Tax liability

The general tax liability concerns persons living in Finland in the tax year and domestic corporations. The person is considered to have resided in Finland if he or she has here a permanent dwelling and home, or if he or she continuously stays here for over six months, when temporary absence does not preclude the stay from being considered continuous.

A person who has not lived in Finland in the tax year and a foreign corporation is liable to pay tax only on income received from Finland (limited tax liability). State and municipal taxes on persons with limited tax liability are taxed according to the so-called withholding tax legislation. Withholding tax concerns wages and salaries and pension income, interest, shares and royalties received from Finland. Instead, tax is imposed on other income of a person with limited tax liability according to the taxation legislation.

Municipal tax is paid on earned income to the municipality of residence. The municipality of residence is that where the taxpayer was registered at the start of the tax year.

The result of the business activity of a self-employed person is determined according to the act on taxation of business income. Taxable income in business activity is in principle all income received as money or monetary benefit. Deductible expenses are expenses and losses caused by the acquisition or maintenance of income in business activity.

Taxable income of a self-employed person in agriculture is determined on the basis of the act on taxation of agriculture. Agricultural income refers to the sum of pure income from agriculture. Pure income from agriculture is derived when expenses caused by the acquisition or maintenance of income are deducted from pure income obtained as money or monetary benefit during the tax year.

In connection with the tax reform in 1993, taxation on income derived from forestry was amended to be based on actual income and expenditure. Proceeds from forestry sales are taxed as capital tax, except for the value of acquisition work. However, acreage-based forest taxation that was previously applied to all forest owners remained as a parallel system during the transition period from 1993 to 2005 until its final abandonment in 2006.