Ennakonpidätyksessä

Ennakonpidätyksessä refers to the Finnish term for withholding tax. It is a system where the payer of income is obligated to deduct a portion of the payment and remit it directly to the tax authorities on behalf of the recipient. This mechanism is primarily used for income that is not immediately taxed through an annual income tax assessment.

Common types of income subject to ennakonpidätyksessä include wages and salaries, pensions, rental income, interest, and dividends. The rate of withholding tax varies depending on the type of income and the recipient's tax circumstances. For instance, wage earners typically have withholding tax deducted according to their pre-determined tax card, which is issued by the Finnish Tax Administration (Verohallinto).

The purpose of ennakonpidätyksessä is to ensure that taxes are collected throughout the year rather than solely at the end of the tax year. This smooths out the government's revenue stream and helps individuals manage their tax obligations more effectively, preventing large tax bills upon annual assessment. The payer is responsible for accurately calculating and remitting the withheld tax. Failure to do so can result in penalties for the payer. The recipient of the income receives the net amount after the withholding tax has been deducted. This withheld amount is then credited towards their final income tax liability.