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Taxation in Finland
 
 
 

Business Taxation

Finland levies a corporate income tax of 26% on all Finnish corporate entities, irrespective of whether owned by Finnish or foreign residents. The corporate income tax rate of 26% also applies to capital gains and rental income.

Finland’s dividend taxation follows a classical system, under which corporate income is taxed in the hands of the company and then as dividends (with partial relief) in the hands of the shareholders at appropriate rates. Profit remittances from a Finnish branch to a foreign parent are not subject to withholding tax. There are no excess profits or alternative minimum taxes in Finland.

Entities treated as partnerships for Finnish tax purposes are regarded as transparent when assessing income; losses stay within the partnership and are carried forward under general rules. A Finnish partnership’s total (domestic and foreign-source) income is divided between the partners and taxed as their income. Partnership income is split into investment income (flat tax rate of 28%) and earned income (progressive tax rate) in the hands of individual (resident or non-resident) partners. The amount of investment income is calculated up to a maximum of 20% (annual) return on the net assets of the business activity (capital gains on real estate and securities included in the partnership income are always taxed as investment income). The remainder is taxed as earned income. For corporate partners, partnership income is regular business income and taxed at the flat rate of 26%.

Taxable Income and Rates

Taxable Income Defined

Finnish companies are taxed on their worldwide income; non-resident companies are taxed only on income sourced in Finland. A company is resident if it is registered (incorporated) or otherwise established under Finnish law. The activities or branches in Finland of a foreign company could give rise to a permanent establishment in Finland. A Finnish branch of a foreign company is, in principle, treated as a Finnish company for corporate income tax purposes.

Taxable income is determined based on the audited annual income statements. Some adjustments are made, that is non-taxable income will be deducted and non-tax deductible expenses will be added when calculating the taxable income. In addition to business income, capital and foreign-exchange gains are treated as ordinary taxable business income.

Dividends received by corporate entities are generally tax-exempt. However, under Finnish legislation, 75% of dividends is considered taxable income in certain cases (for instance, where the dividends are paid on shares accounted for as investment assets (only a financial institution, an insurance company or a pension institution can have investment assets)) unless the distributing company is an entity falling within the scope of the EC Parent-Subsidiary Directive and 10% of its share capital is owned by the recipient company. If the Parent-Subsidiary Directive applies, no tax is levied in Finland.

Dividends received from a non-EU member state, with which Finland does not have a tax treaty, are fully taxable.


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