A foreign company, but an accounting obligation to Finland – what does it mean?
Is your company established and registered in another country, but do you manage its operations from Finland? This may result in your company's tax liability to Finland for the profits of the company’s entire business. It may also mean that you need to keep the books and prepare financial statements following the Finnish Accounting Act.
At the beginning of 2021, a provision of the Income Tax Act came into force, according to which a foreign entity is generally taxable in Finland if its actual place of management is here. General taxability means that the entity is liable to tax on all of its income worldwide, not merely on the income generated by the activities carried out in Finland. Under the new provision, the effective place of management of a foreign entity is located at the place where the highest day-to-day management decisions of the entity are made by the entity's board or other decision-making body. In connection with this, the provision on the accounting obligation in the Accounting Act is being amended.
Information on financial statements and other accounting material for regulatory control
The Government’s proposal was issued on 18.11.2021. The aim of the proposal is that the authorities would obtain information from the financial statements and other accounting material of the permanent place of business located in Finland as well as from a foreign entity generally taxable in Finland for regulatory control purposes. Obligations based on the Accounting Act also mean that the provisions of the Criminal Law can be applied to their non-compliance. The new provision would facilitate regulatory control and prevent a gray economy.
According to the proposal, the accounting obligation would cover not only domestic companies but also foreign companies that conduct business and professional activities in Finland or companies that have their actual place of management in Finland. Companies subject to special legislation, such as those operating in the financial markets or insurance sectors, would be excluded from this provision.
No double accounting when there is sufficient information about the company`s result and financial position
There is no need to do double accounting, both in the home country and in Finland, if there is a financial statement that tells the right and sufficient information about company`s results and financial position. When the company is from ETA-state or its financial statements norms are IFRS, US GAAP, or Japan GAAP, it is enough to make accounting based on the company`s home state regulations and also to keep the books there. A company outside ETA-territory, which hasn`t prepared a financial statement based on international norms mentioned above, might be obliged to make a separate financial statement.
Find out what impact the change will have on your company's daily life. Ask more from our experts, we are happy to help you!
