Do you have plans for doing business in Finland?

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.