10 August 2021
Finland's Ministry of Finance is consulting on amendments to the Income Tax Law and certain other laws for the introduction of the economic employer concept with effect from 1 January 2022. Currently, Finland applies the formal employer concept, which means that the employer is considered to be the company that is legally responsible for the employee and that pays the employee's salary. Under the economic employer concept, the employer is considered to be the company for which work is actually performed. This distinction is important in relation to taxing rights on the salary of employees that are employed by a foreign employer (the formal employer) and sent to perform work in Finland for another person (the economic employer). The economic employer relationship would be deemed to exist when certain conditions are met, including that the work is an integral part of the business activities of the economic employer and the economic employer supervises, directs, or controls the manner in which such work is performed. Where the economic employer is deemed to exist, an employee's salary would be subject to tax in Finland even where the typical 183-day threshold under a tax treaty is not met.
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