Statutory responsibilities and obligations when establishing a company (I)

There is quite a number of compulsory obligations in Finland when you establish an enterprise. For example, the company must be registered, taxes have to be paid on time and the bookkeeping should be well organised.

The Finnish authorities control that all these obligations are appropriately fulfilled.

Currently, the main statutory responsibilities and obligations in Finland are the following:

Licenses and declarations

The general rule is that it is allowed to practice legal business without any license from an authority. However, for some kind of businesses you have to acquire an specific license from an authority or to make a declaration to them.

• For example, if you are operating a beauty-shop or have a company dealing with foodstuffs, there has to be an official inspection to businesses premises.
• It is the duty of the entrepreneur to find out the possible licenses required in his/her own business or the declarations which have to be made.
• Learn more about companies permits, responsibilities and obligations HERE

Company and tax-registration

• You have to register your new business at the Finnish Patent and Registration Office (PRH). This can be done online, through its website HERE
• At the same time when registering your new enterprise you may declare your company to the tax-office.
• Please note that when you restructure your business, make some changes in your company, or for example if you sell your business, you also have to register the changes at PRH.

Statutory insurances and insurance payments

As an entrepreneur in Finland, you are responsible for your own social security. In order to enjoy its benefits, you have to pay the social insurance contributions on time.

• A self-employed person has to take out a pension insurance under the Self-Employed Person’s Pensions Act (YEL). The insurance is mandatory when the self-employed person meets the conditions for the insurance. The insurance has to be taken out:
  • Within six months from starting the self-employment, and
  • With an earnings-related pension insurance company or a pension fund, if one exists in the field in question.
• A person is considered self-employed when:
  • Does not work under an employment or service agreement.
  • Gets a grant in the arts and sciences.
  • Is a farmer, or
  • Is an artist.
• Other preconditions for being covered by the Act include:
  • The self-employed person is between 18 and 69 years old.
  • The person has worked as a self-employed person for at least four months, and
  • The estimated annual earnings from work amount to at least EUR  7,799.37 (in 2019).
• A partner to a partnership and the responsible partner of a limited partnership has to take out pension insurance under YEL. A person in a leadership position of a limited company, who owns alone more than 30 per cent or, together with family members, more than 50 per cent of the company or the voting rights, has to take out insurance under YEL.
• If you are an employer, your statutory insurances are:
  • An employment pension insurance (TyEL) must be arranged to the company’s employees, if the work is done in employment relationship, the age of the employee is in between 18 and 67, and when the salary paid is at least EUR 59,36 a month (in 2019).
    • If your company has employees on a permanent basis, you must enter into a policy with the employment pension insurance provider of your choice.
    • If your company is a casual employer, you will not need a separate policy with an employment pension provider.
    • As insurance premiums the company will have to pay a certain percentage (approximately 24,5%) of the sum it pays in salaries. From this percentage the employer covers in the average 17,35%, and the employee the rest (in 2019).
      • Your company has to report all paid salaries to the Incomes Register within five (5) days of payment of the salary, meaning that employment pension insurance companies receive earnings data in real time.
      • As the employee pays a part of his/hers employment pension insurance premium, company deducts employee contributions from the employees’ salaries and pays the entire sum to the employment pension insurance company.
    • As it is common in Finland that employment insurance companies give refunds and other benefits to the employing companies, which terms you should negotiate when entering into an agreement with on pension insurance company.
  • An employer pays a Social Security Contribution of 0,77% for all employees if the age is in between 16 and 67 years.
    • The social security contribution is paid to tax office monthly at the same time as you pay employees withholding tax to the tax-office.
  • Workers’ compensation (occupational accident insurance).
    • An employer must insure its employees with workers´ compensation, if the salaries paid or agreed are more than EUR 1.300 (in 2019) per calendar year.
    • Insurance premium is a certain percentage set in law (in the average 0,8% in 2019), whose percentage varies by the field of your business operation and also depending on how high-risk the work in question is. This means that it is well possible that there are more than one percentage to be applied to specific job duties.
  • The employees' group life assurance.
    • The central labour market organisations have agreed on the provision of group life insurance coverage for employees.
    • The liability to take out insurance applies to all employers whose binding collective agreement, or in whose field a valid general national collective agreement, contains provisions on group life insurance.
    • Insurance premium is, like in the two above mentioned statutory insurances in Finland, a certain percentage of company’s wages (0,07% in 2019).
  • Unemployment insurance compensation.
    • In addition to the above mentioned statutory insurances for businesses it is compulsory for the employer to pay also unemployment insurance compensation (0,5% in the average in 2019).
    • As an employee pays a part of his/hers unemployment insurance compensation, the company deducts employee contributions from the employees’ salaries and pays the entire sum to the Unemployment Insurance Fund.
      • Employees part of this compensation is 1,5% (in 2019).
  • Even though statutory insurances related to employing personnel seems to, at least at a first glance, be quite complicated and heavy, it is actually just one booth you have to visit, and that is the insurance company you choose for your business. Your insurance company helps you to care all of these employment-related compulsory obligations of your business.
  • In addition to above mentioned statutory insurances, there might be some other insurances you have to take depending on the line of your business. For example:
    • If your business is in the line of health care, you must have a malpractice insurance.
    • if you, for example, have a law firm you have to have a liability insurance.
    • if your business requires an environment permit, you have to have an environmental damage insurance.
    • if your business is in transportation, you have to acquire a traffic insurance.
    • Etc.
  • Please note that it is important to take into account these statutory insurance expenses while planning your business and when crunching your numbers.

Book-keeping

• All enterprises in Finland have some kind of accounting obligation. It is common that entrepreneurs hire an accounting company to take care of businesses accounting obligation.
• As it is very common in Finland that an accounting company of your choice consults and, in practise, takes care many of nuts and bolts of businesses statutory and other obligations, it is important that you choose a reliable and professionally capable accounting company.
• We are going to deal the issue of how to choose an accounting company in a separate article in this series.

The Incomes Register

The Incomes Register is a national online database in Finland since January 1 2019. It contains comprehensive information on individuals' wages, pensions and benefits of each individual earner. For companies and organisations, the Incomes Register sets the following obligations:

• Employers and other payers have to report the earnings paid after 1 January 2019 to its employees to the register within five days of payment. The information required by the various authorities will be submitted with a single report made to a single, centralised register.
• The information reported to the Incomes Register includes earnings, fringe benefits, bonuses, compensation for work and other earned income. Both tax-free and taxable reimbursements of expenses and costs must also be reported.
• The information in the Incomes Register will be used by the parties legally entitled to use the information. The information may only be used to the extent permitted by law.
  • From 1 January 2019, the information in the Incomes Register will be used by: the Finnish Tax Administration, Kela (Social Insurance Institution of Finland), the Employment Fund, Earnings-related pension providers, and the Finnish Centre for Pensions.
  • In 2020, the users will be joined by entities such as the administrative branch of the Ministry of Economic Affairs and Employment, Statistics Finland, the Employment Fund (adult education benefits), non-life insurance providers, unemployment funds and the occupational safety and health authorities.
• It is usually your accounting company which takes care of your businesses obligations to the Incomes Register.

Taxation

• Your company's taxation consists of payments and reports.
• Your company must submit certain notifications and payments to the Finnish Tax Administration of its own initiative on each tax period, usually once a month.
  • It is usually your accounting company who takes care of your businesses reports and sometimes even the payments to tax authorities.
• Your company must pay an income tax for its profits and a value-added tax for business subject to a value-added tax (VAT). A withholding tax and the employer's health insurance contribution, and social security contributions will be paid for wages. Excise duties are paid for the production and import of certain products.
  • Your company’s business form will influence your company’s incomes taxes. This should be taken into consideration when deciding your business form.
  • If your businesses income from selling products and services is less than 10.000 euros per year, your business does not have to pay VAT. The VAT varies depending on the products and services you provide.
• Submit a tax return for income taxes once a year. Income tax is generally paid as an advance tax which is estimated based on the income tax from the previous year. In a startup company, an entrepreneur estimates him or herself, what the taxable income would be, and declares it to the tax authority for determining the advance tax.
• When you establish your company, you may declare your company to the prepayment register of the tax administration. When you are registered to the prepayment register you may bill your clients without withholding tax.
• We are going to deal the issues of the taxation in more detail later in our article series.

Occupational safety and health

An employer is responsible for the protection and safety of its employees. Therefore, employers have to familiarise with the job and its tasks, as well as the workplace and its circumstances to its employees. Also, an employer must introduce correct work methods to all its employees.

An employer must have an Occupational safety and health policy, which defines the goals for the occupational health and safety work in the workplace and for activities that promote the working capacity of the staff.

The policy also describes occupational health and safety responsibilities and the way of organising the cooperation measures. The preparation of the occupational safety and health policy is based on the Occupational Safety and Health Act. The policy is employer-specific and applies to all employers.

Employers must arrange preventive occupational health care for employees. Employers may arrange occupational health services by themselves or procure them from a health centre, private medical clinic or other service provider.

The Finnish Social Insurance Institution (Kela) reimburses employers for the costs of preventive occupational health care. It also reimburses the costs of treatment at general practitioner level and other health care costs.

• The aim of occupational health care is to further the joint efforts of employers, employees and occupational health care professionals concerning:
  • The health of employees, plus work and functional capacity at different stages of working life.
  • Preventing work-related diseases and accidents.
  • The health and safety of work and the working environment, and
  • The functioning of the work community.

Bank account

Having a bank account for your business should also be considered a statutory obligation of your business as it is virtually impossible to run a business in Finland without having it.

Opening a bank account for your business is a coming topic in this article series.