Finland

Tax residents in Spain with income from Finland

(The content of this document is merely informative and has been prepared for informative purposes. For more information, you can consult directly the Personal Income Tax Law and the Spanish-Finnish Agreement to avoid double taxation).

I.- Tax residence

A natural person is resident in Spanish territory when any of the following circumstances occur:

They have stayed longer than 183 days in Spanish territory over the calendar year.

To determine this period of permanence, sporadic absences will be counted unless the taxpayer proves his tax residence in another country (through a certificate of tax residence issued by the tax authorities of that other country). In the case of countries or territories labelled as tax havens, the Tax Administration can demand proof of stay in that tax haven over a period of 183 days within the calendar year.
They situate the main base or centre of their activities or economic activities, directly or indirectly, in Spain.
They have dependent not legally separated spouse and/or underage children who are usually resident in Spain. This latter situation accepts evidence to the contrary.

II.- Personal Income Tax

If a natural person, as described, turns out to be tax resident in Spain , they will be taxpayers for the Personal Income Tax (IRPF) and you must pay taxes in Spain for your worldwide income , that is, you must declare in Spain the income you obtain anywhere in the world, without prejudice to the provisions of the Convention to avoid international double taxation signed between Spain and the country of origin of the income.

The agreements list some types of income and establish, with respect to each of them, the tax powers that correspond to each signatory State:

In some cases, exclusive power for the country of residence of the taxpayer,
in others, exclusive power for the country of origin of the income and,
Finally, in some cases, power shared between both countries, both being able to tax the same income, but with the obligation for the taxpayer's country of residence to arbitrate measures to avoid double taxation. However, the Spanish-Finnish DCI provides, in certain cases relating to pensions, that it is up to the source country to take measures to avoid double taxation (article 21.3 CDI).

The personal income tax tax period is the calendar year. A person will be a resident or non-resident throughout the calendar year since the change of residence does not imply the interruption of the tax period.

The income tax return of natural persons who are tax residents in Spain is submitted in the months of April, May and June of the year following the year of accrual. The Personal Income Tax regulations regulate limits and conditions that determine the obligation to submit the tax return, which must be consulted every year. Exempt income is not taken into account to determine the obligation to declare.

Example : Taxpayer, tax resident in Spain, whose only income in 2020 is a pension from Finland, caused by having worked in a company in said country (Spain has the exclusive power to tax. The treatment in the Agreement is explained below). If the pension exceeds the amount of 14,000 euros per year, taking into account the limits and conditions of the obligation to declare related to the 2022 financial year, you would be obliged to submit a personal income tax declaration corresponding to 2022, since the payer of the Finnish pension is not obliged to make withholdings on account of Spanish personal income tax.

Spanish-Finnish Agreement ( new Agreement of December 15, 2015 , with entry into force on 27 July 2018 which, regarding personal income tax, is applicable for the first time to the 2019 tax period; exceptionally, article 18 of the former 1967 Convention, relating to pensions due to previous employment in the private sector, will continue to apply during the periods 2019, 2020 and 2021 if the pension is subject to tax in Spain regardless of whether the regulations subsequently establishes its exemption)

(The text of the Agreement can be consulted at https://sede.agenciatributaria.gob.es in the following route: Home > Regulations and interpretative criteria > International taxation)

In a simplified manner, taking into account the provisions of the Agreement between Spain and Finland ( CDI ), the taxation for tax residents in Spain of the most commonly obtained income from Finnish source would be:

Pensions:

Understood as remuneration that has its cause in a previously held job, they have different treatment depending on whether they are granted for services provided in the public or private sector.

Pension received due to dependent work provided to the State, a political subdivision, a local entity or one of its public entities (article 18.2 new CDI). Its treatment is:
1. In general, these pensions would only be taxed in Finland. In Spain they would be exempt, with progressive exemption. This means that, if the taxpayer were required to file a personal income tax return for obtaining other income, the amount of the exempt pension would be taken into account to calculate the tax applicable to the remaining income.
2. However, if the beneficiary of the pension residing in Spain had Spanish nationality, the aforementioned pensions would only be taxed in Spain.
However, if the pension has been granted in accordance with Finnish social security regulations, its treatment is as indicated in number 2 of the specific section below.
Pension received by reason of previous employment in the private sector , during the transitional period (article 18 old CDI, applicable to personal income tax tax periods 2019, 2020 and 2021 if the pension is subject to tax in Spain regardless of whether the internal regulations subsequently establish its exemption, in accordance with article 26.4 of the new CDI):

These pensions will only be taxed in Spain.
Pension received due to previous employment in the private sector (article 17.1 new CDI, applicable to personal income tax tax periods 2022 and following ):

In general, pensions due to previous employment will be taxable exclusively in Spain.

However, if the pension has been granted in accordance with Finnish social security regulations, its treatment is as indicated in number 1 of the specific section below.
Pensions granted in accordance with the social security regulations of Finland or by reason of a public scheme established by Finland for social security purposes, or annuities originating in Finland (if contributions or payments associated with that income are deductible for tax purposes in Finland) a distinction must be made between:
1. Those that derive from previous employment in the private sector (article 17.2 CDI, applicable to personal income tax tax periods 2022 and following): They can be taxed in both Spain and Finland. In this case, it is not up to Spain to take measures to avoid double taxation, but Finland will allow a deduction for this purpose (article 21.3 new CDI).
2. Those that derive from previous employment in the public sector (article 17.2, subject to the provisions of article 18.2 CDI): In general, these pensions would only be taxed in Finland. In Spain they would be exempt, with progressive exemption. This means that, if the taxpayer were required to file a personal income tax return for obtaining other income, the amount of the exempt pension would be taken into account to calculate the tax applicable to the remaining income. However, if the beneficiary of the pension residing in Spain had Spanish nationality, the aforementioned pensions would only be taxed in Spain.

Income derived from real estate (article 6 CDI):

Income from real estate property located in Finland can be taxed in both Spain and Finland. The resident taxpayer would have the right to apply the deduction for international double taxation in personal income tax with respect to the tax paid in Finland.

Dividends (article 10 CDI):

Finnish source dividends may be taxed in Spain in accordance with its domestic legislation. These dividends may also be taxed in Finland, the country in which the company paying the dividends resides, and in accordance with the legislation of that State, but with a maximum limit of 15% of the gross amount of the dividends. The resident taxpayer would have the right to apply in Spain the deduction for international double taxation in personal income tax, consisting of an amount equal to the tax paid in Finland up to that limit. However, this deduction cannot exceed the part of the tax, calculated before the deduction, corresponding to the income obtained in Finland.

Interest (article 11 CDI):

Interest from Finland paid to a resident of Spain will be taxable exclusively in Spain.

Remuneration of members of boards of directors of companies resident in Finland (article 15 CDI):

They can be taxed in both Finland and Spain. The taxpayer would have the right to apply the deduction for international double taxation in personal income tax with respect to the tax paid in Finland.

Capital gains:

Derived from real estate (article 13.1 CDI) : Gains obtained from the sale of real estate located in Finland may be subject to taxation in both Spain and Finland. In Spain, the taxpayer would have the right to apply the deduction for international double taxation in personal income tax with respect to the tax paid in Finland.
Derived from movable property that belongs to a permanent establishment (article 13.2 CDI): Gains obtained from the disposal of movable property belonging to a permanent establishment that a company resident in Spain owns in Finland, including gains derived from the disposal of the permanent establishment, may be subject to taxation in both Finland and Spain. The resident taxpayer would have the right to apply the deduction for international double taxation in personal income tax with respect to the tax paid in Finland.
Derived from shares or participations whose value comes from more than 50% of real estate located in Finland (article 13.4 CDI): Gains obtained from the sale can be taxed in both Spain and Finland. In Spain, the taxpayer would have the right to apply the deduction for international double taxation in personal income tax with respect to the tax paid in Finland. This section does not apply to gains arising from the disposal of shares in a company listed on a recognized stock market.
Derived from shares or participations that grant the right to enjoy real estate located in Finland (article 13.5 CDI): Gains obtained from the sale can be taxed in both Spain and Finland. In Spain, the taxpayer would have the right to apply the deduction for international double taxation in personal income tax with respect to the tax paid in Finland.
Derived from other types of goods (article 13.6 CDI) : Gains derived from the sale of any other type of property can only be taxed in Spain.

In addition to those mentioned above, the Agreement lists other types of income (business profits, income from work, artists and athletes, public functions, other income...), the treatment of which can be consulted in its text.

III.- Obligation to provide information on assets abroad

People residing in Spain must inform the Spanish tax administration about three different categories of assets and rights located abroad:

accounts in financial institutions located abroad
securities, rights, insurance and income deposited, managed or obtained abroad
real estate and rights over real estate located abroad

This obligation must be fulfilled, using form 720, between January 1 and March 31 of the year following the year to which the information to be provided refers.

There will be no obligation to report on each of the categories of goods when the value of the set of goods corresponding to each category does not exceed 50,000 euros. Once the informative declaration has been submitted for one or more of the categories of assets and rights, the presentation of the declaration in subsequent years will be mandatory when the value has experienced an increase of more than 20,000 euros compared to that which determined the presentation of the last declaration. .

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