Taxation in FinlandOverview

2015

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Society needs taxes

• For financing public services• e.g. health services, schools, daycare, road infrastructure

• For changing people's behaviour• taxation can be a tool of economic policy• e.g. differential taxes on products that are more friendly for

the environment, tax relief given in order to support business in a less favoured geographical region

• For reducing the inequality of income• e.g. progression, childcare allowance, pensions

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Tax rules are part of the law

• Laws are prepared by the Ministry of Finance and adopted by the Parliament

• Some tax rules are agreed on the European level so that they concern Finlandas a member country of the EU

• Local districts and local parishes of churches decide on their tax percentage rates themselves

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The State and local districts receive the money

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Direct and indirect taxes

• It is the taxpayer's obligation to pay the first type, Direct taxes:• Example: Everyone pays income tax on his wages

• But someone else may be the actual payer of the second type, Indirect taxes:• Example: Value-Added Tax or VAT is added to the

price of a product by the seller. However, the final result is that the consumer not the seller is the actual payer of VAT

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Tax rates can be proportional,or they can be progressive

• Taxes are proportional (flat), if the % rateis exactly the same for all taxpayers• Examples: Capital Tax, Municipal Tax

• Taxes are progressive, if the % raterises when the taxpayer's income rises • Example: Tax on Earned Income

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Income is subject to tax

• Individuals must pay tax on their income• Your tax on earned income (wages, salaries) goes to:

• To the State of Finland• To the district where you live• To the parish of your Church if you pay Church Tax • To Kela as a healthcare contribution

• Capital income (example: dividends you receive)• The taxes on capital income go to the State

• Not only individuals but also businessesmust pay income tax.• To the State, local districts, churches

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Income taxation

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Income taxation 1/3

• Tax assessment is not complete untilthe tax year is over

• However, you pay money in advance during the year. This reflects your future tax liability• This is the process of collecting tax in advance• In this way, each time you get paid you pay us some

money in advance (as tax withheld). Your withholding % is printed on the card that you give to your employer• We send you this document called the tax card

-verokortti. Your previous income history is included in the calculation. You have the right to make changes

• Businesses must also pay tax in advance

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Income taxation 2/3

• After the year is over we will knowhow much income you had

• We send Pre-Completed Tax Return forms to everyone. They show our database informationon the income that has been earned and paid• You have the right to send us corrections• You have the right to demand tax deductions

• Some deductions are automatic, others you must ask for

• Examples of costs that can give you deductions: home-loan interest, major home repair costs

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Income taxation 3/3

• Autumn is the time when tax assessment is finished Then we will know if the right amount was paid• If too much was withheld by your payors,

we will pay the difference back to you.• But if your payors withheld too little, you end up paying back tax.

This is called jäännösvero

• We send you the assessment decision by post• If you do not agree with your assessment decision,

you have the right to appeal against it

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Taxes on consumption

• Almost all sellers of goods and services pay VAT • This tax is included in the price of consumer goods

As a result, it is the consumers who pay it

• Excise taxes are added to the production costsof alcohol and tobacco and some other goods• This tax is also included in the price of the goods.

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Other taxes

• Inheritance tax• Depends on the donor's family relation and the value of Estate

• Gift tax• Depends on the donor's family relation and the value of the gift

• Real estate tax• Depends on the value of the building and the land where it is located. Is

paid to the district where located

• Transfer tax• Must be paid by buyers of real estate (or shares)

• Tax at Source• Must be paid on deposits in banks

• Public Broadcasting Tax• Is used for the financing of YLE. Must be paid by all

grownup citizens and all corporate taxpayers