US Expat Taxes for Americans Living in Finland – What You Need to Know
There are an estimated several thousand Americans living in Finland.
Living in Finland is an incredible experience for a number of reasons, including the culture, the cuisine, the seasons, and the landscapes. As an American expatriate living in Finland though, what exactly do you need to know regarding filing US expat (and Finnish) taxes?
All US citizens and green card holders who earn a minimum of around $10,000 (or just $400 for self-employed individuals) anywhere in the world are required to file a US federal tax return and pay taxes to the IRS, regardless of where in the world they live or their income is generated.
The good news is if you are paying income tax in Finland, there are various exclusions and exemptions available to prevent you paying tax on the same income to the IRS too.
US taxes – what you need to know
If you earn over US$10,000 (or just $400 of self-employment income), wherever the income originates in the world you have to file IRS form 1040.
While any US taxes due are still due by April 15th, expats get an automatic filing extension until June 15th, which can be extended further on request until October 15th.
If you have overseas assets worth over US$200,000 per person, excluding your home if it is owned in your own name, you also have to file form 8938 to declare them.
If you had a total of at least US$10,000 in one or more foreign bank and/or investment accounts at any time during the tax year, you also have to file FinCEN form 114, otherwise known as a Foreign Bank Account Report or FBAR.
If you pay income tax in Finland, there are several exemptions that allow you to pay less or no US income tax on the same income to the IRS.
“The foreign expert tax regime provides a flat tax rate of 35% on Finnish-source salary income for those foreign employees whose work requires special knowledge and who would be otherwise taxed at the normal tax rates applicable to resident individuals.”
The main exemptions are the Foreign Earned Income Exclusion, which lets you exclude the first around US$100,000 of foreign earned income from US tax if you can prove that you are a Finnish resident, and the Foreign Tax Credit, which gives you a $1 tax credit for every dollar of tax you’ve paid in Finland. These exemptions can be combined if necessary. Remember though that even if you don’t owe any tax to the IRS, if your income is over US$10,000 (or $400 if you’re self-employed) you still have to file a federal return.
The US and Finnish governments share taxpayer info, and Finnish banks pass on US account holders’ account info to the IRS, so it’s not worth not filing or omitting anything on your return. The penalties for incorrect or incomplete filing for expats are steep to say the least.
If you’re a US citizen, green card holder, or US/Finnish dual citizen, and you have been living in Finland but you didn’t know you had to file a US tax return, don’t worry: there’s a program called the IRS Streamlined Procedure that allows you to catch up on your filing without paying any penalties. Don’t delay though, in case the IRS comes to you first.
Finnish taxes – what you need to know
Finnish residents are taxed on their worldwide income on a scale from 6% to 31.25%. There is also a local income tax of between 16.5% and 23.5%, depending on where you live.
Finland has a foreign expert tax program that charges a total flat tax of 32%, and which can be applied for for up to four years.
Foreigners living in Finland are considered a resident for tax purposes if their home is in Finland, or if they spend over 6 months in Finland in a tax year.
The Finnish tax year is the same as in the US, which is to say the calendar year. Tax returns are due by May 8th or 15th. The Finnish tax authority is called Vero Skatt.
We strongly recommend that if you have any doubts or questions about your tax situation as a US expat living in Finland that you contact a US expat tax specialist.