Self-employment/freelance tax question

[switchblade327]

I know similar topics have been discussed but my case is a little weird.

I worked for a Finnish company and have a Finnish residency permit that is still valid. I've been working outside of Finland as a freelancer for the last few months. Now I am going to go back to Finland for another freelance job (short term; several weeks). What I am wondering is, how does tax work in this case? I know about the whole Toimaneimi thing but does anyone doing any freelance work inside of Finland need one? Or if I bill from my personal address which is in the US (as I do with all freelance work; I don't mean this as a loophole), can they just send a check to my American bank?

My assumption is that while "a Finnish resident", I am responsible for paying income tax while working in Finland but now I am technically an American company that is billing a Finnish company.

I will have to pay US income tax on this regardless so obviously, I'd rather not pay tax twice in two countries. And I want to make sure my quote to the Finnish company considers any additional costs they might have. In the US, a freelancer bills a company and that is the only cost to them; no employment taxes, insurance, etc. The employee is responsible for all of that.

If anyone knows about this stuff, I'd love to find out how it works.

[Upphew]

can they just send a check to my American bank?

Check... *giggles*

My assumption is that while "a Finnish resident", I am responsible for paying income tax while working in Finland but now I am technically an American company that is billing a Finnish company.

I will have to pay US income tax on this regardless so obviously, I'd rather not pay tax twice in two countries. And I want to make sure my quote to the Finnish company considers any additional costs they might have. In the US, a freelancer bills a company and that is the only cost to them; no employment taxes, insurance, etc. The employee is responsible for all of that.

If anyone knows about this stuff, I'd love to find out how it works.

Tax treaties, we have them!
http://www.irs.gov/businesses/internati ... 02,00.html
http://www.vero.fi/nc/doc/download.asp?id=1252;193921

[Rosamunda]

I know similar topics have been discussed but my case is a little weird.

I worked for a Finnish company and have a Finnish residency permit that is still valid.

Where is your fiscal domicile (you can only have one)? Where are you (the private person) living / paying tax at the moment? Did you inform the Finnish authorities that you left the country? Have you earned any income here during this tax year?

I've been working outside of Finland as a freelancer for the last few months.

What do you mean by "as a freelancer"? Are you billing your customers (if so, where is your company based) or are you receiving a salary? See also above, where is your fiscal domicile?

Now I am going to go back to Finland for another freelance job (short term; several weeks). What I am wondering is, how does tax work in this case? I know about the whole Toiminimi thing but does anyone doing any freelance work inside of Finland need one?

No, any private individual can receive income for services rendered, with or without a toiminimi. If your Finnish "customer" is paying you a salary with a freelance tax card then you will be taxed at source depending on the rate on your tax card. You can ask Vero for a freelancers tax card.

Alternatively you can bill the Finnish company from America if you wish.

Or if I bill from my personal address which is in the US (as I do with all freelance work; I don't mean this as a loophole), can they just send a check to my American bank?

Yes. As long as you are not officially domiciled in Finland for tax purposes (but technically, I don't see why you couldn't be a Finnish resident and get your American company to bill the Finnish company for you, since you (the person) and your company are two quite different things).

My assumption is that while "a Finnish resident", I am responsible for paying income tax while working in Finland but now I am technically an American company that is billing a Finnish company.

My understanding is that having a valid RP is not the same as being fiscally domiciled in Finland. If you are currently resident in the USA and paying taxes there then I guess your RP is irrelevant. But maybe someone else can confirm this. If your American company is billing the Finnish company then your own status is irrelevant... at least until your American company pays you a salary. When that happens you have to declare the income and pay tax if you are resident in Finland.

I will have to pay US income tax on this regardless so obviously, I'd rather not pay tax twice in two countries.

If you are resident and paying taxes in Finland then although you have to make a tax return in the USA you would only have to pay US tax if your income is over ($$$$$$$) per year.

And I want to make sure my quote to the Finnish company considers any additional costs they might have. In the US, a freelancer bills a company and that is the only cost to them; no employment taxes, insurance, etc. The employee is responsible for all of that.

If your American company bills your Finnish client then they just pay that invoice as they would any other product or service.
AS far as I know there are no employment taxes added to outsourced services (which is why companies lay people off and offshore the work). But in that case you are not an employee - you would be a subcontractor or a supplier.

Basically you need to differentiate between:
(a) you (the person) and (b) you (the company)

(a) are you a fiscal resident of FInland or USA, where are you currently earning your income and paying taxes?
(b) is your company located in Finland or USA? Are you an employee of that company? Do you pay yourself a salary?

Then you need to agree with your Finnish customer whether he is dealing with (a) or with (b)

But I suggest you ask Vero to be sure.

[switchblade327]

can they just send a check to my American bank?

Check... *giggles*

Yeah, yeah...

Tax treaties, we have them!
http://www.irs.gov/businesses/internati ... 02,00.html
http://www.vero.fi/nc/doc/download.asp?id=1252;193921

Okay! This looks promising and good to know. I was unaware of any double taxation agreements. Thanks for sharing that.

But maybe someone already familiar with the laws or circumstances of this already has a more direct answer to this particular question than 70 combined pages of legalese?

[switchblade327]

Thanks for the great info, Penelope.

It sounds like the main thing to do is figure out where my fiscal domicile is.

I know similar topics have been discussed but my case is a little weird.

I worked for a Finnish company and have a Finnish residency permit that is still valid.

Where is your fiscal domicile (you can only have one)? Where are you (the private person) living / paying tax at the moment? Did you inform the Finnish authorities that you left the country? Have you earned any income here during this tax year?

I... I am not sure if I did notify the authorities. I kind of took an extended holiday in March, with the possibility I'd be back in a few months but no definite plan so I didn't notify them I'd moved. While away, I did some freelance work for another company in the US and will pay taxes there on that. I was working in Finland until the end of February for a company as an employee (salaried) and my taxes are in order for that job.

Since the job back in the US, I've been back in the EU (but not Finland) doing travel, studies and personal work so I haven't had income this year beyond those two jobs.

What do you mean by "as a freelancer"? Are you billing your customers (if so, where is your company based) or are you receiving a salary? See also above, where is your fiscal domicile?

Yes, freelancer as in I am my own company; I bill my customers. It's not a proper LLC but more like a Toimaneimi so I guess the business is based in my fiscal domicile at the time.

...

I will have to pay US income tax on this regardless so obviously, I'd rather not pay tax twice in two countries.

If you are resident and paying taxes in Finland then although you have to make a tax return in the USA you would only have to pay US tax if your income is over ($$$$$$$) per year.

I believe that is dependent on time spent abroad. It's a specific exemption you file for on a different form but it requires you to be in the other country for the majority of that tax year (330+ days). The double taxation article Upphew posted is interesting for this reason but legal documents aren't the easiest thing to make sense of.

If your American company bills your Finnish client then they just pay that invoice as they would any other product or service.
As far as I know there are no employment taxes added to outsourced services (which is why companies lay people off and offshore the work). But in that case you are not an employee - you would be a subcontractor or a supplier.

Ok, this is a very important part of what I needed to know. Thanks!

Basically you need to differentiate between:
(a) you (the person) and (b) you (the company)

(a) are you a fiscal resident of FInland or USA, where are you currently earning your income and paying taxes?
(b) is your company located in Finland or USA? Are you an employee of that company? Do you pay yourself a salary?

Then you need to agree with your Finnish customer whether he is dealing with (a) or with (b)

But I suggest you ask Vero to be sure.

Ok, so I basically need to sort out where exactly I am a fiscal resident of. For now, because I never notified Finland, I assume I am considered a fiscal resident there. So I need to change that, as it's unlikely I'll be doing more work in Finland after this short project. I'll talk to Vero when I'm back and do some homework about fiscal residences before that.

As for the residency permit, I'd like to keep that if possible but it sounds like that's a separate issue altogether.

Thanks again for your help!

[Rosamunda]

Yes, you need to clear up your tax situation this year with Vero. Depending, as you say, on how many days you have spent in Finland this year you may need to declare your TOTAL earnings here (including what you earned in the USA). You would be credited for the tax you paid in the USA but your Finnish tax rate would be determined on your total income.
If, for example, you (the person) earned 7,000e in Finland and 20,000e in the USA, your Finnish tax rate (the % on your personal income tax card) would be based on earnings of 27,000. Then they deduct the tax paid in the USA from the tax due here. That's the theory anyway.

It's really messy. I think there are probably easier ways of running your business if you intend to freelance around the world on a permanent basis!

BTW: as a non-EU national you have to be resident in the EU in order to establish a company in Finland (TMI or Oy).

[switchblade327]

Yes, you need to clear up your tax situation this year with Vero. Depending, as you say, on how many days you have spent in Finland this year you may need to declare your TOTAL earnings here (including what you earned in the USA). You would be credited for the tax you paid in the USA but your Finnish tax rate would be determined on your total income.
If, for example, you (the person) earned 7,000e in Finland and 20,000e in the USA, your Finnish tax rate (the % on your personal income tax card) would be based on earnings of 27,000. Then they deduct the tax paid in the USA from the tax due here. That's the theory anyway.

It's really messy. I think there are probably easier ways of running your business if you intend to freelance around the world on a permanent basis!

BTW: as a non-EU national you have to be resident in the EU in order to establish a company in Finland (TMI or Oy).

If I do this contract job, I will have a total of 3 1/2 months in Finland this year, so hopefully that won't be a problem. But I'll definitely talk to them.

And yes, I do need to look deeper into setting up a proper company with a proper address in a single country I might go back to full-time work next year so I haven't investigated too thoroughly yet. But tax-wise, I think it'd be more favorable to set up a company in the US, especially since only a small portion my annual clients would actually be in Finland.