Permanent establishment in Finland (Püsiv tegevuskoht tulumaksustamisel ja käibemaksustamisel)


When you do business in Finland, the issue of permanent establishment for taxation purposes may rise from the operations performed in Finland. Permanent establishment refers to a fixed place of business through which the company conducts some or all of its operations. In order to be considered a permanent establishment, the place of business must be fixed both geographically and in terms of time. The existence of permanent establishment taxation income means that foreign company must pay income tax within the Finnish tax system on its operations and permanent establishment for VAT purposes basically rules out ordinary reverse charge mechanism. Point of this text is merely summarize the published opinion of Finnish Tax administration.


Permanent establishment in Finland (corporate taxation)

The definition of permanent establishment in practise follows the definitions concluded in tax treaties. According to the guidance of Finnish Tax administration the types of the permanent establishment for purposes of income taxation are:

  • management offices
  • branches
  • local offices
  • factories, production plants
  • workshops
  • mines, quarries, oil wells, natural gas wells, other sites for extraction of natural resources
  • operations in the construction and installation sectors lasting longer than 6, 9 or 12 months (the time limits are different in each bilateral tax treaty)
  • locations where a ’dependent agent’ works.

Though it is noted that, to be held as a permanent establishment, the place of business must be fixed, not temporary or short-lived in terms of its geographical location and duration. It may be located in the premises of another company, e.g. if there is a certain space or part of a space to be used on a regular basis. If an employee works from home, the situation may give rise to a permanent establishment.

Usually preparatory and auxiliary activities do not give rise to a permanent establishment. Examples of such activities:

  • advertising
  • data collection
  • opening an information service
  • scientific research.

Independent representative is not treated as having a permanent establishment.

In construction sites, the duration of the must be 6, 12 or 18 months, depending on the provisions of the bilateral tax treaty to be applied. If a company has several projects in Finland, each one of them should be treated separately from the perspective of the time limit. However, if the projects are strongly connected and amount to a single commercial and geographic whole, their durations may be summed up. Similarly, if a certain project is artificially divided up into several parts, the projects will be considered as a single unit.


If there is a permanent establishment there lies more responsibilities! For example, companies that are treated as having a permanent establishment in Finland must seek for entry in the Register of Employers, if necessary, and must file a Finnish income tax return.


Permanent establishment in Finland for VAT purposes

The place of business must be permanent, in other words, it should have a definite geographical location. However, it is not required that fixed places of business in the form of a plant unit, set of equipment, or production facility are literally ’fixed’ and attached to the ground. For example, enterprises that sell transportation services in Finland with a regular schedule and route are deemed to have a permanent establishment. Finland has also some rules in its domestic laws that are not so familiar to people from other jurisdictions.

Examples of permanent establishments for VAT purposes include:

  • offices where company management is located
  • branches
  • local offices
  • production facilities
  • workshops
  • retail outlets and locations for buying or selling
  • mines, quarries, peat extraction sites and other similar sites for the use of natural resources
  • warehouses, inventories or stocks.

Contract duration IS DECISIVE in construction and installation industries under circumstances that normally involve such a scheme. Construction, building and installation projects constitute a permanent establishment if they last longer than nine months, either in the form of a single project or as several successive projects. The permanent establishment is deemed to exist from the moment the operations started


Example case (construction business in Finland)

Company A Ehitus Oü from Estonia is subcontractor for construction companies B Rakennus Oy and C Urakointi Oy in Finland. The first contract is from 1.1.2017 to 30.4.2017 with B Rakennus Oy in Finnish west coast and the second contract is from 2.5.2017 to 31.10 in Northern Finland.

For VAT purposes, both of the Finnish companies are obliged to apply reverse charge mechanism for construction services.

For corporate income taxation purposes this shouldn’t be deemed as permanent establishment as the is not sufficient link with these two projects and tax treaty between Estonia and Finland requires 6-month time in order to be seen as permanent establishment. Even though, the activities do not give rise to a permanent establishment in Finland, the company is still required to give an account of its Finnish business operations. The account must also be filed within four months of the end of the last month of the accounting period.

However, in VAT the Tax administration follows the nine-month rule, and if A Ehitus Oü hasn’t noticed this on time, the company is entered into the VAT register. And the VAT liability starts not from the beginning of October but from the beginning of January.

This example shows that the company needs to be aware of application of VAT rules in Finland preferably from day one of its operations but not later than Finnish Tax administration posts the first letters to the company. As in our example, A Ehitus Oü sold a service within scope of reverse charge mechanism for construction services. This fact however won’t stand in the way of subjecting non-complaint tax payer taxation by assessment (estimated revenue is due for VAT payment) and punitive (25 %) tax increases from taxes that should have not been charged in the first place.


Better to be safe than sorry

This text was brief representation of permanent establishments in Finnish taxation. One should not use this text as a guidance for its taxation decisions. Employer obligations in Finnish business are basically ruled out in this writing. The Finnish Tax administration provides wide information on doing business in Finland:

Also in the language of our example (Püsiv tegevuskoht tulumaksustamisel ja käibemaksustamisel):

By following these guidelines, your company would be safe from unwanted surprises. However if you need assistance in any taxation issues regarding doing business in Finland, Fenix will, most willingly, help in any question. Even if it’s too late to be safe, we can make you less sorry. Do not hesitate to contact!, +358 20 780 9210