Taxation of a Permanent Establishment in Finland

Expanding your business into Finland can open up exciting opportunities in a stable, innovation-driven economy. However, one of the most critical aspects to understand before launching operations is how Finnish tax law treats foreign companies—especially when it comes to the concept of a Permanent Establishment (PE). Whether you're setting up a branch, hiring local staff, or simply operating through a home office, your business activities may trigger tax obligations under Finnish law.

In this article, we explore how Finland defines a permanent establishment, how it affects corporate income tax and VAT, and what foreign companies need to consider to stay compliant. Understanding these rules is essential for avoiding unexpected tax liabilities and ensuring a smooth market entry.

According to the Finnish Income Tax Act, a permanent establishment means a distinct place for conducting business of a permanent nature, or a place where special arrangements have been made. Special arrangements include having business management, branch, office, facilities, workshops or other premises in Finland.

In most cases, one of the most important questions you should know is whether your operations constitute a permanent establishment (PE). The term is familiar in most countries, but permanent establishment is usually interpreted differently between local tax authorities in different countries – despite the source usually being the same OECD Model Tax Convention and Commentary.

A PE has different meanings in income taxation and value-added taxation (VAT). If a company has a permanent establishment in regards of income taxation, Finland has the right to tax all income generated from that permanent establishment. In VAT, a PE affects the rules of where a product or service is sold and what VAT rate is applied.

Remember, that you need to register your company in Finnish Trade Register and Finnish Tax Authority. Read more about Finnish Trade Register Act

Permanent establishment is assessed on a case-by-case basis. Situations vary, but usually personnel, management, offices and other premises or assets may lead to a company having a PE in Finland. Even if employees are working from a home office, a PE may be constituted at the employee’s home office, if they work from there on a permanent basis. Sometimes even just one employee can cause the company to have a PE in Finland.

Companies that have very small business operations and connections to Finland usually want to avoid a PE to avoid extra administration and expenses. A permanent establishment could mean statutory employer obligations in Finland, own separate accounting and higher expenses due to reporting obligations. Also, the discussion of what income should be directed towards the Finnish PE can be a tricky one.

Despite Finland having an attractive 20 % corporate tax, it is usually wise to determine the possible tax liabilities before the tax decision is given to a company. Surprises are rarely happy when it comes to income taxation or VAT as they directly affect the revenue and profitability of expansion. It may also affect taxation in your country of residence. In the most difficult cases, the company can apply for a preliminary ruling on the matter from the Finnish tax administration.

Azets has experience in helping companies expand into Finland and meet all compliance requirements. Our experienced consultants and lawyers can help you every step of the way to ensure statutory requirements.