence that they do not maintain substantial ties to Finland during the tax year in question.

A non-resident individual (e.g., occasionally working in Finland) is subject to taxation on Finnish-source income only. Unless lower rates are provided in a tax treaty, tax rates are 35% on employment income and 30% on dividends, interest (however, interest income is normally not taxable for a non-resident), and royalties.  In general, non-residents subject to tax at source do not have reporting liabilities in Finland as the entity paying the income takes care of the tax-at-source withholding and the reporting liabilities in Finland.

Tax Year In Finland And Tax Filing And Payment Rules

All individual taxpayers will receive a pre-completed tax return form in March or April. They have to check the tax return and, if necessary, send it back with corrections to their local tax office.

The tax office may extend the time for filing pre-completed tax returns. Approval of an extension for a couple of weeks may be available. Individuals must file an application before the tax return filing due date and must justify granting the extension.

The final tax assessment is made by the end of the following tax year.

Tax Rates

The foreign expert tax regime provides a flat tax rate of 32% (note: before January 1, a flat tax rate of 35% was applied) on Finnish-source salary income for those foreign employees whose work requires special knowledge and who would be otherwise subject to taxation at the normal tax rates applicable to resident individuals.

Municipal tax is levied at flat rates on taxable income determined for municipal taxation. The rate varies between 16.50% and 23.50%, depending on the municipality.

Public broadcasting tax is levied on taxable income. The rate of public broadcasting tax is 2.5% on annual income exceeding EUR 14,000.

A progressive tax schedule for investment income has been in force since 1 January 2012. Investment income up to EUR30,000 is has a tax rate of 30 percent. Whereas investment income exceeding EUR30,000 has a tax rate of 34 percent.

Foreign national taxes can qualify for a credit against the Finnish national income taxes, the municipal income tax, and the church tax. The maximum amount of foreign tax credit is the Finnish tax payable on the foreign income. Any residual credit may be carried forward to the following 5 tax years.

Expat Tax Withholding in Finland

As an ex-pat living abroad, you get an automatic extension to file until June 15th of the following calendar year-end. However, you must pay any tax that may be due by April 15th to avoid penalties and interest. You can get an extension to file until October 15^th if properly requested.

The taxpayer must file an annual income tax return for all resident years. The taxpayer must also file an annual income tax return for the year the assignee leaves Finland. In the year concerned, the taxpayer performed activities in Finland and is not protected by a double tax treaty. The tax return is to be filed within the statutory deadline(s) for filing.

As a U.S. citizen or green cardholder, you have a legal requirement to file a U.S. tax return each year. This is true regardless of whether you already pay taxes in your residence country.

Any income tax paid on foreign source income can qualify as a foreign tax credit on your U.S. return.

What You Need To Know About U.S. Income Taxes

Some of these preferential tax treatments or benefits for U.S. expat tax in Finland include:

• If you are a U.S. citizen or a green card holder of the United States and live in Finland, your U.S. ex-pat tax in Finland is based on your worldwide income. And as such, you must file a U.S. return for all the years that you are residing in Finland. However, as a U.S. expat you may qualify to reduce your U.S. taxable income up to an amount of your foreign earnings that is adjusted annually for inflation ($107,600 for 2020). You can also exclude or deduct certain foreign housing amounts depending on other factors if you exceed the initial exclusion. This is known as the Foreign Earned Income Exclusion and foreign housing exclusion.
• When it comes to your U.S. expat tax in Finland, most U.S. expatriates worry about “double taxation”. (i.e.,–  paying taxes to two different countries – the U.S. and Finland). A U.S. taxpayer working overseas in Finland may reduce U.S. taxable income and “double taxation” by claiming the Foreign Tax Credit on Form 1116. Should any foreign income not be fully offset by the foreign earned income exclusion, housing exclusion, or housing deduction, the foreign tax credit paid or accrued may be used as a deduction or credit on the U.S. tax return. Taxpayers can either deduct the taxes as an itemized deduction on Schedule A or claim a credit against tax. In most cases, it is to your advantage to take foreign income taxes as a tax credit.

Avoid The Common Dangerous Mistake

A common but dangerous mistake is the assumption that if there are zero taxes with these tax benefits, there is no U.S. tax filing requirement. This is not true. If you are working overseas, it is likely that you meet the filing requirements to file a tax return and must do so. It is important to note that the preferential tax treatments, such as the foreign earned income exclusion and foreign tax credit, are not granted automatically and must be claimed on a properly filed U.S. tax return.

When faced with U.S. ex-pat tax in Finland, there are many tax items to consider. But the above are by far the most common benefits individuals can take advantage of. If you can qualify for both of these benefits (the foreign earned income exclusion & foreign tax credit), an analysis should be done to determine a strategy to optimize the return outcome as much as possible. For example, those with young children may want to consider forgoing the foreign earned income exclusion and utilize the foreign tax credit.

With top-notch experience and knowledge of expat tax preparation from Tax Samaritan, you have the assurance that all these eligible benefits will have the best outcome pursued. The decision to utilize the foreign earned income exclusion or the foreign tax credit can be complex and depend on various factors, so it is typically best to discuss with a tax professional if unsure which option is best or what you may qualify for.

Finland Foreign Bank Account Reporting – The FBAR (FinCen Form 114)

Another important tax deadline that frequently applies to U.S. expat tax in Finland is in regards to the disclosure of foreign assets on the FBAR (Foreign Bank Account Report – Form 114 – formerly known as TD F 90-22.1)

The FBAR filing deadline is April 15th. Or, the preceding business day if April 15th falls on a holiday or weekend) of the following year. Unfortunately, requesting an extension on your individual return does not extend the FBAR due date. However, in years past, the Treasury Department has granted an automatic six-month extension to October 15th for those who miss the April 15th due date. Any reports after this date are a delinquent FBAR. Also, the FBAR is different than many other tax forms in that there must be receipt by the deadline date.

Where To File The FBAR

FBAR filing is with the Treasury Department (not with your federal income tax return) whenever you meet the FBAR filing requirements, which in a nutshell is whenever a U.S. person has a financial interest in, or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other types of foreign financial account (including an insurance policy with a cash value such as a whole life insurance policy) maintained with a financial institution, with an aggregate value of over $10,000 at any time during the calendar year based on the highest value of each foreign account during the tax year.

If you have bank accounts at OP Corporate Bank PLC, Nordea Bank, Danske Bank, Evli Bank PLC, Aktia Savings Bank, or at another bank in Finland or any other foreign country, you may meet the filing requirement to disclose your foreign accounts on the FBAR. Please don’t hesitate to contact Tax Samaritan to learn more about your filing requirements.

Please don’t hesitate to contact Tax Samaritan to learn more about your filing requirements.

U.S. – Finland Social Security Totalization Agreement

An agreement effective November 1, 1992, between the United States and Finland improves Social Security protection for people who work or have worked in both countries. It helps many people who, without the agreement, would not be eligible for monthly retirement, disability, or survivor benefits under the Social Security system of one or both countries. It also helps people who would otherwise have to pay Social Security taxes to both countries on the same earnings.

The agreement covers Social Security taxes (including the U.S. Medicare portion) and Social Security retirement, disability, and survivors insurance benefits. It does not cover benefits under the U.S. Medicare program or the Supplemental Security Income program.

How The Totalization Agreement Helps

This document covers highlights of the agreement. And explains how it may help you while you work and when you apply for benefits.

Under the agreement, if you work as an employee in the United States, you will normally have coverage by the United States. You and your employer will pay Social Security taxes only to the United States. If you work as an employee in Finland, you normally will have coverage by Finland, and you and your employer pay Social Security taxes only to Finland.

On the other hand, if your employer sends you from one country to work for that employer or an affiliate in the other country for five years or less, you will continue to have coverage by your home country. You will be exempt from coverage in the other country. For example, if a U.S. company sends an employee to work for that employer or an affiliate in Finland for no more than five years, the employer and the employee will continue to pay only U.S. Social Security taxes and will not have to pay in Finland.

Self-employed individuals living and working in Finland have coverage by the Finnish system and should obtain a certificate of coverage to claim the totalization agreement’s benefits. Attach a photocopy of this certificate to your U.S. individual tax return to properly exempt yourself from the U.S. self-employment tax. Tax Samaritan can help guide you through this process if unsure of how to proceed.

U.S. – Finland Tax Treaty And Tax Relief For U.S. Expat Tax In Finland

The United States and Finland do have an income tax treaty in place. Many of the articles apply to non-resident aliens for U.S. tax purposes. Still, they can also extend certain benefits to U.S. citizens, residents, and green card holders (limited by the ‘Savings Clause’), so it is important to understand if you qualify for these benefits.

Tax Samaritan Takeaways For U.S. Expats In Finland

Please click on the hyperlinks below for additional takeaways for your expat tax in Finland:

Finland Tax Treaty documents

Agreement Between the United States and Finland

Top banks in Finland