What should I consider when setting up business in Finland?
Expanding into a foreign country for business can be tricky. Reporting obligations, registrations and other compliance requirements can cause confusion. It’s often helpful to acquire a local specialist to help meet all the compliance needs and to explain basics of Finnish business requirements.
Things you should consider:
- company registration obligations
- social security liabilities
- payroll and accounting needs
- choosing a legal entity
Azets is here to help you every step of the way to ensure that your operations will run smoothly from day one.
There are several registers that might be statutory for your company and should be checked before you can start your operations in Finland:
- Trade register
- Prepayment tax register
- VAT register
- Employer register
The requirements to register for each register differ. You should check with each register and their respective authority if you are needed to register. Alternatively, Azets has specialists who can help you determine the needed registrations.
Social security insurances
Finland has statutory insurances for companies who have employees in Finland. These social security expenses are similar to other countries and include, among other things:
- Pension insurance
- Unemployment insurance
- Accident insurance
- Group life insurance
The cost for these are stipulated by the government, so they are the same no matter from which insurance company they are taken from. Azets has established channels for taking these on our customers’ behalf. The process is quick and, most importantly, in place from day 1.
Suomi.fi registration is a secure sign-in service for electronic filing with the Finnish Tax Administration and the Social Insurance Institution (Kela). With the registration you are able to handle your matters electronically and avoid the need for paper forms. The process of obtaining and using it is detailed and complicated as the government primarily works in Finnish and Swedish. The most convenient and efficient way of filing reports is to let Azets do it.
What legal entity should I choose?
Choosing the legal entity may not seem like a big decision after you have decided to expand into Finland, but each option should be carefully considered. Here we have presented the three most common options for an international company: operating as a foreign business in Finland, establishing a branch or setting up a subsidiary. Read more below by clicking open the description for each option.
Operating as a foreign company (Finnish: Ulkomainen yhteisö, Swedish: Utländskt samfund) can be the simplest form of business when you have limited operations and few or no employees in Finland. This means that you operate as the same company as you do overseas and do not possess a legal entity in Finland. That means there are no separate companies and your business operations are being conducted as a foreign company in Finland. At its most simple, no registrations are required.
Depending on your situation, you may be taxed in Finland if you have a permanent establishment (PE) in Finland. This is mostly case-specific assessment and it is very hard to give general guidelines. Things being considered include your nature of operations, the amount of employees, your assets in Finland and your possible premises within Finland. If you have a PE, your profits accrued from Finland will be taxed in Finland.
Much depends whether you have a PE or not: such as the need for employer registration, trade register registrations and the taxable income. If you do not have a PE, usually you have nothing to worry about and very few or no reporting liabilities in Finland. However, you may need to register into the prepayment register in Finland in order to avoid tax-at-source.
Setting up a branch (Finnish: sivuliike, Swedish: filial) is not a separate entity from your “parent company”, but is still registered in Finland and it has its own business ID. A branch is legally a part of your company and therefore it does not have a separate board, does not conclude its own contracts and cannot go bankrupt. It is simply a proxy overseas, which needs to be registered to trade register, for example.
A branch needs to have its own books and accounting, and it is taxed in Finland separately from the parent company. A branch will usually lead to a company having a PE in Finland. However, registering a branch does not require separate assets or capital. A branch usually has the benefit of making clear, what is taxable income and deductible expenses in Finnish taxation, as opposed to operating as a foreign business.
Branch is in many cases easier to manage than a subsidiary and it is easier to shut down. Reporting obligations are usually lighter for a branch. However, Finnish company law is not applied to branches and there are some differences in tax treatment. These include, among other things, situations with mergers and acquisitions and transfer of assets.
A subsidiary is its own legal entity (Finnish: Osakeyhtiö, Swedish: Aktiebolag) and therefore makes its own contracts separate from its owners (parent company). A limited liability company can prove to be useful in restricting potential risks when operating in Finland as the owners are not liable for the company decisions other than with their assets.
Setting up a subsidiary is relatively cheap as administrative fees are currently under 500 euros and setting up a subsidiary requires no capital. A limited liability company has its own board of directors, which may include the same members as the parent company’s board. A subsidiary can be seen as a reliable in the eyes of other companies and public administration as it is a registered Finnish entity.
However, there can be some more running expenses than operating through a branch. You may need an auditor for your company and document your board and annual shareholders meetings. Also, shutting down operations is not as easy and takes a minimum of 5 months. A subsidiary can go bankrupt as opposed to a branch.
Things to consider when making a decision
How should you go about choosing a suitable form of operations? One of the biggest questions is usually tax liabilities as they can prove to be major expense for a company. This is why assessing whether you would have a permanent establishment in Finland or not is critical. In addition to PE assessment, there are several variables to be considered:
- How large operations are you planning to have? For how long would you operate in Finland?
- Do you plan to have personnel? What are the possible collective bargaining agreements and social security and insurance liabilities?
- Are you planning on major expansion or just minor presence?
- Company tax rate: should the competitive Finnish 20 % tax rate be utilized in your business somehow?
- What are the key risks of your business and industry? Is there a need for separate legal entity?
- Who are your clients: consumers, companies or both?
- Do you have the need to participate in public procurement?
- What is the applicable tax treaty between your place of residence and Finland?
- What are your group policies?
- Your capital structure: is your business based on own capital and profits or debt capital?
- How is the capital transferred within your group: dividends, loans, interests, intra-group policies?
Do I need an auditor for my ltd company?
A company needs to have an elected auditor if two of the following three requirements are met:
- yearly turnover exceeds 200.000 Eur
- total balance exceeds 100.000 Eur
- three or more employees
Did you know that in Finland, your accounting partner does not provide auditor services due to legislative reasons?
What is my company’s VAT number?
In Finland, there is only the business ID which is also the VAT number. You can look up your company’s business ID and other public information here.
Can I use my local insurance company?
No, the statutory insurances have to be taken in Finland. Any additional insurance can be taken elsewhere, but remember to that these may be considered to be taxable benefits.
Even though there is a lot to think about, you are not alone. Azets will be happy to assist you in these questions and much more to ensure compliance and controlled expansion. Our tax and legal experts are at your service in all stages of expansion. We also help you assess whether you possess the risk of a PE.
“Azets quickly understood our tax and legal consulting needs and provided us with a Finnish analysis that was appropriate for our situation without delay,”
François Bonnet, Group Head of Tax at Bouygues Construction.