Our clients often ask as about possibilities of booking some part of their apartment/house costs as business costs as they conduct some part of business activities from home. Every country has their own specific rules on what kind of home-office related costs are accepted business costs and which are not. Thus, we have provided this brief overview of what are the main options for entrepreneurs in Finland.

 

 

 

 

 

 

 

In Finland, there are usually four main options:

• Accommodation benefit
• Company renting space from an individual
• Proportional actual cost as a taxable income deduction or
• State-provided fixed taxable income deduction.

 

Let’s look into each of the four options and describe them in a bit more detail.

 

Accommodation benefit (asuntoetu)

 

The accommodation benefit is a taxable benefit available for people in the employee position and is considered a part of employment income (kokonaispalkka). Thus, this is available for people earning a salary/wage from their work, not for sole traders (yksityinen elinkeinoharjoittelija). Please don’t mix this up with the housing benefit provided by Kela.

 

In this option the accommodation (apartment or house etc.) is owned by the company and the company makes it available for the employee to live there and possibly work as well. All the costs of the apartment are booked in the company’s accounting. The employee receiving this benefit is paying income tax on the taxable amount of the benefit, which is calculated based on numerous variables defined by the Tax Administration. Thus, this option includes a significant addition to the employee’s taxable income and effects the income tax amount the person pays. The formulas for calculating the benefit are updated annually by the Finnish Tax Administration and are published together with other fringe benefit amounts (e.g. meal-, phone and vehicle benefit).

 

Renting space from an individual

 

Renting a room or another part of your home to your company often comes to entrepreneur’s minds. This is definitely an option to have compensation for your personal property, which you use for business purposes. In this case it is wise to prepare a rental contract and describe what exactly is rented to the company and under which terms. This way you can pay a rather stable amount to yourself as compensation for letting the company use your spare space. The amount of rent paid based on the contract should be up to the amount paid for similar space in comparable open market conditions. If your rent is more than the amount payable in case you rent similar space from other property owners, then you risk attracting extra taxes as the Tax Administration can view your transaction as allocation of profit. While using this option, you also need to keep in mind that the private recipient of the rental income is liable for income tax on the rental income (30% or 33% in 2015 based on the amount of annual income).

 

Proportional actual cost as a taxable income deduction

 

We have heard from many clients that they have previously used the proportional actual cost method in the country where they used to live. In Finland it is possible for an employee and an entrepreneur to use the proportional amount of some of their personal accommodation costs as a taxable income deduction (työhuonevähennys in Finnish). This means that you may be able to claim part of your rent and/or utilities and cleaning fees as costs of earning income, which decrease your total taxable income and make it possible to pay less income tax.

 

In this option the company does not pay for anything related to using one room or a personal storage facility of your home for business purposes. Instead, the employee, whose home space is being used, claims a proportion of his/her rent and/or utilities fees back from the Tax Administration in the personal income tax declaration procedure. The procedure is not very complicated, but you would still need to know what you are doing. This process with proportional costs is somewhat tricky as there are specific requirements that need to be in place in order for you to be able to claim those costs. For example, the space being used for business needs to be clearly separated from other facilities and needs to be used only for business purposes. Being clearly separated from other facilities means usually that it needs to be a separate room or area with a door. The Tax Administration has historically taken an interest in people claiming this option and asking for detailed descriptions of the space and its use supplemented by a floor plan for example indicating that the area is clearly separated from other use. There have known to also be inspection visits carried out by the Tax administration officials to verify the accuracy of people’s claims.

 

State-provided fixed taxable income deduction

 

Finland has provided annual fixed amounts of income tax deductions to cover the costs of using personal home space in earning an income. In principle it is a similar thing to that described in the previous section. The state provided amounts are also costs of earning income. The difference from the previous paragraph is the fact that the amounts described in this one are fixed by the state every year. In 2015 the fixed deduction amounts are:

 

• 820€ per year for people whose employer has not arranged a work room for them and who use a room in their home for earning income from their main activity
• 410€ per year for those who use a room in their home for working there
• part-time for their main occupation
• regularly for earning considerable additional income
• 205€ per year for those using their personal space for earning additional income every now and then
• If both spouses are partly using a room in their home in their main occupation or regularly using it in obtaining additional income, then the deduction amount is 615€ per year in total for both of them.

Lauri Kuljus

 

I hope this brief overview is helping you make better decisions. There might also be other tax deductions available to you. Please contact our specialist for more information or book a session to analyze your tax situation and find ways of optimizing your tax payments and using all available tax deductions for your business and personal purposes.

 

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