The Finnish tax system is known for its high rates for both individuals and legal entities. The main source of state budget revenue comes from taxes and amounts to about 47%.
Taxation in Finland
Finnish tax legislation falls under the authority of the Ministry of Finance. The Ministry of Finance regulates the tax system and develops tax laws, and the Parliament approves laws.
Basic Finnish taxes:
- Income tax – 0 – 31.25%.
- Corporate income tax is 20%.
- VAT – standard rate 24%, reduced rates for certain categories of goods and services 14% and 10%.
- Social contributions: health insurance – 2.04%, pension fund – 7.15% or 8.65% (depending on the age of the taxpayer), unemployment insurance – 1.4%.
Tax laws in Finland provide for an amount limit for each duty. For example, local or property duties cannot exceed 70 percent of the single income tax. If the amount approaches the upper limit, then the authorities may reduce the rate.
The Finnish tax code divides taxes into direct and indirect. Direct taxes include the following items: income tax, corporate tax and capital tax, tax on movable and immovable property. Indirect deductions include VAT, excise taxes, fuel tax, fees for television broadcasting services, etc.
The indirect category covers all consumer charges. The amount of these taxes is automatically included in the cost of goods or services provided.
Foreigners living in Finnish territory for more than six months are required to pay taxes on the same basis as citizens of the state. Fixed tax for non-residents is 35% of income received, be it salary, fee or pension.
Pension legislation in Finland
The Pension Law in Finland states that both citizens of the country and foreigners who have worked in Suomi for a certain period can receive a labor pension
Finnish pension legislation provides for three types of pensions: labor, national, and guarantee.
The average Finnish labor pension is 1,716 euros/month. To receive a decent retirement pension, it is advisable to accumulate 38 years of work experience. Finnish pensions are taxed at 22%. You cannot combine receiving a pension and salary in Finland. However, upon reaching retirement age (65 years), a pensioner can continue to work. In this case, every month, the size of his pension savings will increase by 0.6 percent. Until the age of 68, Finnish pensioners are protected by law and cannot be forced into retirement. Having worked from 65 to 68 years, a pensioner in Finland can increase the size of his pension by 14.4%.
If the amount of other pensions (national, labor) does not reach the subsistence level, then the guarantee pension covers the lack of amount. The total income of all pensions cannot be lower than 775.27 euros/month.
The national pension is assigned to those who have not earned labor or its amount is insufficient. The Finnish Pension Fund has established the following amounts of the national pension: 1299.88 euros/month. – for single citizens and 1157.71 euros/month. – for those who have a family. Foreigners who have lived in the country for more than 3 years (EU citizens) and more than 5 years (other foreigners) are also entitled to receive a national pension.
An entrepreneur’s contributions to the pension fund in Finland are made according to the following scheme:
- 24.1% – under 53 years of age.
- 25.6% – in the period from 53 to 62 years.
- 24.1% are 62 years of age and older.
In Finland, pension payments are about 50 percent of earnings. The highest pensions in Suomi are received by doctors, scientists, teachers, and engineering specialists. Pensions for highly qualified specialists range from 2300 – 4500 euros/month.