Classification of Sectors 2023

The Classification of Sectors is a basic classification applied to economic and social statistics for the classification of the activities, financing modes, owner types and legal forms of decision-making units into equivalent categories. The sectors (non-financial corporations, general government, households, etc.) formed with the help of the classification are sufficiently similar in their economic behaviour for national economic monitoring and analysis. In the Classification of Sectors, the units are divided into different sectors on the basis of owners, purpose of activity and financing mode, while in the Standard Industrial Classification, the units are grouped under one main industry irrespective of the owner or the purpose of activity. For example, units producing educational services, which are classified into one main industry in the Industrial Classification, are divided in the Classification of Sectors by owner, legal form and nature of activity into non-financial corporations, general government and non-profit institutions serving households. On the other hand, a unit belonging to one sector may be engaged in economic activities in several industries, for example, a municipality has units belonging to the economic activities of public administration, education and health and social services. The sector level is needed as the main summation level between the economic units and the whole national economy when describing output, income formation, secondary distribution of income, accumulation, and the structure and development of financing. The monitoring of the Growth and Stability Pact of the European Economic and Monetary Union (general government deficit and debt) requires close application of the Classification of Sectors when defining general government.

MAIN DIVISION OF THE CLASSIFICATION OF SECTORS 1. ECONOMIC TERRITORY OF FINLAND The economic territory of Finland, or the national economy is formed of those units that have a centre of economic interest in that territory. The centre of economic interest is a production or residential location situated in the economic territory of the country, where the unit carries out economic activities generally for a year or more. The economic territory of Finland does not necessarily follow national boundaries and the units belonging to it are not required to have legal independence or the nationality of the country. If the unit is engaged in economic activities in the economic territory of several countries, it has a centre of economic interest in each of these territories. Finnish institutional units are legal units and households situated in the economic territory of Finland. The economic territory of Finland comprises: • Finland’s geographic area and free zones (e.g. bonded warehouses); • Finland’s national airspace and territorial waters, vessels, aircraft and other mobile equipment, when the operator is domiciled in Finland; • Finland’s territorial enclaves situated in the rest of the world (embassies, consulates, scientific bases, etc.). The units operating in the economic territory of Finland can be divided by their features into three main groups: 1. Units engaged in production • Only legal units operating in the economic territory of Finland. • Of units operating in the territories of several countries the part that has a centre of economic interest in the territory of Finland: • A Finnish legal unit without economic activity abroad for a year or more (e.g. a branch of a Finnish) • A notional Finnish unit in respect of such economic activity that a foreign legal unit conducts in Finland for a year or more (e.g. a branch of a foreign enterprise in Finland). 2. Units principally engaged in consumption in their transactions Households resident in Finland. The residence of a person is determined according to the residence of his/her household. Finnish households include, for example: • Finnish border and seasonal workers working abroad for less than a year; • Finnish officials, business people, artists and tourists living or working abroad for less than a year; • Crew members of Finnish mobile fleet (vessels, aircraft, etc.); • Finns studying abroad regardless of the length of studies; • Locally recruited staff working in foreign embassies, consulates, etc. situated in Finland; • The entire staff of supranational organisations (EU institutions) and international organisations located in Finland; • Finnish official, civilian and military representatives and their households established in Finnish extraterritorial enclaves. Households are also Finnish economic units during their activities abroad of less than one year. When a member of a household moves abroad permanently, he or she becomes a household or a member of a household of the country of residence after living there for a year or more. This one-year criterion is not applied to Finns studying abroad, but they belong to Finnish households regardless of the length of their studies. 3. All units in their capacity as owners of land or buildings The units owning land or buildings in Finland are Finnish economic units in respect of their ownership, with the exception of land or buildings owned by extraterritorial enclaves, supranational or international organisations situated in Finland. 2. REST OF THE WORLD The rest of the world comprises the economic territory of countries outside Finland, supranational and international organisations. Foreign extraterritorial enclaves in Finland are embassies and consulates of foreign countries and units of the European Union and international organisations including the land area and buildings owned by them. The households of the foreign economic territory include such as: • Foreign border and seasonal workers working for less than a year in Finland; • Foreign officials, business people, artists and tourists living and working in Finland for less than a year; • Crew members of foreign mobile fleet (vessels, aircraft, etc.); • Foreign students regardless of the length of studies; • Foreign official civilian and military representatives and their households established in extraterritorial enclaves (embassies, consulates) situated in Finland. General definition of institutional units: The institutional unit is an elementary economic decision-making centre, which has decision-making autonomy in the exercise of its principal function and which keeps a complete set of accounts (or it would be possible and meaningful to compile a complete set of accounts if they were required (ESA 2.12)), However, these conditions are not required to be fulfilled simultaneously in all cases. An institutional unit has autonomy of decision in respect of its principal function, a unit is: • Entitled to own goods or assets and exchange the ownership in economic transactions with other units; • Able to take economic decisions and engage in economic activities for which it is responsible and accountable at law; • Able to incur liabilities on its own behalf, to take on other obligations or further commitments and to enter into contracts. MAIN TYPES OF INSTITUTIONAL UNITS The units can be grouped into four main categories on the basis of the scope of the accounts and of autonomy of decision: 1) Units that have a complete set of accounts and autonomy of decision: • Private and public corporations; • Cooperatives or partnerships which are independent legal entities; • Public producers which by virtue of special legislation are independent legal entities; • Non-profit institutions which are independent legal entities; • Agencies of general government. 2) Units which have a complete set of accounts and which are deemed to have autonomy of decision: • Quasi-corporations (no independent legal status, activity similar to that of corporations and distinct from that of their owners). 3) Units which do not necessarily keep a complete set of accounts, but which are deemed to have autonomy of decision: • Households 4) Notional resident units are always institutional units regardless of the scope of the accounts and of autonomy of decision: • Non-independent parts of foreign units operating in the economic territory of the country: • Which are engaged in economic transactions for a year or more; • Foreign units in their capacity as owners of land or buildings. DEFINITION OF PRODUCER TYPE The key to the application of the Classification of Sectors is to decide the type of producer. A specific decision chain is used for determining first the correct type of producer and then the main sector category for the private and public institutional units to be classified. Producer units are classified into three types of producers: 1. Market producer • The output is sold or meant to be sold on the market at an economically significant price, sales proceeds cover at least 50 per cent of the production costs. 2. Producer for own final use • Concerns the production of goods or housing services for own final use. 3. Non-market producer • The output is for the main part provided free of charge or at economically insignificant prices, sales proceeds cover under 50 per cent of the production costs. In practice, the application of the 50 per cent rule must be based on a period of several years. DETERMINATION OF SECTOR CATEGORY The Classification of Sectors is basically broken down into resident and non-resident sectors. The classification is applied according to the ESA for classifying resident institutional units into sectors. The key factors in the determination of the sector category are ownership, legal form, purpose of activity and financing mode. Non-financial corporations and financial corporations are market producers that are divided into different sectors because of their different principal activities. General government is a non-market producer, whose function is to produce and provide non-market services for the private consumption of households and for the collective consumption of general government. General government also has a central function in redistributing income and wealth. In addition to public administration, general government includes such non-profit institutions that are controlled and financed by public administration. Households have a role of two kinds in the national economy: only part of households are market producers or producers for own final use (e.g. the production of agricultural products or construction for households’ own final use), whereas all households are consumers. Non-profit institutions serving households are recognised as a separate sector, when the institutions serve consumer households, while organisations serving households' business activities are included in the non-financial corporations sector.

The Classification of Sectors 2023 replaces the Classification of Sectors 2012 standard. The change concerns the General government sector, where wellbeing services counties are classified into the sub-sector of Local government. In the Classification of Sectors 2023 a new structure has been formed for the Local government sector based on national classification needs. The introduction of intermediate levels is a new feature. This is to enable the breakdown of wellbeing services counties and municipalities. In the new Classification of Sectors, local government has been revised into six-digit level categories. The content of the other sector categories has not changed in the review.

The Classification of Sectors 2023 is based on the revised European System of Accounts of the European Union (ESA 2010: The Commission proposal for a Regulation of the European Parliament and of the Council on the European system of national and regional accounts in the European Union on 20 December 2010), which is uniform with the global reform of the System of National Accounts (SNA 2008: United Nations, European Commission, OECD, IMF, World Bank: System of National Accounts 2008). The Classification of Sectors is a basic classification of the European System of Accounts ESA 2010. The uniform accounting system and details of its introduction have been decreed by an EU regulation that binds all Member States (Regulation of the European Parliament and of the Council on the European system of national and regional accounts in the European Union). According to the ESA, it is known, in short, as the Classification of Sectors. This national application is compiled as uniformly as possible with the basic ESA structure and codes. Additional classifications required by national information needs and special economic features as well as the euro area are adjusted to this basic hierarchy.