General Features of
Finnish Corporate
Taxation
Jouni Honka-aho
GENERAL FEATURES OF FINNISH
CORPORATE TAXATION
• The usual form of doing business in Finland is a limited liability
company (osakeyhtiö). Sometimes foreign enterprises start their
activities in Finland with mere branches.
– Both branches and limited liability companies are treated as
separate tax subjects.
• Also limited partnerships are used, especially for private equity
fund activities.
– Limited partnerships are flow-through entities, i.e. profits of
limited partnerships are taxed in the hands of their partners.
• Corporate profits are subject to national corporate income tax
(CIT), which is currently 24.5% calculated on the net profits.
TAXABLE INCOME, DEDUCTIBLE EXPENSES
AND TAX LOSSES
• Individuals and corporations with unlimited tax liability in Finland
are liable to pay tax on all their worldwide profits.
– Exceptions include, for example, the fairly broad participation
exemptions applicable to dividends received and to capital gains
from share sales.
• Generally, expenses incurred in obtaining or preserving taxable
income are deductible. Similarly, interest expenses are generally
fully deductible.
– However, aggressive intra-group leveraging may need to be
scrutinized in order to prevent the application of anti-avoidance
rules.
• Losses derived from business activities may be carried forward to
used to offset business income for the following 10 tax years.
• Direct or indirect changes in ownership may under certain
circumstances result in forfeiture of the carried-forward tax losses.
REPATRIATION OF PROFITS AND
WITHHOLDING TAXATION
Dividends and royalties
• Withholding tax (WHT) applied at the rate of 24.5%, unless they
qualify for a domestic/EU exemption or a tax treaty provides for a
lower rate.
– For example, in accordance with the Finland-Russia tax treaty,
a WHT of 12% is applicable to dividends. The WHT rate is 5%
if the Russian dividend receiving entity holds at least 30% of
the voting rights and has invested foreign capital in excess of
$100 000 in the Finnish entity distributing dividend.
• As regards royalties paid to Russia, no WHT is levied in Finland
provided the amount of royalty is at arm’s length.
Interests
• Interests paid by Finnish companies to abroad are normally not
subject to Finnish WHT.
CONSOLIDATION AND TAX COMPLIANCE
• No consolidation regime exists. Profits may be balanced between
affiliated Finnish companies (or Finnish permanent establishment)
through group contributions under certain conditions (including,
e.g. the ownership requirement of at least 90%).
• The group contributions between affiliated companies are deducted
from the taxable profits of the contributing company and added to
the taxable income of the recipient company.
• Tax returns of corporate taxpayers are due within 4 months of the
closing of the financial year. The final assessment is issued by 31
October of the year following the tax year.
– Usually monthly tax prepayments based on the income
estimation are credited against final taxes and any deficit will
be imposed and any surplus refunded with interest.
• Taxpayers may apply for advance rulings from tax offices or the
Central Tax Board in most common tax-related questions.
TAX INCENTIVES AND ANTI-AVOIDANCE
Incentives
• No major tax incentive schemes exist.
– Temporary accelerated depreciations.
– Tonnage tax system
Anti-avoidance regulation
• General anti-avoidance rule (substance over form).
• Specific transfer pricing rules and documentation requirement.
– In line with the OECD rules.
• Currently no specific thin capitalization or interest barrier
regulation.
– Prevention of thin capitalization arrangements is based on the
general anti-avoidance rule.
• Controlled Foreign Corporation (CFC) legislation.
CONTACT INFORMATION
Jouni Honka-aho
Senior Associate
Direct
+358 9 6153 3267
Mobile +358 50 512 4749
Email
jouni.honka-aho@borenius.com
Attorneys at law Borenius Ltd
Yrjönkatu 13 A, FI-00120 Helsinki, Finland
Office +358 9 615 333 Fax +358 9 6153 3499
info@borenius.com - www.borenius.com