Finland

Tax residents in Spain with income from Finland

(The content of this document is for informational purposes only and has been prepared for educational purposes only. For further information, please consult the Personal Income Tax Act 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 stay, sporadic absences will be taken into account unless the taxpayer proves his tax residence in another country (through a tax residence certificate 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, in accordance with the above, turns out to be tax resident in Spain , he/she will be a taxpayer for the Personal Income Tax (IRPF) and must pay taxes in Spain on his/her worldwide income , that is, he/she must declare in Spain the income he/she obtains anywhere in the world, without prejudice to the provisions of the Agreement to avoid international double taxation signed between Spain and the country of origin of the income.

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

• In some cases, exclusive power for the taxpayer's country of residence,

• In others, exclusive power for the country of origin of the income and,

• Finally, in some cases, shared power between both countries, with both being able to tax the same income, but with the obligation for the taxpayer's country of residence to take 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 period is the calendar year. A person will be a resident or non-resident throughout the calendar year since a change of residence does not imply an interruption of the tax period.

The income tax return of individuals 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 set limits and conditions that determine the obligation to file a tax return, which must be consulted each year. Exempt income is not taken into account when determining the obligation to file a tax return.

Example : Taxpayer, tax resident in Spain, whose only income in 2020 is a pension from Finland, caused by having worked in a company in that country (Spain has the exclusive power to tax. The treatment in the Convention 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 for the year 2022, he would be obliged to file a personal income tax return for 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 , which came into force on July 27, 2018, which, as regards personal income tax, is applicable for the first time to the 2019 tax period; Exceptionally, Article 18 of the old 1967 Convention on pensions for previous employment in the private sector will continue to apply during the periods 2019, 2020 and 2021 if the pension is subject to taxation in Spain, regardless of whether domestic regulations subsequently establish its exemption)

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

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

Pensions:

Understood as remuneration that is based on a previously held job, they are treated differently depending on whether they are granted for services rendered in the public or private sector.

• Pension received by reason of dependent work provided to the State, a political subdivision, a local entity or one of its public entities (article 18.2 new CDI). Your treatment is:

  1. Generally, these pensions would only be taxed in Finland. In Spain they would be exempt, with progressive exemption. This means that if the taxpayer is required to file a personal income tax return for other income, the amount of the exempt pension will be taken into account when calculating the tax applicable to the remaining income.

  2. However, if the beneficiary of the pension resident in Spain had Spanish nationality, the aforementioned pensions would only be taxed in Spain.

  However, if the pension has been granted in accordance with the Finnish social security regulations, its treatment is as indicated in number 2 of the specific section below.

• Pension received due to a previous job in the private sector , during the transitional period (old article 18 of the old CDI, applicable to the personal income tax periods 2019, 2020 and 2021 if the pension is subject to taxation in Spain regardless of whether internal regulations subsequently establish its exemption, in accordance with article 26.4 of the new CDI):

  These pensions will only be subject to taxation in Spain.

• Pension received due to a previous job in the private sector (article 17.1 new CDI, applicable to the personal income tax periods 2022 and following ):

  In general, pensions based on previous employment will be taxable exclusively in Spain.

  However, if the pension has been granted in accordance with the Finnish social security regulations, its treatment is as indicated in number 1 of the specific section below.

• granted under the social security regulations of Finland or under a public scheme established by Finland for social security purposes, or annuities from Finland (if contributions or payments associated with such income are tax deductible in Finland) must be distinguished between:

  1. Those that derive from previous employment in the private sector (article 17.2 CDI, applicable to the 2022 and subsequent IRPF tax periods): may 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 arising 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 is required to file a personal income tax return for other income, the amount of the exempt pension will be taken into account when calculating the tax applicable to the remaining income. However, if the beneficiary of the pension resident in Spain had Spanish nationality, the aforementioned pensions would only be taxed in Spain.

Income from real estate (Article 6 CDI):

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

Dividends (article 10 CDI):

Dividends from Finnish sources 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 is resident, and in accordance with the laws of that State, but with a maximum limit of 15% of the gross amount of the dividends. The resident taxpayer would be entitled to apply in Spain in the personal income tax the deduction for international double taxation, consisting of an amount equal to the tax paid in Finland up to that limit. However, this deduction may not exceed the part of the tax, calculated before the deduction, corresponding to income obtained in Finland.  

Interests (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 ICC):

They can be taxed in both Finland and Spain. The taxpayer would be entitled 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 from the sale of real estate located in Finland may be taxed in both Spain and Finland. In Spain, the taxpayer would be entitled to apply the deduction for international double taxation in the personal income tax with respect to the tax paid in Finland.

• Derived from movable property belonging to a permanent establishment (article 13.2 CDI): Gains from the alienation of movable property belonging to a permanent establishment that a company resident in Spain owns in Finland, including gains from the alienation of the permanent establishment, may be taxed in both Finland and Spain. The resident taxpayer would be entitled to apply the deduction for international double taxation in personal income tax with respect to the tax paid in Finland.

• Derivatives of shares or participations the value of which is derived from more than 50% of real estate located in Finland (Article 13.4 CDI): Gains from the sale may be taxed in both Spain and Finland. In Spain, the taxpayer would be entitled to apply the deduction for international double taxation in the personal income tax with respect to the tax paid in Finland.  This section does not apply to gains from the alienation of shares in a company listed on a recognised stock exchange.

• Derived from shares or participations that grant the right to enjoy real estate located in Finland (Article 13.5 CDI): Gains from the sale may be taxed in both Spain and Finland. In Spain, the taxpayer would be entitled to apply the deduction for international double taxation in the personal income tax with respect to the tax paid in Finland.   

• Derived from other types of goods (article 13.6 CDI) : Gains from the sale of any other type of property may 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, etc.), the treatment of which can be consulted in the text of the Agreement.

III.- Obligation to report assets abroad

Residents in Spain must inform the Spanish tax authorities 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 to 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 supplied refers.

There will be no obligation to report on each of the categories of assets when the value of the set of assets corresponding to each category does not exceed 50,000 euros. Once the information declaration has been submitted for one or more of the categories of assets and rights, the submission 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 submission of the last declaration.

Telephone 91 554 87 70 / 901 33 55 33

https://sede.agenciatributaria.gob.es