For those thinking of moving to Finland, the idea of a high tax rate might initially sound like a huge negative. But to really understand it, you will have to know a bit more than just that on average the rate is higher than in many other countries.
When I looked online, I noticed few good sources for straighforward information on this topic. So I thought I would write an article that will get you started and answer some of the most important questions like is the Finnish tax rate high and why?
Is Finland’s tax rate exceptionally high?
Let’s start with the facts about how much tax people pay on average in Finland. First of all, the taxation on earned income in Finland is progressive, so the more you earn, the bigger the proportion of tax you pay.
The easiest way to see what that might mean for you specifically is to use a Finnish tax calculator.
The tax calculator will also take into account where you live and any tax paid to the church and the Social Insurance Institution Kela. So it will be a comprehensive estimate of what you might actually pay if you know your salary.
According to the Organization for Economic Cooperation and Development’s figures, on average, the taxes are 42.7% in Finland, compared to 24.3% in the US. Other websites cite Finland as one of the top countries for highest personal income taxation, together with countries like Sweden.
In an article called High taxes, higher rewards: How Finland ensures a high quality of life Aalto University’s Professor Timo Viherkenttä says: “The marginal tax rate in Finland is on the high side, while the average tax rate is much lower. These are two different concepts that are often confused.”
Essentially it means the amount of additional tax paid for every additional euro you earn as income is higher in Finland, so you reach higher tax rates at lower levels of income than in some other countries. The difference in what people pay on average is not as great.
Finland’s corporate and property tax rates
Something to keep in mind is that in addition to tax on earned income, each country also taxes other things. The VAT in Finland stands at 24% for most products and services and is built into the price of everything you buy.
Resident companies in Finland pay a corporate tax of 20% on their income. Another thing to consider is the property tax or the real estate tax rate , which is low compared to the US. First-time home buyers are exempt from paying it.
So if you want to understand the full picture of how your taxation might change or be calculated in Finland, there is more to consider than just the tax on earned income. The different calculators and verohallinto (tax administration) website can be a good place to start.
Why is the tax rate high: Finland’s taxes and benefits
So why is the income tax rate in Finland generally higher than in some other countries? Just like the other nordic countries at the top of those lists, Finland offers residents and citizens many benefits and services.
Free healthcare and education
“In Finland, there’s always been heavy discussion around how to improve our healthcare and education systems – we prioritize these key initiatives so they’re not left behind”, professor Viherkenttä explains.
The benefits you get for a higher tax rate are an affordable healthcare system that aims to guarantee everyone access to good quality healthcare even without insurance.
Aalto University offers this example of what that means in practice: “For example, seeing a specialist in cardiology for a 45-minute appointment will cost you about €30. And with a yearly payment ceiling, you won’t pay more than €683 per year for any specialized treatments, hospital visits, or surgeries.”
We also have a world-class education system that aims to provide each child with the same opportunities regardless of their background and, of course, all of the infrastructure and administration needed to keep things running everywhere.
The Finnish system is built on the foundation that everyone has opportunities available and that putting money towards things like healthcare and education benefits everyone. So even University studies in Finland are free, provided you pass an entrance examination or have high enough grades to be selected.
Help through difficult times and a mandatory pension contribution
Tax money is also used to make sure no one is left behind through social security like unemployment benefits, housing benefits, student loans, and pensions. Finland’s system aims to guarantee everyone has a place to live and access to healthcare services and supports families, the elderly as well as vulnerable groups of people like those unable to work full time.
During your working life, you also pay a mandatory pension contribution that will eventually fund your retirement. Your salary determines the percentage paid, and through that the amount of money you receive when you retire.
Higher taxes: more services and benefits
In a nutshell, the higher tax rate in Finland guarantees services and benefits that are usually not available for free. We tend to think it increases equality and supports those who are more vulnerable or have a more difficult start in life.
One of the things you will find in Finland is also a very open and always evolving conversation on what should be funded with tax money and whether the rates should go up or down. It is important that the use of the money is very transparent and it is well and professionally managed.
Do you have any other questions about taxation in Finland that I might be able to answer or find resources on? Leave a comment and I will try my best to reply or add the information to this article!
You might also enjoy these articles on Finland: