Individual - Significant developmentsLast reviewed - 03 February 2023
Finland implemented a social security reform in the beginning of 2023, affecting to the financial responsibilities for social and health care and rescue operations to be transferred from the municipalities to the state. Because of this, the state's income is increased, and the municipalities' income is correspondingly reduced. In the reform, the state's tax revenues are increased by tightening the state's earned income taxation. The reduction of municipal tax revenues, on the other hand, is mainly implemented by reducing the amount of municipal tax. In addition, the municipalities' corporate tax share is reduced by one third and the state's share is increased accordingly. In addition, an index revision of 3.5% was made to the earned income tax bases, which affected in tightening of taxation for middle-income wage earners by approximately 0.05% overall and by a maximum of approximately 0.39%.
Due to the social security reform, the earned income deduction for municipal taxation changes to an earned income deduction that is granted on the same basis and in the same amount for state taxation and municipal taxation. The basic deduction for municipal taxation changes to a basic deduction that is granted on the same basis and in the same amount for state taxation and municipal taxation.
In 2022, there were long negotiations in the government of taking into use the concept of economic employer in Finland. As a result, the Finnish government did not present the bill concerning the economic employer concept to the Parliament in 2022. Thus, Finland's taxation rights will not expand concerning the foreign workforce on 1 January 2023. However, since the government had many legislation projects simultaneously and they had to choose which bills to promote during this government term, and no valid reason was given why the bill did not go further, it is possible that the bill will be introduced later after the next elections in 2023.
The concept of economic employer means that the entity under whose management and control the work is actually carried out is considered as the employer in the income taxation. This assessment is done regardless of which company the employee has signed an employment contract with and which party pays the employee's salary. This would mean a change to the current Finnish tax practise, as currently the income taxation is assessed according to the formal employment relationship. The change would expand Finland’s taxation right to assess income tax, targeting the taxation to include also the employees whose formal employer is not resident in Finland, if the work is performed for a Finnish economic employer.
There are two temporary tax credit reliefs currently in force that are applicable in connection to the household deduction. Due to high energy expenses and increased living expenses, one can apply for an electricity deduction if the electricity costs total more than 2,000 euros (EUR) between January 2023 and April 2023. The expanded reduction right is temporary, and the amount of the electricity reduction is 60% for the portion exceeding EUR 2,000; however, the maximum reduction is EUR 2,400 per permanent apartment. One can get a full deduction if the electricity bills for January 2023 thru April 2023 total EUR 6,000. Receiving an electricity deduction does not reduce the amount of other household deductions (e.g. household deductions for renovations or care work). The maximum household deduction for renovations (i.e. basic improvement and renovation work of the apartment) is EUR 2,250. Household deduction is applicable only from the work-related expenses, of which 40% can be tax credited. The household deduction has a threshold share of EUR 100.
In addition, there is a temporary increase in the amount of household deduction if the expenses are related to the change from oil heating to more sustainable energy sources (in force 2022-2027) or if the expenses are related to household, care, and nursing work (in force 2022-2023). One is allowed to a tax credit of EUR 3,500 instead of the regular EUR 2,250. Household deduction is applicable only from the work-related expenses and if the expenses are related to above mentioned, and the tax credit increases to 60% of the work-related expenses specified on a contractor’s invoice instead of the regular 40%. See Household expenses in the Deductions section for more information.
The maximum amount of expenses that can be deducted on the basis of the trips between home and the primary workplace has been increased from EUR 7,000 to EUR 8,400 temporarily in 2022-2023. The threshold share is EUR 730. In addition, the amount of the deduction per kilometre when travelling with one's own car is EUR 0.30 per kilometre and when travelling using a company car (limited company car benefit, where the employee pays at least the fuel) is EUR 0.24 per kilometre when the cheapest means of transport is considered to be other than public transport.
From 2023, home loan interest can no longer be deducted for income taxation purposes. The same applies to the interest on the debt for the first home. The home loan interest deduction has been gradually reduced since 2012. In the 2022 tax year, the mortgage interest deduction was 5%.
As for value-added tax (VAT), Finland has reduced the VAT rate of electricity to the reduced rate of 10% for the period of 1 December 2022 to 30 April 2023. Additionally, for the period of 1 January 2023 to 30 April 2023, Finland has exempted passenger transport from VAT by allowing the application of the zero VAT rate.