| Taxable relocation allowances will count towards income subject to unemployment insurance contributions as of 1 January 2021. Legislative reforms have also been proposed regarding the unemployment insurance contributions payable for employee dividends and stock options. |
Unemployment insurance contributions will need to be paid for any taxable relocation allowances given to employees as of 1 January 2021. Employers will also need to enter any taxable relocation allowances as income subject to unemployment insurance contributions into the Incomes Register from January onwards. As before, no unemployment insurance contributions are payable for tax-free relocation allowances.
The tax treatment of relocation expenses changed in connection with the reform of the Income Tax Act at the beginning of 2020. Under the new rules, if an employee and their family need to relocate due to a change in the employee’s place of work, 50% of any relocation and travel costs paid by their employer are deemed to constitute living expenses and count as taxable income. The Finnish Tax Administration has issued detailed guidance for calculating the taxable and tax-free portions of relocation allowances.
As a rule, taxable allowances count towards income for which unemployment insurance contributions are payable. In the future, this rule will also apply to relocation allowances. At the moment the relocation allowances only trigger liability for the employment pension insurance, health insurance and the accident and occupational disease insurance contributions.
The new rule on unemployment insurance contributions is therefore in line with the rules applicable to other types of social insurance.
The Finnish Government introduced a bill on 5 October 2020 proposing a change to the portion of income on which unemployment insurance contributions are payable in respect of employee dividends, employee incentive stock options and employee share incentives as of 1 January 2021.
If the bill is adopted, unemployment insurance contributions will be payable for employee dividends as of the beginning of 2021. Employee dividends do not currently count towards the income used to calculate unemployment insurance contributions.
The bill also proposes to standardise the practice established in respect of employee stock options. The law currently states that employee stock options do not count as income for which unemployment insurance contributions are payable. However, the established practice is that income from employee stock options triggers liability for unemployment insurance contributions if the agreed subscription price is clearly below the fair value of the share at the time of the transaction.
The bill proposes to keep income from employee stock options separate from income for which unemployment insurance contributions are payable. However, liability for unemployment insurance contributions would be triggered if the agreed subscription price is significantly below the fair value of the share when the option is given and the employee exercises the option within one year.
The only change to the current practice would therefore be that undervalued employee stock options would trigger liability for unemployment insurance contributions if exercised within one year. The income on which unemployment insurance contributions are calculated would be the difference between the agreed subscription price and the fair value of the share at the time of the transaction.
The changes proposed in respect of employee dividends and stock options still need to be approved by the Parliament of Finland.
Further information:
Proposed unemployment insurance contribution percentages for the year 2021
Payment liability for unemployment insurance contributions
