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.

In general, a permanent establishment means a fixed place of business, through which the business of an enterprise is wholly or partly carried out. A company may create a permanent establishment in Finland if it operates through any of these types of fixed locations:

As you begin expanding into Finland, in most cases, one of the most important questions is often whether your operations constitute a permanent establishment (PE). The term is familiar in most countries, but a permanent establishment may be 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 regard to income taxation, Finland has the right to tax all income generated from that permanent establishment. For VAT purposes, a PE (often referred to as a "fixed establishment" in VAT contexts) generally affects, for instance, the rules determining which party is obliged to declare and pay value added tax in the country where goods or services are sold.

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, if they work from there on a permanent basis. Usually even just one employee can cause the company to have a PE in Finland, unless the activities are of an auxiliary and preparatory nature.

Having a permanent establishment brings certain obligations in Finland, including statutory employer requirements and separate accounting records. However, the associated costs are often moderate, especially for smaller-scale operations when compared to establishing a subsidiary company. For companies from EU/EEA countries, separate bookkeeping isn't required, and local profit and loss statements and balance sheets are primarily prepared for tax purposes. Income attribution to the Finnish PE typically follows straightforwardly transfer pricing principles, though some situations may require more detailed analysis.

Foreign companies should carefully assess their total tax exposure, as they may face taxation in both Finland and their home country. It is usually wise to determine the possible tax liabilities before any tax decisions affect the company. Tax surprises are rarely welcome when it comes to income taxation or VAT, as they directly impact the revenue and profitability of business expansion. PE taxation directly impacts the foreign company's taxable position in its country of domicile, making proper compliance in Finland essential - the right tax, in the right amount, at the right time, and in the right place. In complex cases, companies can apply for a preliminary ruling from the Finnish tax administration to gain certainty on their tax treatment.

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.