Exciting news for foreign key employees and skilled professionals considering a move to Finland! A recent law change, approved by the Parliament, has extended the favourable tax treatment for key employees arriving from abroad to Finland. This change, effective from January 1st, 2024, allows foreign key employees to enjoy the benefits of a reduced tax rate for an extended period of 84 months (7 years), up from the previous limit of 48 months (4 years). In this blog post, we'll delve into the details of this significant legislative change and how it impacts both newcomers and those who have arrived in Finland in recent years.
Favourable tax treatment for foreign key employees:
Foreign key employees arriving in Finland have been eligible for a special tax treatment known as foreign key employee taxation. This tax, a flat rate of 32%, replaces the progressive earned income tax on the employee's salary. The conditions for eligibility include:
the employee becomes a resident taxpayer in Finland,
the monthly salary for duties as a key employee is at least 5 800 euros per month,
the work requires “special expertise”,
the employee is not a Finnish citizen,
the employee has not been a resident taxpayer in Finland for the past five calendar years before starting the work,
the work is mostly performed in Finland during the tax year in question.
Previous duration limit and its drawbacks:
Until the end of 2023, key employees could have applied for the key employee's taxation for a maximum of 48 months (4 years) from the start of their employment in Finland. However, this limitation was identified as a potential deterrent to attracting foreign talent, prompting the need for an extension.
Legislative change:
Prime Minister Orpo's government program recognized the need to enhance the effectiveness of foreign key employee taxation in terms of attracting foreign professionals to Finland. The 2024 budget tax law proposal addresses this concern by extending the maximum duration of the foreign key employee's taxation to 84 months (7 years).
Who benefits from the changes:
The extended duration applies to employees arriving in Finland from 2024 onwards. Additionally, individuals who started working in Finland before 2024, but are still subject to the foreign key employee’s taxation regime at the turn of 2023–2024, can also take advantage of the extended period. Such individuals can apply for a new foreign key employee’s tax card confirming the extended period.
Action steps for foreign key employees:
Newly arrived foreign key employees need to apply for the foreign key employee tax card within 90 days of starting their work as a key employee. For key employees who arrived in Finland during the years 2020–2023 and are still subject to the key employee’s taxation at the end of 2023, the transition to the extended period requires proactive steps as well. They must apply for an extension to their key employee’s tax card in order to continue enjoying the favourable tax treatment. The continuation application should be made within 30 days from the original expiring date.
Last but not least
More complicated situations can arise for instance when the foreign employee works partly in Finland and partly abroad, when the employee has other earned income as well, or when tax treaty provisions limit the taxation rights. In certain cases, the social security aspects may affect the adequacy of the foreign key employee taxation.
Prospective and current key employees should stay informed about these changes and take the necessary steps to optimize their tax benefits within the extended timeframe. We are happy to assist the foreign key employees and their employers with questions related to the foreign key employees’ taxation and in preparing the key employees’ tax card applications and continuation applications.
