Moving to the USA from Finland: tax, social security, your company, pensions and visas

Leaving Finland for the United States means working through the three-year rule, the Finland-United States tax treaty, a social security agreement and the E visa treaties. This guide takes you through each piece in the order you will meet it, from your last Finnish tax return to your first US visa interview.

How your Finnish tax residence ends when you move to the US

Finland taxes a resident on income from Finland and from abroad, and a nonresident only on income received from Finland. Under section 11 of the Income Tax Act you are resident if your main abode and home is in Finland or you stay there continuously for more than six months.

The three-year rule for Finnish citizens. A Finnish citizen who moves abroad normally stays a Finnish tax resident for the year of the move and the three following tax years. To be treated as nonresident during that period you must make a request and prove that no economic and social ties to Finland remain. If all substantial ties were broken by the time you left, nonresidence can start from the moving date; if they broke later, only from the start of the next calendar year. As a rule of thumb, the Tax Administration finds strong ties if you keep:

• a permanent home in Finland
• a spouse living in Finland
• Finnish real property other than a summer cottage
• Finnish social security cover
• a business in Finland
• work in Finland

Kela can certify that your cover under Finnish residence-based social security has ended, and the Tax Administration uses that certificate as evidence when it assesses your ties. A stay of more than 6 months outside the EU/EEA, Switzerland and the UK is, as a rule, treated as a permanent move, and a permanent move generally ends entitlement to Kela benefits from the day you leave.

After the three years, residence based on substantial ties is exceptional: the ties must be clearly stronger than in the three years after the move. Citizenship alone does not create worldwide liability. Once you are nonresident, you become resident again only by moving your main abode and home back or staying more than six months.

Practical steps. Notify the Digital and Population Data Services Agency (DVV) within one week of a permanent move; the Tax Administration gets the data from DVV. Request a new tax card if Finnish income continues, notify Kela in OmaKela or on form Y 38e if you get Kela benefits or hold a European Health Insurance Card, and register a foreign bank account for refunds in MyTax or on forms 7208e (IBAN) or 7201e. The year of the move is settled through the pre-completed tax return sent the following spring.

Exit tax on shares

The Tax Administration describes one specific exit tax that reaches individuals: the charge referred to in section 52 f of the Act on the taxation of business income. It concerns shares you received in a tax-neutral share swap.

If you move to a country outside the EEA within 5 years from the end of the tax year of the swap, the gain on those shares becomes taxable in Finland, even if you keep the shares. The United States is outside the EEA, so a move to Texas inside that window brings the gain into Finnish tax. A capital loss existing when you leave Finland in this situation is not deductible.

The exit taxation provision in the Income Tax Act itself carries the heading exit taxation of an entity (corporate body). If you have done a share swap in recent years, map the dates against your planned moving date before you book the flight.

The Finland-United States income tax treaty

The Finland-United States convention on taxes on income and on capital was signed at Helsinki on September 21, 1989, entered into force on December 30, 1990 and has general effect from January 1, 1991. A protocol signed at Helsinki on May 31, 2006 has been in force since December 28, 2007, and the IRS lists it with a general effective date of January 1, 2008. In the Finnish treaty series the convention is SopS 2/1991, amended by SopS 3/2008.

Tie-breaker. If both countries treat you as resident, Article 4(2) decides: permanent home first, then centre of vital interests, habitual abode, nationality and finally mutual agreement. A US citizen or green-card holder counts as a US resident for treaty purposes only with a substantial presence, permanent home or habitual abode in the United States. The protocol deleted Article 23(1)(c), the rule that let Finland tax a Finnish national resident in the United States who was also resident in Finland under Finnish law. Under the saving clause, except as provided in paragraph 5, each country still taxes its own residents and citizens, but that clause does not override the social security pension rule in Article 18(1)(b), the child support rule in Article 18(4), or the double-tax relief, non-discrimination and mutual agreement articles.

Pensions. Pensions for past employment and annuities are taxable only in the country where you live. Pensions and other payments under a country's social security legislation are taxable only in the country that pays them. Finland relieves double taxation of its residents with a credit for US tax, capped at the Finnish tax on that income.

Social security: the US-Finland totalization agreement

The United States-Finland Agreement on Social Security was signed on June 3, 1991 and has been effective since November 1, 1992. On the Finnish side it covers the national pension and survivors' pension schemes, the employment pension schemes (including the self-employed, public-sector and seamen's schemes) and employer contributions.

Posted employees. If your employer sends you from Finland to the United States and the posting is not expected to exceed 5 years, you stay under Finnish law only, and longer if the authorities agree in your case. An employer and its affiliated or subsidiary company count as the same employer, which matters when you move to your own US subsidiary. The exemption from US contributions requires a certificate of coverage, which you request from the Finnish Centre for Pensions (Eläketurvakeskus).

Self-employed. A self-employed person who would be covered in both countries is covered only in the country of residence. SSA states that self-employed workers who transfer their business to the other country for one year or less stay covered in the country they came from.

Benefits. You are covered by the Finnish national pension and general survivors' pension schemes only while resident in Finland. The US side totalizes: with at least six US quarters of coverage, your Finnish periods count towards a pro rata US benefit. For Finnish employment pensions, Finnish law alone applies, and US periods count only in a disability or death case that fails the residence or 360-day coverage condition.

Keeping your Finnish company with a US subsidiary

Many founders keep the Finnish company and open a US subsidiary under it. The first question is the Finnish CFC Act (1217/1994). It applies to a foreign entity in which you, alone or with related parties, hold at least 25% of the votes, capital or profit entitlement, and only if the entity is low taxed: its effective tax level is below 3/5 of that of a Finnish company. With the Finnish corporate rate at 20%, that threshold is an effective 12%, so a US C corporation taxed at or above it (the federal rate alone is 21%) is not a CFC under this test.

An entity outside the EEA is also outside the CFC rules if its jurisdiction was not on the EU list of non-cooperative jurisdictions, exchanges tax information with Finland adequately and in practice, and its income comes mainly from industrial or comparable production, services, shipping, or sales and marketing serving them. Where CFC income is taxed, foreign taxes the entity paid on the same income are credited up to the Finnish tax.

Dividends to the Finnish parent. Under Finnish domestic law (EVL 6 a §) dividends from a US company are taxable income, but the treaty overrides this: dividends a US company pays to a Finnish company that directly owns at least 10% of its voting stock are exempt from Finnish tax under Article 23(1)(b). On the US side, tax on those dividends is capped at 5%, and falls to zero where the parent has owned 80% or more of the voting power for 12 months and meets one of the Article 16 limitation-on-benefits tests.

Transparent entities. If the US entity is fiscally transparent under the law of either country, its income counts as derived by a resident to the extent that country taxes it as a resident's income (Article 1(6)).

Your Finnish pensions when you move to the US

Earnings-related pension. Pension you have earned in Finland is paid regardless of nationality or country of residence, so it can be paid to you in the United States. A person living in the US can send the application directly to Kela or the Finnish Centre for Pensions. Pensioners living permanently abroad confirm their information to the paying institution every year, small pensions are paid as a one-off lump sum, and all pensions in payment are adjusted with the earnings-related pension index (80% prices, 20% wages).

Kela pensions. As a rule the national pension, guarantee pension and pensioners' housing allowance are paid only during a temporary stay abroad, but the agreement with the United States covers Kela old-age and survivors' pensions, and a disability pension can also continue, subject to conditions on citizenship and length of residence. Under Article 6(5) of the social security agreement, a Kela pension granted while you lived in Finland continues on a move to the US if you lived in Finland for an unbroken period of at least five years after age 16. Under Article 6(2), a national of either country living in either country is entitled to a Finnish national old-age pension after an unbroken five years of residence in Finland after age 16.

Tax. The Tax Administration's treaty table for the USA shows:

• social-security pensions, including TyEL, YEL and MYEL earnings-related pensions and the national pension: may be taxed in Finland
• government-service pensions: may be taxed in Finland, but not where you are a US citizen and the pension does not come from a public body conducting business
• voluntary pension contracts and other pensions: taxable only in your country of residence

Pensions are not taxed at source but under the Assessment Procedure Act (1558/1995), and a full-year nonresident pays the national average municipal tax rate, with the revenue going to the State. Request a treaty-based tax card with Form 6207a; without a pension tax card the provider withholds 40%, which is refunded or offset once the card arrives.

Visas: E-1, E-2, reciprocity and the Visa Waiver Program

Finland is a treaty country for both E visas. The State Department lists Finland for the E-1 treaty trader visa with entry into force on August 10, 1934, and for the E-2 treaty investor visa with entry into force on December 1, 1992. That makes the E-2 the natural route for a Finn who invests in and runs a US business.

The reciprocity fee is charged in addition to the MRV application fee.

For scouting trips, Finland is a Visa Waiver Program country: DHS lists Finland among the program countries, with VWP travel beginning October 1, 1991, and the State Department lists Finnish citizens as eligible to travel under the VWP.

To find the visa, structure and timing that fit your move, book a consultation with Mount Bonnell Advisors or start with the free potential analysis.