Work-based dividends follow wage or business source rules in Finland

Dividends based on a non-resident individual’s work contribution are tested as wages or business income when deciding whether they arise in Finland. Vero’s revised guidance on non-resident individuals clarifies that the income’s character determines the applicable source rule. It also expressly addresses disguised dividends and compensation for work performed outside a business or professional activityVeroVero.

A work-based dividend from an unlisted company is earned income where the articles of association, a shareholders’ meeting decision, a shareholders’ agreement or another agreement makes the recipient’s work, or that of someone within the recipient’s circle of interests, the basis for distribution. The income belongs to the person whose work generated itVero. Under the prepayment rules, it is work compensation unless it qualifies as wagesFinlex. A dividend does not become work-based merely because the company’s profits were generated by the shareholder’s work: the distribution basis mattersVero.

For a non-resident, Vero applies the wage or business-income source rules to these dividends according to their characterVero. For non-public-sector wages, work must be performed exclusively or mainly in Finland for an employer or principal located thereVero. Business or professional income arises in Finland when the business or profession is carried on thereVero; the domestic source rule does not itself require a Finnish permanent establishmentVero. Any applicable tax treaty may nevertheless restrict Finland’s taxing right.

Ordinary dividends from a Finnish company fall under the dividend source ruleVero. The revised guidance expressly confirms that disguised dividends also constitute Finnish-source incomeVero. Work-based dividends therefore require a separate classification assessment rather than automatic treatment under that dividend ruleVero.

The added guidance on non-business work compensation concerns income-earning activity that is neither business nor professional activityVero. Vero treats such compensation as Finnish-source income on principles corresponding to wages: the work must be performed exclusively or mainly in Finland for a principal located thereVero. Payers and advisers should establish the payment’s character and where the work was done before determining its Finnish tax treatment.

The legal framework is Tuloverolaki (1535/1992), sections 9, 10 and 33 b(3), Ennakkoperintälaki (1118/1996), sections 13, 13 a and 25, and Laki rajoitetusti verovelvollisen tulon verottamisesta (627/1978), section 1.