Taxation of an International Person
Increased mobility of people increasingly leads to situations where a citizen of one country lives permanently in another country and receives income from one or more states. From a tax perspective, the key questions then become which country or countries have the right to tax which types of income, to what extent, and whether the countries are obliged to eliminate double taxation. Without proper understanding, a person may unintentionally fail to report some income or end up paying tax on the same income in multiple countries.
The best way to avoid tax-related challenges when moving abroad or to Finland is careful planning of the move, often including a preliminary consultation with a tax expert. In Finnish taxation, it must be determined whether a person is a resident taxpayer (generally liable) or a non-resident taxpayer (limited liability) in Finland, and whether the tax treaty between Finland and the other country applies. General tax liability means that the person is, as a rule, obligated to report income received both from Finland and abroad and pay tax on it in Finland. Limited tax liability means the person pays tax to Finland only on income earned within Finland.
Relevant factors in determining a person’s tax status may include, for example, the number of days the individual spends in each country, the locations of their residences, the family’s place of residence, and the country where they work. Employers also need to be vigilant in international situations, as the employee’s tax status affects, among other things, whether the employer must withhold withholding tax at source or apply payroll withholding tax.
The provisions on Finland’s general and limited tax liability under the Income Tax Act are often open to interpretation, and related tax practices vary widely. The situation is further complicated by the fact that different countries may have significantly divergent tax practices. Expert tax assistance may be necessary, for example, for companies employing foreign workers.
The author has worked as an expert in international tax matters for several years.
