How does the Finnish tax system work?

The Finnish tax system is present in your everyday life in many ways.

All employees must have a tax card. Your tax card tells you how much tax you have to pay from your income. Your employer withholds the taxes from your pay and forwards them to the Finnish Tax Administration. Earnings-related pension and unemployment insurance contributions are also collected from your pay. These are used to secure current and future pension payments in Finland.

When you buy goods or services, you must also pay value added tax. The value added tax is a consumption tax that is included in the prices of products in supermarkets, for example. The prices of tobacco and alcohol also include special taxes.

You also pay taxes if you buy a car or an apartment. If you buy a car, you must pay a car tax whose amount is based on the car’s properties and emissions. For cars registered in Finland, an annual vehicle tax must also be paid. If you buy an apartment, you must pay a transfer tax whose amount is based on the purchase price of the apartment.

Taxes are used to fund the services provided by Finnish society. Public health care, education and social security are all funded through taxes, for example.

Who makes the decisions on taxation?

The Finnish Parliament makes the decisions on tax laws. The Finnish Parliament can issue a decision to introduce a new tax, to decrease or increase the amount of a tax, or to change tax deductions, for example. The European Union also has an effect on tax laws, as the Finnish Parliament must implement its Regulations and Directives.

All Finnish citizens over 18 are entitled to vote in Finnish parliamentary elections. The parliamentary parties chosen in the elections form the Finnish Government. The Government negotiates on the Government Programme that it will implement during its term. The Government Programme introduces the objectives of the Government. The objectives can also result in changes to tax laws.

Politicians decide how the money from taxes is used nationally.

Money from taxes is given to the state and to municipalities, for example. The money that is given to the state is further distributed according to what has been decided in the budget, or the Government’s assessment of the state’s income and expenses. The state gives the money to ministries, which then divide it again to those agencies and other organisations operating under them. For example, Metsähallitus receives funding from the Ministry of Agriculture and Forestry that it uses for its operations and for national parks, among other uses. Finland’s payments to the EU, the wellbeing services counties and the Finnish Tax Administration are funded by the Ministry of Finance, and the Police of Finland by the Ministry of the Interior.

Yleisradio is funded with the public broadcasting tax that everyone over 18 and certain other parties must pay. The Finnish Tax Administration forwards the collected public broadcasting tax directly to Yleisradio.

Municipalities and cities make the decisions on municipal income tax.

More specifically, the amount and purposes of the municipal income tax are decided by municipal and city councils. The councils are elected every four years. The Finnish Tax Administration forwards the municipal income tax and real estate tax that it collects from the residents of a municipality to their municipality. In addition, the Finnish Tax Administration forwards some of the real estate taxes and corporate income taxes paid by companies and organisations operating in the municipality to the municipality.

The Finnish Tax Administration is responsible for carrying out taxation.

We collect the tax revenue that is used to fund Finnish society and its services. We interpret the valid tax laws and operate accordingly. Every month, we forward the collected taxes to different societal entities called ‘tax recipients’.

The Finnish Tax Administration keeps up with and supports decision making.

We at the Finnish Tax Administration keep up with decision making and support the Finnish Parliament in legislative drafting with the aim of ensuring that interpreting and following new tax laws is as easy as possible for the Finnish Tax Administration and all taxpayers. Already at the drafting stage of new laws, we consider how the changes would affect our customers.

Our customers are a diverse group.

All private individuals are our customers, and they are often called ‘taxpayers’ in public debate. Often, the first time the Finnish Tax Administration affects the life of a young person is when they get their first summer job. Requesting your first tax card and receiving your first ever pay are memorable moments.

Companies and organisations are also a large and important customer group.

Different kinds of companies and organisations pay different kinds of taxes, such as corporate income tax, value added tax, transfer tax, excise duty or real estate tax. The amount of a company’s revenue, its company form and its line of business affect the taxes it must pay. We help and guide companies in different stages of their activities and with handling the different kinds of taxes.

Fair competition is good for everyone.

If a company is part of the ‘shadow economy’, it means that the company neglects to pay its taxes or other payments or responsibilities required by law, like filing tax returns. When some taxpayers do not pay their taxes and payments, the total amount of Finland’s tax revenue is smaller and the shadow economy company has an unfair advantage in competition. This harms both society and individual people.

We combat the shadow economy in many ways.

To combat the shadow economy, we share information on the signs of and damage done by the shadow economy. We also carry out tax audits and collaborate closely with other authorities. The purpose of this supervision is to ensure that everyone pays their taxes and that the competition is fair for all companies and all companies have equal opportunities to conduct business.

We collect church tax.

We also collect church tax from the members of the Evangelical Lutheran Church of Finland and the Finnish Orthodox Church. The churches pay for the expenses that we incur from collecting the taxes. Parishes decide the amount of the tax collected.