Taxation in general, but business taxation in particular, is a very multifaceted and complex matter. Still, for entrepreneurs or people considering starting a business, it is crucial to know the basics of taxation policies.
Even though the point of view here is restricted to factors that are relevant to students entering the working life and considering entrepreneurship, these instructions are clearly broader in scope than those found in other sections of The Gig Work Guidebook. In order to form as comprehensive an idea of taxation as possible, you should carefully read through all the instructions.
We will start by going through some important basic concepts:
In the tax system, sources of income are categorised as business income, personal income and agricultural income. In income taxation, income is divided into two income types, earned income and capital income. Any taxable entity can have all three sources of income and both earned and capital income.
Capital income is income generated through the possession of wealth, such as dividend paid by limited companies or cooperative surplus payments. All other income, such as salary, pension and taxable social benefits, are earned income.
Income can be subject to a fixed or a progressive tax rate. The latter means that the more income you earn, the higher your tax rate. Certain portions of capital income are exempt from tax.
Taxes are collected by the state, municipalities and parishes. Municipal income tax and church tax have a fixed tax rate. The tax rate of different municipalities varies a little.
In taxation, private traders are deemed natural persons, while corporations, such as limited companies and cooperatives, are legal persons. Partnerships, such as general and limited partnerships, are business partnerships. Among these, natural persons and corporations are taxpayers. Partnerships themselves are not taxable entities (their taxes are calculated based on their profits), but the individuals involved in them are taxable as natural persons.
In Finland, corporate tax, also known as corporate income tax, is a tax that is paid on the profit of corporations, such as limited companies and cooperatives. The state and municipalities get a share of the corporate tax revenue.
Companies’ fiscal responsibility also includes value-added tax (VAT). If a company’s annual turnover is below a certain limit (15,000 euros in 2022), it is exempt of collecting and remitting VAT to the state.
Business taxation, tax deductions and value-added tax involve numerous complicated details of which you can find more information through the attached links and in the other sections of this Guidebook. Often, it is smart to hire a professional bookkeeper or a bookkeeping company to take care of the company bookkeeping and tax liabilities because, in addition to tax legislation, also the Accounting Act governs taxation policies.