Ministry of Finance requests opinions on proposals for income tax in draft budget 2020

On August 19, the Ministry of Finance sent a number of proposals for income tax implementation to implement the government program. The proposals concern, inter alia, the partial exemption of removals costs, the reduction of the tax rate for non-resident employees, the reduction of the household deduction and the progressive reduction of the right to deduct interest on housing loans.

Finance Minister Mika Lintilä's draft budget for 2020 was published on August 16. The proposal contains tax proposals, of which amendments on income taxation have now been submitted for consultation.

Partially tax-free removal costs paid by the employer

Workers' mobility would be promoted by providing half of the employer's migration costs tax-free. Currently, the removal costs paid by the employer are regarded as fully taxable income for the employee. The purpose of the measure is to help facilitate the reception of a job in another location.

The law on withholding tax on a foreign worker would be made permanent and the tax rate reduced

The law on withholding tax on a foreign employee, the so-called Key Persons Act, would be made permanent. At the same time, the withholding tax of 35% in the Act would be reduced to 32%. The rate of withholding tax has not been changed during the term of the law, although taxation on earned income has generally been reduced during that period. 

The purpose of the changes is to increase the predictability of taxation and to encourage foreign experts to take up work in Finland. 

The household deduction would be reduced

Under the government program, the ceiling for household deduction would be reduced from EUR 2 400 to EUR 2 250. The proportion of the reduction in allowances would be reduced from 50% to 40% and in salaries from 20% to 15%.

The change is estimated to increase tax revenues by approximately EUR 95 million annually. Even after the change, the amount of household reduction would remain at a significant level. 

The right to deduct interest on housing loans would be gradually reduced

The right to deduct interest on housing debt would be gradually reduced during the term of the Board. Next year, 15% of the mortgage interest deductible would be deductible. From now on, the deductible proportion would be reduced by 5 percentage points per annum, so that from 2023 the right to deduct interest on mortgages would be completely abolished.

The change is estimated to increase income tax revenue in 2020 by approximately EUR 28 million. 
According to a static calculation based on current interest rates, the abolition of the right to deduct interest on housing debt is estimated to increase annual income tax revenue by some EUR 70 million in 2023.

The concept of corporate income tax law would be reduced

In order to simplify the tax procedure, the concept of a tax group in the Income Tax Act would be reduced. The mere fact that two or more persons jointly own a property other than a farm or forest property would no longer automatically constitute a tax group. 

Proposals for tax changes to be presented in the context of the 2020 draft budget were sent to the opinion on 19 August 2019. The consultation period ends on 6 September 2019. A request for the opinion and material will be published in the Project Window Link to another site . 

 

 

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