Voluntary health insurance policies carry a tax risk

If your company operates in Finland, it is important to understand how employer-provided health insurance is treated for tax purposes under Finnish tax rules.

According to the Finnish Tax Administration, health insurance arranged by an employer can be tax-exempt for employees if certain conditions are met. First, the insurance must be taken out by the employer, not by the employee. Second, the employer must pay the insurance premiums directly to the insurance company.

In addition, the cost of the insurance must be considered reasonable. While Finnish tax legislation does not define an exact amount, in practice the Finnish Tax Administration generally considers insurance premiums of approximately EUR 1,000 per insured employee per year to be reasonable.

When does health insurance become taxable?

If the insurance premiums exceed what is considered reasonable, the health insurance is treated as a taxable employment benefit. In this case, the value of the insurance must be included in the employee’s taxable income in Finland.

For the employer, this also means additional payroll-related costs and reporting obligations. Premium increases can therefore create unexpected costs, particularly for foreign companies that are not familiar with Finnish benefit taxation or where insurance costs fluctuate from year to year.

Ongoing monitoring is essential

To keep health insurance tax-exempt, employers must actively monitor the development of insurance premiums. If premiums increase beyond the acceptable level, the employer is required to report the insurance premiums paid to the Finnish Tax Administration as part of its periodic payroll tax reporting.

Insurance companies do not always notify customers in advance of premium increases. For this reason, companies operating in Finland should not rely solely on automatic invoicing or renewal processes.

Impact on employees in Finland

From the employee’s perspective, a change from a tax-exempt benefit to a taxable one results in higher personal taxation and lower net pay. This often comes as a surprise, as employees typically do not know the cost of their health insurance and have no influence over premium levels.

In many Finnish companies, voluntary health insurance is integrated into occupational health care arrangements and premiums are paid automatically. As a result, employees may only notice the issue when additional tax appears on their payslip.

How can foreign companies manage the risk?

Foreign companies with employees in Finland should take a proactive approach to managing tax risks related to voluntary health insurance. This includes regular reviews of insurance costs, discussions with insurance providers, and close cooperation with local advisors.

It is recommended to appoint a responsible person within the organization or use a local insurance broker who understands Finnish tax rules and can monitor premium developments on an ongoing basis. Insurance costs and potential tax impacts should also be included in budgeting and financial planning.

Communication and expert support

Any changes that may affect employees’ taxation should be communicated clearly and in advance. Transparent communication helps avoid confusion and dissatisfaction among employees.

Voluntary health insurance can be an important employee benefit in Finland and may support recruitment and retention. However, to avoid tax-related surprises, companies should ensure that insurance arrangements are regularly reviewed and aligned with Finnish tax requirements.

If your company uses an insurance broker in Finland, they can typically manage this process and act as a link between insurance providers and the tax authorities. If you would like to discuss your situation in more detail, our experts are happy to help.