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Hiring in Finland

Finland, officially known as the Republic of Finland, is a Nordic country in Northern Europe. Helsinki is the capital and the largest city of Finland. The largest sector of Finland is the service sector. This is followed by manufacturing, refining and agriculture. Some of its key industries are electronics, machinery, vehicles, forest industry and chemicals. Finland’s main trading partners are Germany, Russia, United States, Sweden and the Netherlands. Global PEO or Employer of Record (EOR) play a pivotal role in providing companies with services related to hiring employees, and ensuring compliance with Finland’s legal and tax regulations. Employment regulations including probation, holidays and termination are covered by the Labor Code. The Labor Code stipulates that employees are entitled to 24 to 30 days of annual leave. Finland taxes residents on their worldwide income. Global PEO’s or Employer of Record (EOR) facilitate companies by ensuring compliance with Finland’s Labor Code and tax laws.

statutory labor requirements

Probation Period

  • The maximum duration of a trial period may be six months.
  • The trial period for a fixed-term employment contract can be no longer than half of the total duration of the contract and at most 6 months.

Annual Leave

  • An employee is entitled to two and a half (2,5) weekdays of leave per each full holiday credit month if the employment relationship has lasted for at least one year by the end of the holiday credit year. 
  • If the duration of the employment relationship has been less than one year, the employee is entitled to two (2) weekdays of leave per each holiday credit month. 
  • Hence, the maximum length of statutory annual leave is either 24 or 30 days per year. 
  • It is noteworthy that Saturdays qualify as weekdays even if the employee does not work on Saturdays, so in practice the usual 30 days would equal to five (5) weeks of holiday. 

Public Holidays

  • The official public holidays are as follows:
    1. New Year’s Day
    2. Epiphany
    3. Good Friday
    4. Easter Monday
    5. Labor Monday
    6. Ascension Day
    7. Pentecost
    8. Midsummer Day
    9. All Saints’ Day
    10. Independence Day (non-Christian holiday)
    11. Christmas
    12. Stephen’s Day

Maternity Leave

  • Under the current system in Finland, maternity leave is 4.2 months.
  • Another six months' parental leave can be shared.

Paternity Leave

  • Under the current system in Finland, fathers are given 2.2 months leave until the child turns two. 
  • Another six months' parental leave can be shared.
  • Finland plans on increasing paternity leave
  • Each parent would receive 6.6 months' leave (164 days under Finland's six-day-week benefit system)

Sick Leave

  • Employers are obligated to pay salary during the sick leave of an employee, based on the employment contract and collective bargaining agreement stipulations.
  • The length of the employment relationship influences the amount of pay during illness.
    • If the employment relationship has lasted for a minimum of one month, the employee is entitled to full pay for the period of illness up to nine days.
    • In employment relationships of less than one month, employees are entitled to 50 per cent of their pay.

Work Hours

  • The standard work week in Finland is 40 hours, and the work day cannot exceed 8 hours. 
  • Regular working hours may be arranged as an average of 40 hours over a period, not exceeding 1 year. 
  • Collective bargaining agreements typically provide for shorter hours of work.

Overtime

  • If work time limits are passed, compensation of overtime is compulsory.
    • Overtime is paid at an increased rate of 50% for the first two hours of overtime, and an increase of 100% for any hours beyond that.
    • An agreement may be made to exchange the overtime wages for extended time off in lieu.
    • It should be noted that an employee is entitled to refuse to work overtime and overtime work must be separately agreed between employee and employer on each occasion.

Notice Period

  • The maximum length of the notice period to be observed by the employer is six months and the shortest 14 days.
  • If the period of notice is not agreed or set out by a collective agreement, the employer must apply the following statutory notice periods based on the employee's length of service:
    • Up to one year's employment: 14 days.
    • One to four years' employment: one month.
    • Four to eight years' employment: two months.
    • Eight to 12 years' employment: four months.
    • Over 12 years' employment: six months.

Severance

  • There is no statutory obligation to pay severance.

13th / 14th Month Pay

  • Yes 
  • There is no statutory requirement to pay the 13th or 14th month salary.
  • However, it is customary for holiday bonuses to be paid.
  • When they are paid they are generally 50% of the holiday pay.

 income tax

  • Finland taxes residents on their worldwide income. 
  • Earned income received by residents is taxed at progressive tax rates for national tax purposes and at a flat tax rate for municipal (and church and social security) tax purposes.
  • Finland operates a dual income tax system for individuals, under which income is divided into earned income and capital income.
  • Earned income is subject is to national income tax, municipal income tax, church tax, public broadcasting tax, and social security contributions
  • Earned income below EUR 18,100 is not subject to national income tax; progressive rates up to 31.25% apply above this.
  • However, municipal income tax, church tax, and social security contributions apply to income below EUR 18,100.
  • The municipal rates range from 16.75% to 23.5% and potential church tax rates are 1% to 2.2%.
  • A surtax of 5.85% is levied on pension income exceeding EUR 47,000
  • Nonresidents are taxed at a 35% rate on income earned from Finnish sources.
  • Capital income is subject to national income tax at a flat rate of 30% on income up to EUR 30,000 and at 34% on income exceeding this amount.

 

Taxable income

Tax on column 1 (EUR)

Tax on excess (%)

Over

Not Over

18,100

27,200

8

6

27,200

44,800

554

17.25

44,800

78,500

3,590

21.25

78,500

 

10,751.25

31.25

deductible expenses

Employment Expenses

  • Expenses incurred in acquiring or maintaining taxable income are, in principle, deductible items. 
  • The maximum allowance for travel expenses to and from work is EUR 7,000 with an own-risk share of EUR 750. Generally, only travel expenses incurred though the least expensive means of transportation (public transportation: train, bus, streetcar, or ship) are deductible. 
  • Other deductions for earning income may include expenses for professional literature, own tools, and so on, against original payment receipts. Moving, automobile, and entertainment expenses are generally not deductible.
  • If the employer does not reimburse for increased living expenses due to business trips, a deduction from earned income may be available. The amount of deduction shall be based either on actual expenses or a fixed amount determined annually in the tax authorities’ guidelines. Also, travelling and accommodation expenses due to business trips may be deducted if not reimbursed by the employer.
  • A standard deduction of EUR 750 from salary income is granted if actual business expenses are below that amount.

Personal Deductions

Pension Premiums

  • Mandatory pension premiums are fully deductible from earned income for both national and municipal tax purposes.
  • The deductibility of voluntary pension contributions is limited, and they are deducted from capital income.
  • Other savings in certain long-term investments (e.g. a long-term savings contract with a bank, investment fund company, or other investment service company) are also entitled to the same deduction as the contributions to voluntary pension insurances.

Unemployment insurance premiums

  • Mandatory unemployment insurance premiums are deductible from earned income for both national and municipal tax purposes.

Interest expenses

  • Interest charges from certain loans are deductible from capital income. If the deductions from capital income exceed the amount of capital income, the end result is a capital income deficit of which 30% can be deducted from taxes on earned income up to certain limit (in case of home loan for a first permanent home, the aforementioned percentage is 32% during the first ten years).

Household expenses

  • Household deduction can be availed for certain care and repair work as well as installation and advising work related to telecommunications technology (e.g. installation work with personal computers, televisions, and other devices) done at the individual’s home at up to EUR 2,250 per year (EUR 100 own-risk share).

Accommodation costs

  • Accommodation costs of a second home needed because of two (or more) permanent workplaces can be deducted. Certain conditions must be met. The maximum deduction is EUR 450 per month.

Donation deduction

  • Individuals and death estates are allowed to deduct cash donations of a minimum of EUR 850 and a maximum of EUR 500,000 from earned income if the purpose of the donation is development of science or art. 
  • The requirement for deduction is that the donation is made to a university with public financing that is located in the European Economic Area or to a related university fund. 
  • The purpose of this change is to advance private finance of universities.

 

Deductible Expenses

Employment Expenses

  • The maximum allowance for travel expenses to and from work is EUR 7,000 with an own-risk share of EUR 750
  • Other deductions include: -

Expenses for professional literature

Expenses for own tools

  • Moving, automobile, and entertainment expenses are generally not deductible.
  • If the employer does not reimburse for increased living expenses due to business trips, a deduction from earned income may be available. 
  • The amount of deduction shall be based either on actual expenses or a fixed amount determined annually in the tax authorities’ guidelines.
  • A standard deduction of EUR 750 from salary income is granted if actual business expenses are below that amount.

Personal Deductions: -

 

Pension Premium

  • Mandatory pension premiums are fully deductible from earned income for both national and municipal tax purposes.
  • The deductibility of voluntary pension contributions is limited, and they are deducted from capital income.

Unemployment Insurance Premiums

  • Mandatory unemployment insurance premiums are deductible from earned income for both national and municipal tax purposes.

Interest Expenses

  • Interest charges from certain loans are deductible from capital income. 
  • If the deductions from capital income exceed the amount of capital income, the end result is a capital income deficit of which 30% can be deducted from taxes on earned income up to certain limit (in case of home loan for a first permanent home, the aforementioned percentage is 32% during the first ten years).

Household Expenses

  • Household deduction can be availed for certain care and repair work as well as installation and advising work related to telecommunications technology (e.g. installation work with personal computers, televisions, and other devices) done at the individual’s home at up to EUR 2,250 per year (EUR 100 own-risk share).

Accommodation Costs

  • Accommodation costs of a second home needed because of two (or more) permanent workplaces can be deducted. Certain conditions must be met. 
  • The maximum deduction is EUR 450 per month.

Donation Deduction

  • Individuals and death estates are allowed to deduct cash donations of a minimum of EUR 850 and a maximum of EUR 500,000 from earned income if the purpose of the donation is development of science or art. 

immigration

  • If you plan to work or be an entrepreneur in Finland, you will usually need a residence permit. If you work without a residence permit, you may be punished by a fine.
  • If you are applying for a residence permit on the basis of employment, the residence permit application you should use depends on the kind of work you do or the kind of business you own. If you have completed a degree in Finland and you have a valid residence permit for studies, you may apply for a residence permit for seeking work.
  • If you have already been granted a residence permit on other grounds, it may include a right to work. If your residence permit includes the right to work, you will usually not need a separate permit for work. Look at your residence permit decision to find out whether you have the right to work. 
  • If you are a citizen of an EU Member State, Iceland, Liechtenstein, Norway or Switzerland, you do not need a residence permit for Finland.
  • If you apply for a residence permit in order to work in Finland, you must get an appropriate salary for your work. This salary must be enough to support you for the entire time your residence permit is valid.
  • If your residence permit is based on work, it may only give you the right to work for a certain employer or in a certain field of work. 
  • If you have been granted a residence permit for a certain field of work, you are usually permitted to change jobs freely if your residence permit has not expired and your new job is in the same field.
  •  If you have been granted a residence permit for a specific task, you are free to perform this task in the service of another employer.
  • If your residence permit only allows you to work for a certain employer or if you wish to change your field of work, you need to apply for a new residence permit.
  • If you have been granted a residence permit for work, your family may usually apply for a residence permit on the basis of family ties.
  • Some of the main work permits are outlined below.

Type of Visa

Documentation

Validity

Eligibility

Residence permit application for persons employed as a specialist

  • Valid passport
  • A signed employment contract or binding job offer
  • Passport photo
  • Color copies of the passport page containing personal data and of all passport pages that contain notes
  • Form MP_1
  • Certificate concerning the principal terms and conditions of employment
  • Consultancy agreement
  • Certificate of fringe benefits from the employer/client
  • Commission agreement with a Finnish client (must be included if the employer is a foreign company that has no office in Finland)
  • Job description
  • Certificate of a higher education degree

1 year (can be extended)

  • A specialist is a person who comes to Finland to work with expert tasks that require special expertise (highly skilled worker). 
  • You are also required to have a higher education degree.
  • If you apply for a residence permit as a specialist, your gross income must be at least EUR 3,000 per month.

Residence permit application for an employed person (TTOL)

  • Valid passport
  • A signed employment contract or binding job offer
  • Passport photo
  • Color copies of the passport page containing personal data and of all passport pages that contain notes
  • Form MP_1
  • Appendix to worker’s residence permit application (TEM 0.54), filled in by the employer
  • Certificate of paid taxes or certificate of tax debts (no more than 3 months old)
  • Certificates from the insurance company on employer’s statutory insurance premiums
  • Report on the number of employees in the company (also the share of full-time and part-time employees)
  • Report on recruitment of labor force from the Finnish labour market and the labour market within the EU/EEA.
  • Tuberculosis certificate
  • A certificate confirmed by an accountant of salaries paid to you each month during the validity of your previous permit and a certificate of other possible benefits or compensation you have received

1 year (can be extended)

  • You have signed a contract of employment or accepted a binding job offer. 
  • A residence permit for an employed person is connected with labor market testing, which means that the employer must establish if there is available labor force within a reasonable time in Finland or within the EU/EEA for the work in question.

Residence permit application for an entrepreneur

  • Valid passport
  • A signed employment contract or binding job offer
  • Passport photo
  • Color copies of the passport page containing personal data and of all passport pages that contain notes
  • Form MP_1
  • Trade register extract or explanation why the company has not been entered in the Trade Register
  • Description of the business idea of the company
  • Document concerning business premises
  • Report on the number of employees
  • Certificates on professional qualifications
  • Document concerning assets and other income
  • If the company is already in business:
  • The latest financial statements, if the company has been in business so long that it has financial statements
  • The latest updated accounts
  • If the company is not yet in business:
  • Calculation of profitability (estimate of the company’s revenue and costs for the next two years)
  • Copies of agreements signed with customers and partners, if such exist

1 year (can be extended)

You are an entrepreneur if you are

  • a private entrepreneur who has a so called individually-owned business 
  • a partner in a general partnership
  • a general partner in a limited partnership (not a silent partner)
  • a member of a cooperative who has an unlimited liability for refinancing. The unlimited obligation to contribute has to be registered in the trade register.
  • a shareholder in a managerial position in a limited-liability company

Residence permit application for person applying EU Blue Card

  • Valid passport
  • A signed employment contract or binding job offer
  • Passport photo
  • Color copies of the passport page containing personal data and of all passport pages that contain notes
  • Form MP_1
  • Employment contract or a binding job offer, stating your duties and salary.
  • Evidence that you have completed a higher education degree

2 years

  • You must have a signed employment contract or a binding job offer and your work will last at least a year. 
  • Also you must have a higher education degree.
  • Your gross income must be at least EUR 4,852 per month.
  • The tasks must require special professional qualifications or expertise.

value added tax

  • The general VAT rate is 24%. 
  • A reduced rate of 14% is applied to food and animal feed. 
  • The reduced VAT rate of 14% also applies to restaurant and catering services. 
  • A reduced VAT rate of 10% is applied to certain goods and services (e.g. books, subscriptions of newspapers and magazines lasting one month or longer, accommodation, passenger transport).
  • A zero rate applies in certain instances (e.g. intra-Community supplies of goods and exports of goods). Additionally, certain services (e.g. financial services, insurance services, and certain educational services) are exempted from VAT.

VAT

General VAT Rate

24%

Reduced Rate

14%

10%

Zero-rate

0%

withholding tax

  • An employer must withhold tax from an employee’s salary for national, municipal and church tax purposes. In addition, an employer must withhold social security contribution

Dividends

  • Dividends paid to a resident company generally are not subject to withholding tax. Dividends paid to a resident individual from an unlisted company are subject to a 7.5% withholding tax. 
  • If the dividend exceeds EUR 150,000, the withholding tax rate on the excess portion is 28%. 
  • A 25.5% withholding tax applies to dividends paid from a listed company.
  • Dividends paid to a non-resident company are subject to a 20% withholding tax, unless the rate is reduced under a tax treaty or an exemption applies under the EU parent-subsidiary directive.
  •  If dividends are paid to an EEA resident shareholder, domestic nondiscrimination provisions may lower the withholding tax rate to a level corresponding to similar domestic distributions. 
  • Dividends paid to a nonresident individual are subject to a 30% withholding tax, unless the rate is reduced under a tax treaty. 

Interest

  • Interest paid to a resident company generally is not subject to withholding tax
  • A 30% withholding tax applies to interest paid to a resident individual
  • Interest payments to nonresident companies and individuals generally are exempt from tax in Finland

Royalties

  • Royalty payment made to a resident company generally are not subject to withholding tax
  • The withholding tax rate on royalty payments made to a resident individual depends on the taxpayer’s individual tax card
  • If the taxpayer does not provide a tax card to the payer, the applicable withholding tax rate is 60%
  • Royalty payments made to nonresident companies are subject to a 20% withholding tax, unless the rate is reduced under a tax treaty or an exemption applies under the EU interest and royalties’ directive.
  • Royalty payment to nonresident individuals are subject to a 30% withholding tax, unless the rate is reduced under a tax treaty.

Fees for technical services

  • No withholding tax applies on fees for technical services paid to a resident or nonresident company
  • The withholding tax rate on fees for technical services paid to a resident individual depends on the taxpayer’s individual tax card.
  • If the taxpayer does not provide a tax card to the payer, the applicable withholding tax rate is 60%
  • A 30% withholding tax applies to fees for technical services paid to a nonresident individual

WHT

Type of Payment

Residents

Nonresidents

 

Company

Individual

Company

Individual

Dividends

0%

7.5%/25.5%

20%

30%

Interest

0%

30%

0%

0%

Royalties

0%

Varies

20%

30%

Fees for technical services

0%

varies

0%

30%

 termination

  • An employment contract valid until further notice can be terminated by the employer by giving notice to the employee. Unless otherwise provided in the applicable collective agreement, the parties to an employment relationship can agree on the notice period in the employment contract. The maximum length of the notice period to be observed by the employer is six months and the shortest 14 days. In addition, the notice period applicable for the employer must not be shorter than the one applicable for the employee.
  • An employer must have relevant and substantial reasons for giving an employee notice.
  • The grounds for terminating an employment contract are divided into two categories:
    • Individual grounds that relate to the conduct and performance of an individual employee.
    • Collective grounds that relate to financial and production-related reasons or to the company's restructuring.
    • The termination procedure depends on the grounds for dismissal. For a termination on collective grounds, the procedure to be followed is determined by the:
      • Size of the employer
      • Number of employees being dismissed.

statutory benefits

  • These are mandatory benefits as prescribed by law
  • These include annual leave, public holidays, maternity leave, paternity leave, sick leave, notice period, severance pay
  • Statutory benefits also include social security benefits such as health insurance, unemployment insurance and pension insurance.

Statutory Benefits

Annual Leave

Public Holidays

Maternity Leave

Paternity Leave

Sick Leave

Notice Period

Severance Pay

Social Security Benefits
(e.g. health insurance, unemployment insurance, pension insurance)

 payments and invoicing 

  • The tax year in Finland is the calendar year. 
  • Married persons are taxed separately on all types of income. 
  • Pre-filled tax returns are sent to all individuals in April of the year following the tax year. 
  • The individuals must review the pre-filled tax return and submit any corrections to the tax authorities within the specified time limit.
  • The final tax should be assessed at the latest by the end of October.
  • An employer must withhold tax from an employee’s salary for national, municipal and church tax purposes.

ease of doing business

  • The ease of doing business index is an index created by Simeon Djankov, an economist at the Central and Eastern Europe sector of the World Bank Group.
  • Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.
  • According to the World Bank Finland ranked 20th in the World in 2019 in terms of ease of doing business.

employee accruals

   
Christmas Bonus%

0%

Christmas Bonus Over Vacations %

0%

Severance per Year %

No statutory requirement

Vacations % The maximum length of statutory annual leave is either 30 days per year (8.24% of annual salary)
Notice %

Employees are entitled to 14 days of notice period for one year of service or more (3.84%)

Christmas Bonus Over Notifications% 0%
Vacations Plus% 0%
Total percentage of Salary (yearly) The total employment accruals as a percentage of salary per anum are equal to 12.36%

employer accruals

Additional information (Country Accruals)

   
Unemployment income limit 2,125,500
Employer health insurance 1.34%
pension insurance 14.35%
Unemployment insurance 0.45%
Accident insurance premium 0.80%
Maternity 105days
Christmas Bonus 8.33%
Vacations 9.86%
Compulsory social security contributions payable by the employer in 2020, according to the paid salaries, are as follows:  
Employer’s health insurance contribution 1.34% (no cap).
Employer’s pension insurance contribution 14.35% (on average, no cap). A temporary act allows a decrease of the employer’s
statutory pension insurance contribution between May 1 and December 31, 2020 by 2.6 per cent points due to COVID-19.
Employer’s unemployment insurance contribution 0.45% for the first EUR 2,125,500 of gross salaries and 1.7% for the portion of
the gross salaries exceeding EUR 2,125,500 (no cap). Employer’s unemployment insurance contribution applies to employees of
age 17 to 64.
Group life insurance premium 0.07% (on average, no cap).
Accident insurance premium 0.8% (on average, no cap).

Employer Accruals Additional information

    Employment Accruals
Annual Leave The maximum length of statutory annual leave is either 24 or 30 days per year. This equals 6.57% (24/365 days) of annual income
Maternity Leave Under the current system in Finland, maternity leave is 4.2 months. This equals 35% (4.2/12 months) of annual income
Paternity Leave Under the current system in Finland, fathers are given 2.2 months leave until the child turns two. This equals 18.33% (2.2/12 months) of annual income
Overtime Overtime is paid at an increased rate of 50% for the first two hours of overtime, and an increase of 100% for any hours beyond that. Depends on the number of overtime hours worked
Social Security For employers, social security contributions are levied as a percentage of uncapped gross wages and salaries (excluding certain items, such as most employee stock option and share award benefits).
The employer is required to withhold 7.15% of an employee’s gross salary for pension insurance contributions (8.65% for employees aged 53 to 62) and 1.25% for unemployment insurance contributions.
A health insurance contribution of 0.68% is payable on the employee’s gross salary.
If an employee’s annual earned income is at least EUR 14,574, a health insurance premium of 1.18% also is payable by the employee, which is included in the individual’s personal tax withholding.
This equals 10.26% of annual income

 

 

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