Starting a business in Finland

[filecore]

The Vero people aren't troglodytes - they do give you the straight dope - if you ask - but you need to know *what* to ask as Finns and bureaucrats are notorious of answering what you ask and not telling you what you need to know.

This is certainly true. The Kela people, on the other hand, tend to just vomit forth whatever comes to mind, regardless of its basis in actual fact. I could tell you wonderful stories, such as the time when they sent me to the (at the time) newly-integrated Immigration Office in Malmi for a non-existent form which the police civilian worker told me hadn't been given out for years. Cue a trip back to the same Kela, where the woman I had spoken to had long since gone home, and her replacement told me that "Oh, you're right, you don't need that form - I have no idea why you were told to get it." Yeah, thanks for wasting a whole working day, one hour of travel time, and three hours in the queue at Malmi for absolutely no reason whatsoever. Not that I'm bitter or anything, but this example is hardly an isolated incident.

The Vero people, on the other hand, have at least always seemed like they have a vague clue about their jobs... even if the ones in Porvoo have never heard of the English language, so I'm constantly having to scrape through on my Finnish, and for some reason the courses I've been to have never covered the grammar and vocabulary of corporate taxation.

[cfb]

Quick q re: starttiraha.

What is a usual length of time between application and decision?

Kiitos.

[Cipo]

Hi all,

I have been reading tons of info from this valuable forum and from many official finnish pages
However I have a few doubts I will try to collect here and see if someone can give some help. I am planning to open a TM which will be a combination of small businesses: import/export, IT consulting, PC programming, web service etc. I prefer this way vs an OY for a few reasons that I would like you to comment:

- til my total income (I don't have any other income) with this TM will be below ca. 30000EUR/year I will pay less tax. The personal tax rate til about 30K should lower then the OY falt rate of 26 (or 27%).
- accounting is easier and I can do it without an accountant
- I get a VAT number, which I would need.
- Later (if and) when the income will rise above the 30k I could chnage the TM in OY.

Now some questions:

- I still don't understand which kind of social tax/payments I should pay with the TM (e..g KELA) etc. What is compulsory and what is suggested ? What are the minimum needed payments ? I don't count on any future pension

- If I import on object (e.g. a PC part) from outside EU I should pay: the import tax + the VAT. When I will resell the item inside the EU I should be able to charge the VAT to the end customer and therefore covering the VAT I did paid in advance while importing. Is this correct ? E.g. I import one item for 100EUR and pay 22% VAT. I sell it for 110+VAT. I make a profit of 10EUR (on which I will pay the TM tax). But the VAT balance will be 22% (110-100) = 2.2EUR which is negative for me (I should pay it to the tax office). Is this correct ?

- If I buy from within the EU or domestically (from Finland) I will pay always the goods without VAT. When I will resell the goods within the EU I will then charge the VAT which I will need to pay to the tax office. If I will resell the goods and ship it outside the EU ? I guess I should not charge the VAT. Is this correct ?

- If I buy one item from China (outside EU), as said above I should pay the VAT while importing it. But if I will resell it outside the EU (e.g. shpping it to USA) I will not charge the VAT. IN this situation how do I get back by VAT I paid while importing ? I know I can import some goods without VAT providing they have to be exported again. But what if I dont know if the goods will stay here or move abroad ?

- I plan to use part of my private apartment as office. How can I charge the TM for its usage ? Can I use proprtions ? E.g. can I put as expenses the 30% of the rent if I use 30% of the rooms space ? How about electricity bills? Can I put as expenses all electricity which goes above the average usage as private person ?

- Having a TM/VAT is it possible to get some better shipping prices from Finnish Posti ? Any experience with it ?

Thank you all in advance for any feedback
THX
Cheers
CIPO

[Rosamunda]

Hi all,

I have been reading tons of info from this valuable forum and from many official finnish pages
However I have a few doubts I will try to collect here and see if someone can give some help. I am planning to open a TM which will be a combination of small businesses: import/export, IT consulting, PC programming, web service etc. I prefer this way vs an OY for a few reasons that I would like you to comment:

- til my total income (I don't have any other income) with this TM will be below ca. 30000EUR/year I will pay less tax. The personal tax rate til about 30K should lower then the OY falt rate of 26 (or 27%).

With an Oy you can pay yourself a salary which would be taxed at the same rate as if you were a toiminimi (or salaried in any other company). You don't have to make a profit. The choice is yours. I usually pay myself a small salary so I can deduct household improvements from my personal income. So, with a TMI the totality of your net income is taxed. With an Oy it's your choice how much you pay yourself as a salary and how much you show as profit.

- accounting is easier and I can do it without an accountant

To be honest there is not much difference now there is the new Tax Account system. Personally I think the pre.paid income tax for TMIs can be a bit tricky to manage. You can end up paying last years tax adjustment and the current year's pre-paid almost concurrently if you're not careful.

- I get a VAT number, which I would need.

No difference between a TMI and an Oy. Either can register for VAT.

- Later (if and) when the income will rise above the 30k I could chnage the TM in OY.

True

Now some questions:

- I still don't understand which kind of social tax/payments I should pay with the TM (e..g KELA) etc. What is compulsory and what is suggested ? What are the minimum needed payments ? I don't count on any future pension

YEL which is 20.8% of your income. You get 25% discount for the first 4 years.
TyEL (pension) is mandatory - call your insurance company for more info (eg Tapiola, Pohjola)

- If I import on object (e.g. a PC part) from outside EU I should pay: the import tax + the VAT. When I will resell the item inside the EU I should be able to charge the VAT to the end customer and therefore covering the VAT I did paid in advance while importing. Is this correct ? E.g. I import one item for 100EUR and pay 22% VAT. I sell it for 110+VAT. I make a profit of 10EUR (on which I will pay the TM tax). But the VAT balance will be 22% (110-100) = 2.2EUR which is negative for me (I should pay it to the tax office). Is this correct ?

The logic sounds OK to me. (TM tax is just income tax, but you can deduct your other business expenses (overheads) from this before it is taxed)

- If I buy from within the EU or domestically (from Finland) I will pay always the goods without VAT. When I will resell the goods within the EU I will then charge the VAT which I will need to pay to the tax office. If I will resell the goods and ship it outside the EU ? I guess I should not charge the VAT. Is this correct ?

Wrong. If you buy goods within Finland you always pay VAT.
For cross-border business inside the EU it depends on the volume of trade with each country. Some suppliers (eg in the UK) might charge you VAT and others won't. My understanding is that you probably won't have to charge VAT (if your volumes are small). However, when you do your monthly VAT returns you still have to show it all - which is odd but a requirement.

- If I buy one item from China (outside EU), as said above I should pay the VAT while importing it. But if I will resell it outside the EU (e.g. shpping it to USA) I will not charge the VAT. IN this situation how do I get back by VAT I paid while importing ? I know I can import some goods without VAT providing they have to be exported again. But what if I dont know if the goods will stay here or move abroad ?

Not sure. But at a guess you always have to pay the VAT up front. With the new tax account system VAT is netted off each month. So it's just a cash flow issue. Ask Vero or Tulli.

- I plan to use part of my private apartment as office. How can I charge the TM for its usage ? Can I use proprtions ? E.g. can I put as expenses the 30% of the rent if I use 30% of the rooms space ? How about electricity bills? Can I put as expenses all electricity which goes above the average usage as private person ?

It is possible to deduct home office expenses, but they never got round to explaining this when I went on the course. Maybe someone else knows.

- Having a TM/VAT is it possible to get some better shipping prices from Finnish Posti ? Any experience with it ?

Finnish Posti is a private company called Itella. If you want better prices try Fedex, UPS etc. Free market. Unless your volumes are massive I think it unlikely you would get any special deals.

Disclaimer: I am not a tax expert or an accountant. Always check with Vero. http://www.intofinland.fi might be able to help you, or go on one of the courses offered in English (in almost every big city). Or, borrow this book from the library: Establishing and Doing BUsiness in Finland. Tuulikki Holopainen. ISBN 9789513749910 (there might be a more recent edition now, ask the librarian)

HTH.

[Cipo]

With an Oy you can pay yourself a salary which would be taxed at the same rate as if you were a toiminimi (or salaried in any other company). You don't have to make a profit. The choice is yours. I usually pay myself a small salary so I can deduct household improvements from my personal income. So, with a TMI the totality of your net income is taxed. With an Oy it's your choice how much you pay yourself as a salary and how much you show as profit.

As I understand with an OY you can pay yourself a salary and pay the personal income tax on that part while the rest of the profit which will stay in the OY will be charged with the corporate tax (26%-28% ?) anyway.
While with the TM all your income will be taxed as personal income thus with a lower % (compared to the 28%) if your annual income is lower then e.g. 25-30k (din't check exact value). As I said before this is the main reason why it is more convenient to start with a TM if the total income is low.

To be honest there is not much difference now there is the new Tax Account system. Personally I think the pre.paid income tax for TMIs can be a bit tricky to manage. You can end up paying last years tax adjustment and the current year's pre-paid almost concurrently if you're not careful.

But with a TM you can use a single-entry accounting versus the double-entry which is compulsory for a OY. Is this true ?

YEL which is 20.8% of your income. You get 25% discount for the first 4 years.
TyEL (pension) is mandatory - call your insurance company for more info (eg Tapiola, Pohjola)

According to this link: http://www.yrityssuomi.fi/default.aspx?contentid=11231
the YEL is now higher at 21.2% !!!

To recap, let's say the TM makes 10K total sales. From that you deduct all expenses and you have let's say 4k profit. On that profit you pay 21.2% as YEL and on the rest you pay your personal income tax ? Is this correct ?
What about other municipalities and church tax (whould I pay the latter if I don't belonbg to any church) ?

Thx for all help

[filecore]

To recap, let's say the TM makes 10K total sales. From that you deduct all expenses and you have let's say 4k profit. On that profit you pay 21.2% as YEL and on the rest you pay your personal income tax ? Is this correct ?

Not quite. YEL is statuatory, which means you have no choice but to pay it, but it's a percentage of a voluntarily-declared amount. You must pay a minimum (from memory, I think it's 21.8% of 6,500 euros income). However, if your salary exceeds this, you can still declare any amount above the minimum, including an amount higher than your actual income - so the 21.8% is only relative to whatever you tell the insurance company, and not an absolute amount of your actual income. Following?

Here's an example:

If I earn 6,500 euros annually, I have to pay 21.8% of my earnings to YEL.
If I earn 10,000 euros annually, and I declare my earnings to the insurance company as such, I have to pay 21.8% of 10,000.
If I earn 10,000 euros annually, and I declare my earnings to the insurance company as 6,500, I have to pay 21.8% of 6,500.
If I earn 20,000 euros annually, and I declare my earnings to the insurance company as 6,500, I have to pay 21.8% of 6,500.
If I earn 20,000 euros annually, and I declare my earnings to the insurance company as 14,000, I have to pay 21.8% of 14,000.
If I earn 20,000 euros annually, and I declare my earnings to the insurance company as 30,000, I have to pay 21.8% of 30,000.

Quite straightforward once you understand that YEL is a 'voluntary' compulsory tax. There is only a minimum level set, anything beyond that is the entrepreneur's choice. There are arguments both for and against YEL vs. private pension insurance; obviously, since higher payments mean a higher return after you retire, many people choose to pay the absolute minimum YEL and then invest in a private account. However, since YEL is a statuatory payment, it counts as a business expense and is therefore deductible. It is subtracted from your total income, so the more YEL you pay, the lower income tax (enakkovero) you pay. At the end of the day, there's no easy answer, and it all depends on your own particular situation.

[Cipo]

Not quite. YEL is statuatory, which means you have no choice but to pay it, but it's a percentage of a voluntarily-declared amount. You must pay a minimum (from memory, I think it's 21.8% of 6,500 euros income). However, if your salary exceeds this, you can still declare any amount above the minimum, including an amount higher than your actual income - so the 21.8% is only relative to whatever you tell the insurance company, and not an absolute amount of your actual income. Following?

The mechanism is fully clear however ..... what you wrote about YEL appears to me more related to the SYT (Suomen Yrittäjäin Työttömyyskassa).
YEL is affected by the self-employed person’s confirmed income and the age-related accrual rate (http://www.tyoelake.fi/Page.aspx?Section=44142). You can increase it voluntarly but not exactly in the way you can do with the SYT.
I will investigate more and come back to you
THX

[filecore]

The principal difference would be that Suomen Yrittäjäin Työttömyyskassa is a private savings organisation, and is for unemployment benefit. It's totally voluntary (since toiminimi entrepreneurs get no unemployment security by default). YEL is statuatory and obligatory, and is for pensions savings. Aside from that, the mechanism is probably very much the same, on the principle that the more you put in, the more you get out at the other end (unemployment or pension, respectively) - and that amount is voluntary, unless otherwise stated (such as YEL's minimum earnings limit).

[Cipo]

The principal difference would be that Suomen Yrittäjäin Työttömyyskassa is a private savings organisation, and is for unemployment benefit. It's totally voluntary (since toiminimi entrepreneurs get no unemployment security by default). YEL is statuatory and obligatory, and is for pensions savings. Aside from that, the mechanism is probably very much the same, on the principle that the more you put in, the more you get out at the other end (unemployment or pension, respectively) - and that amount is voluntary, unless otherwise stated (such as YEL's minimum earnings limit).

Hi, a nice step forward in my understanding My big mistake was to calculate the YEL as 21.8% of the total TM profit which is wrong. It is rather calculated as % of the "confirmed earned income" which is "the salary/wage payable if an equally skilled employee were hired to do the work instead of the self-employed person". Furthermore: "the confirmed income is not determined on the basis of the company’s profits or the self-employed person's taxable income. The confirmed income should be high enough right from the start, since the pension under YEL is calculated on the basis of the average confirmed income for the whole career as a self-employed person. The confirmed income can be adjusted, but not retroactively."
Now for a basic IT consultant job the minimum salary in Helsinki could easily be 40k/year which is already far more then the minimum level I am planning to start with the TM. This would mean I should pay a hefty YEL (21.8% of e.g. 40k). Of course I can deduct but it would kill my low profit. The alternative would be to start with an absolute minimum which is around 8K/year and later on rise it according to the TM hopefully increasing profit.

Then we have a new topic which is not very clear to me yet: "Division of business income to capital income and earned income". I read here: http://www.yrityssuomi.fi/default.aspx?contentid=11072 and I got bit confused

[Upphew]

Then we have a new topic which is not very clear to me yet: "Division of business income to capital income and earned income". I read here: http://www.yrityssuomi.fi/default.aspx?contentid=11072 and I got bit confused

Dividends vs. wages.

[Cipo]

Then we have a new topic which is not very clear to me yet: "Division of business income to capital income and earned income". I read here: http://www.yrityssuomi.fi/default.aspx?contentid=11072 and I got bit confused

Dividends vs. wages.

What you mean by that ?
A TM pays no dividends nor wages. All the profit goes as personal income (after deducting costs) as I understood. However the link above is saying that part of that (10-20%) is actually considered "capital income" and therefore taxed at 28%. Is this correct ?
thx

[filecore]

A TM pays no dividends nor wages. All the profit goes as personal income (after deducting costs)

This is correct. In a TMI, all income is personal income and all liability is personal. There is no salary, and no seperation of the business finances from your own (except on paper, for the purposes of clear book-keeping).

However the link above is saying that part of that (10-20%) is actually considered "capital income" and therefore taxed at 28%. Is this correct?

The link you gave seems to be about OY and other forms of business, which do not apply to a TMI. You cannot have shares or dividends in a TMI. However, all other business forms are equally liable for YEL and any other statuatory terms and requirements of running a business. Since I don't run an OY, I can't really advise further on that side of things.

As far as your example of how much to pay yourself as an IT consultant, that is entirely nonsensical if you're running a TMI, since there is no salary and no corporate income. Of course, you can choose to view it that way if it makes more sense to you, but in the eyes of the tax office, where such things matter, it's all one and the same. You have to decide as soon as you can whether to choose a structure suited for a TMI or an OY; applying one to the other will simply get you more confused, and liable to make a (costly!) tax-related error later on.

[Cipo]

As far as your example of how much to pay yourself as an IT consultant, that is entirely nonsensical if you're running a TMI, since there is no salary and no corporate income. Of course, you can choose to view it that way if it makes more sense to you, but in the eyes of the tax office, where such things matter, it's all one and the same. You have to decide as soon as you can whether to choose a structure suited for a TMI or an OY; applying one to the other will simply get you more confused, and liable to make a (costly!) tax-related error later on.

Well, I am trying to understand and apply what is written on the web. That makes non sense sometimes. It's not me trying to force the concept. I am trying to understand and apply ONLY the TMI related stuff cos that is what I want to start as stated at the beginning. The link I sent it is for a TMI.
See here: http://www.yrityssuomi.fi/default.aspx?nodeid=15828 (Private entrepreneur) under this link you can find the other which is clearly linked to the (Private entrepreneur).
what do you understand from there ?
The TMI doesn't pay a salary but how do you calculate then the YEL ? The pension provider confirms the earned income under YEL on the self-employed person's application. So, a TMI is "forced" to think as it is getting a salary for the sake of the YEL calculation.
"Pension entitlement under YEL. The Self-employed Persons' Pensions Act (YEL) covers self-employed persons aged 18-67 whose confirmed income under the Act in 2010 is at least 6775.60 euros per year. If the income that a person earns from self-employment does not exceed the income limit, insurance under YEL is not needed." (http://www.tyoelake.fi/Page.aspx?Sectio ... Item=19071).

Recap:

- a TMI doesn't pay salary and all profit is considered a personal taxable income (however there is to understand the division between personal income and capital income).
- you need to pay the YEL (21.2%) on part of it. The "part" has to be calculated and agreed (must be at least 6775.60 EUR/year).
- SYT is an unemployment fund and it is optional (probably worth it)

thx for all help so far

[filecore]

The TMI doesn't pay a salary but how do you calculate then the YEL?

But you are confusing the two. Forget about salaries. For a TMI, your entire corporate income is your de facto salary, but you don't 'pay' a salary, it's money from which you pay your bills. Functionally identical, but legally different - there is no seperation in the eyes of the tax office. To be able to pay yourself a salary (and therefore be an employed person, and have (T)YEL taken from your salary) you must have at least an OY.

- a TMI doesn't pay salary and all profit is considered a personal taxable income (however there is to understand the division between personal income and capital income)

Correct.

- you need to pay the YEL (21.2%) on part of it. The "part" has to be calculated and agreed (must be at least 6775.60 EUR/year).

Incorrect. The "part" that is your profit is the same as the entire income; for a TMI there is no difference.

If your whole TMI earns less than 6775/year, you don't pay YEL or VAT.
If it earns 6775-8500/year, you pay YEL but don't do VAT.
If it earns more than 8500/year, you pay YEL and deal with VAT.

However, this 6775 is the minimum possible - if you earn more than this, you can choose to only pay YEL on this amount (or any other amount you decide, even if it's more than your actual income). So long as you're paying 21.8% on at least 6775/year, then you're fine. The guidelines for a TMI are pretty simple.

- SYT is an unemployment fund and it is optional (probably worth it)

Correct on all three points: unemployment fund, optional, probably worth it (isn't unemployment insurance always worthwhile?).

[Cipo]

I am not confusing the two things but I was simply reporting what was written on the web regarding how to calculate the YEL for a TMI. It seems the web generates some confusing terms. But the fact are clear: you pay the YEL and you can start with a minimum which is about 130EUR/month.

What is not clear (according to the web) is still the "Division of business income to capital income and earned income": http://www.yrityssuomi.fi/default.aspx?nodeid=15828 as Private entrepreneur (=TMI). Do we need this division or not ?

THX