Text: Anne Nikula. Published in Finland Bridge -magazine 3/2023.
Work-related directives are country-specific. The legislation of the country where the work takes place must be followed because of employees’ legal protection. The telework agreement seeks to clarify the situation so that the employers – and in some cases the employee – may apply for a waiver from the social security administration of their home country and receive an A1 certificate proving that the employee is insured under the social security system of their home country. The A1 certificate is issued for two years.
Good governance and legislation are based on compatible laws and regulations as well on the principle that rules applied to a certain situation should be in line with each other. In other words, when the employee is insured under the social security system of the employer’s home country, other laws of the employer’s home country should also be applied on the work agreement and to working.
The EU agreement on telework does not apply to tax matters. Rules on taxation remain unchanged. Each EU country follows its own national tax laws and bilateral income tax agreements. Tax agreements generally follow a so-called six-month rule according to which a country has a right to tax income if the employee stays there for more than six months. If the employee stays and works overseas for longer than six months, they must report their wage income to their home country.
According to the law on income tax, Finnish citizens are generally considered taxable persons in Finland (meaning that they are liable to report all income earned anywhere in the world) three years after moving from Finland. Their tax liability status can change earlier, too, if they no longer have any essential ties to Finland. This three-year rule applies to the tax laws of other countries, too – the idea is that a temporary stay abroad should not interrupt general tax liability.
The telework agreement applies to employees who work digitally in their country of residence for at least 25% but less than 50% of their total working time. The employee is required to work in the employer’s home country for a minimum of 50% of their working time. It is largely the employee – whose personal income is being taxed – who is responsible for proving that they have lived and worked in their employer’s home country for more than half of their working time.
Tax agreements include special regulations on how the tax liability status is defined: in addition to residence, permanent housing, family relations and living situation base all play a key role when assessing the employee’s tax liability in the country in question. These issues should be taken into account in taxation and possible registration under the tax system of another country.
Since distance work situations vary so much, both employees moving overseas and companies sending employees abroad must find out about taxation in their particular situation.
Decisions on taxation are made by calendar year, retroactively. Surprising tax decisions can be avoided by preparing for the situation in advance and finding out about the employee’s tax status before filing a tax return. Employers and employees may need to sort out salaries paid and taxes withheld in two different countries: the employer’s and employee’s home countries. According to the tax agreements, taxation and how it is divided is agreed between the countries’ tax administrations in case there are issues subject to interpretation.
Who?
Anne Nikula (Master of Laws with court training) has long experience with a wide range of legal and tax issues. She has advised the Finland Society on international issues for many years. In her work, she has concentrated on tax practices and the application of taxation agreements. She has assisted expatriate Finns on legal and tax matters in Finland. She handles more than 90% of her cases remotely.
Read also:
REMOTE WORK AGREEMENT BRINGS FLEXIBILITY – Suomi-Seura
Lawyer’s tips for those working remotely abroad – Suomi-Seura