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General Features of Finnish Corporate Taxation

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.

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General Features of Finnish Corporate Taxation

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  1. General Features of Finnish Corporate Taxation Jouni Honka-aho

  2. 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.

  3. TAXABLE INCOME, DEDUCTIBLE EXPENSESAND 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.

  4. 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.

  5. 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.

  6. 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.

  7. CONTACT INFORMATION 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 Jouni Honka-aho Senior Associate Direct +358 9 6153 3267 Mobile +358 50 512 4749 Email jouni.honka-aho@borenius.com

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