Quite often, in our field, we encounter companies that are unaware that certain business activities in Finland require local tax registrations and, consequently, tax and income declarations. It is often assumed that if a company is registered in the European Union, it can conduct business activities in member states without involving other countries’ tax authorities or other government agencies. Unfortunately, this is not the case, so let’s delve deeper into this topic in this article.
Why must a foreign company register in Finland?
Companies conducting business in Finland eventually incur legal obligations, which are strongly recommended to fulfill in order to avoid problems, especially with the Finnish tax authorities.
Depending on the company’s goals in Finland, whether it’s for a one-time project or long-term business activities, companies operating in Finland with a foreign entity should carry out the necessary tax registrations. The primary reason for this is to avoid unnecessary risks and meet legal obligations.
As there are various levels of business operations in Finland, the criteria and requirements differ accordingly – some entities immediately incur a value-added tax (VAT) obligation, while others do not. Additionally, situations may arise where either the company or its employees become subject to Finnish tax obligations. Therefore, to avoid creating tax risks in Finland, it is essential to determine whether registration as an employer is necessary. Furthermore, it’s worth mentioning that registration numbers in Finland, such as the Y-Tunnus, also contribute to the company’s reputation and credibility.
What are the risks?
If a company decides to disregard local legislation, it should be aware that it will immediately face tax and, in all likelihood, penalty risks.
One of the most significant risks in this case is the Finnish tax authority’s right to demand retroactive tax payments for the period during which mandatory tax registrations were not made, including associated fines.
What obligations arise for a company that has completed the necessary tax registrations?
Depending on the type of tax registration, different obligations arise for companies in Finland. For example, simply registering for VAT requires submitting an annual declaration for income earned in Finland. If a company also needs to register for turnover and/or employer obligations, it must regularly submit declarations to the Finnish tax authorities, which are typically monthly.
In such cases, it is advisable to use a service provider who is familiar with Finnish tax legislation and can accurately submit the required Finnish declarations on a regular basis. It’s worth noting that since the chosen service provider only handles declarations related to activities in Finland, the service fees do not equate to the cost of maintaining the entire company’s accounting. In other words, if company A operates in both Estonia and Finland, the service provider only prepares declarations for activities conducted in Finland, and the billing reflects this accordingly.
By using external service providers, companies can avoid duplicate accounting and double taxation, as the business regions are kept separate.
How can 1Office help companies operating in Finland?
1Office can assist in establishing the necessary tax registrations in Finland, depending on the objectives of the business operating in Finland. This includes recommendations for the appropriate company structure for operations in Finland. You can read more about different structures and their pros and cons here: https://1office.co/blog/legal-forms-business-finland/
In addition to choosing the right tax registrations, their registration and submission, we can also provide local expertise in accounting services and offer a business address located in central Helsinki, which contributes to the business’s reputation.
We always recommend starting with a consultation where we can identify the company’s goals and plans. Based on this, we can provide insights into the steps that should be taken to ensure that the company’s activities in Finland are legal and trouble-free.