Legal Services
Reino Hyvärinen
A. At a glance
Withholding Tax (%) (b)
Mobile: +358 (40) 764-7484
Email: reino.hyvarinen@fi.ey.com
0/15/20/30/35 (c)(d)
0/20/30 (c)(e)
(c)(f)
(a) See Section B.
(b) The withholding taxes generally apply only to payments to nonresidents. The rates may be reduced by tax treaties.
(c) The 20% withholding tax rate applies if the nonresident recipient qualifies as a corporation for Finnish tax purposes. The 30% withholding tax rate applies if the nonresident recipient does not qualify as a corporation for Finnish tax purposes. The 35% withholding tax rate applies to a dividend distributed on nominee-registered shares of a Finnish publicly listed company if the recipient is not identified prior to the payment or if the dividend beneficiary has not agreed to disclose its information to the Finnish tax authorities.
(d) No withholding tax is imposed on dividends paid to a parent company resident in another European Union (EU) country if the recipient of the dividends satisfies the following conditions:
• It holds directly at least 10% of the capital of the payer.
• The recipient of the dividend is a company qualifying under Article 2 of the EU Parent-Subsidiary Directive.
• The recipient qualifies as the beneficial owner of the income item. Companies resident in EU or European Economic Area (EEA) Member States are generally eligible for the tax exemption for dividends under the same conditions as comparable Finnish companies if the Finnish withholding taxes cannot be credited in the company’s state of residence and if sufficient exchange of information may take place between Finland and the state of residence of the recipient. Dividends paid to a company resident in an EU/ EEA Member State are subject to withholding tax at a rate of 15% if the shares constitute investment assets of the recipient company and the recipient owns less than 10% of the Finnish company.
(e) Interest paid to nonresidents is generally exempt from tax unless the loan may be deemed comparable to an equity investment. In general, interest paid to resident individuals is subject to a final withholding tax of 30% if it is paid on bonds, debentures and bank deposits.
(f) No withholding tax is imposed on royalties paid to nonresidents if all of the following conditions are satisfied:
• The beneficial owner of the royalties is a company resident in another EU country or a permanent establishment located in another EU country of a company resident in an EU country.
• The recipient is subject to income tax in its home country.
• The company paying the royalties, or the company whose permanent establishment is deemed to be the payer, is an associated company of the company receiving the royalties, or of the company whose permanent establishment is deemed to be the recipient.
A company is an associated company of another company if any of the following apply:
• The first company has a direct minimum holding of 25% in the capital of the second company.
• The second company has a direct minimum holding of 25% in the capital of the first company.
• A third company has a direct minimum holding of 25% in both the capital of the first company and the capital of the second company.
Royalties paid to resident individuals are normally subject to salary withholding.
(g) See Section C.
tax. A penalty charge can be added even though the adjustment does not result in additional income taxes (a change in the taxable income amount is sufficient). Also, interest is charged on the additional tax (but not on the penalties) at a specified rate (7% for 2023 and 11% for 2024). Neither the penalty nor the interest is deductible when calculating taxable income.
Dividends. A dividend received by a Finnish corporate entity from a company resident in Finland or from a “company,” as defined in Article 2 of the EU Parent-Subsidiary Directive, is usually exempt from tax. The exemption also applies to dividends received from any other company resident in another EU/EEA country if the company paying the dividends is liable to pay income tax of at least 10%. If a Finnish corporate entity receives a dividend from a company resident in a non-EU/EEA country, the dividend is usually fully (100%) taxable.
The dividend is also fully taxable if the company paying the dividend can deduct the dividend in its tax calculation.
By exception, a dividend received by an unlisted Finnish corporate entity from a listed company is fully (100%) taxable, unless the listed company is resident in Finland or in an EU/EEA country and the recipient owns at least 10% of the shares in the distributing company.
Distribution of funds from invested unrestricted equity capital. The return of invested unrestricted equity to shareholders in listed companies is taxed as dividend income. The return of the invested unrestricted equity from an unlisted company may be treated as a repayment of capital if the recipient can show that the recipient has made an investment to the company and that the invested capital is returned within 10 years from the time the investment was made.
Foreign tax relief. If no tax treaty is in force, domestic law provides relief for foreign tax paid. The credit is granted if the recipient Finnish corporation pays corporate income tax on qualifying foreign-source income in the same year. If the Finnish company does not have any corporate income tax liability that year, no credit is granted. Foreign tax credits may be carried forward five years under certain conditions. Foreign tax credits may not be carried back.
Under tax treaties, foreign tax is most frequently relieved by a tax credit.
C. Determination of trading income
General. Taxable income is closely tied to the income in the statutory accounts. Most of the deductions must be booked in the statutory accounts to be deductible for tax purposes. As stated in the tax law, the definitions of both income and expenses are general and broad.
In general, expenses are deductible if they are incurred for the purpose of generating or maintaining taxable income. Fifty percent of entertainment expenses is deductible for tax purposes. Expenses incurred to obtain tax-exempt income, as well as income taxes and penalties, are not deductible.
Inventories. Inventories are valued at the lowest of cost, replacement cost or market value on a first-in, first-out (FIFO) basis. Companies may allocate fixed manufacturing overhead to the cost of inventory for accounting and tax purposes if certain conditions are met. Obsolete inventories should be provided for or discarded.
Provisions. In general, the possibility of establishing provisions or reserves for tax purposes is relatively limited. Deductions of warranty reserves and provisions for doubtful debts are limited to the amount of actual expected costs. These provisions are only available for certain types of taxpayers under certain conditions.
Tax depreciation. The Business Tax Act provides detailed rules for the depreciation of different types of assets. The depreciable base is the acquisition cost, which includes related levies, taxes and installation costs. The depreciation expense for tax purposes is not permitted to exceed the cumulative depreciation expense reported in the annual financial statements in the current year or in previous years. Plant machinery, equipment and buildings are generally depreciated by using the declining-balance method.
Machinery and equipment are combined into a pool for depreciation purposes. Companies may vary the annual depreciation in this pool from 0% to 25%. All machinery and equipment with a life of more than three years are classified as depreciable assets. The depreciable basis is decreased by proceeds from sales of assets in the pool. If the sales price exceeds the depreciable basis, the excess is added to taxable income. If it can be proven that the remaining balance of all machinery and equipment is higher than the fair market value as a result of injury, damage or a similar circumstance, additional depreciation may be claimed for the balance of the machinery under specific conditions.
Equipment with a short life (up to three years), such as tools, is usually expensed. Equipment with an acquisition price of less than EUR1,200 may also be expensed, with a maximum deduction of EUR3,600.
The maximum depreciation rates for buildings vary from 4% to 20%. The depreciation percentage depends on the use of the building. The depreciation rate for factories, warehouses, shops and similar buildings is 7%.
Intangible assets, such as patents and goodwill, are depreciated using the straight-line method over 10 years, unless the taxpayer demonstrates that the asset’s useful life is less than 10 years.
The rules concerning the depreciation of machinery and equipment and similar movable fixed assets for the 2020 to 2023 tax years were temporarily amended. Under the new rules, during the 2020 to 2023 tax years, a taxpayer carrying out business activities may annually book for tax purposes depreciation up to 50% on machinery and equipment instead of the general 25%. The assets should be used in the taxpayer’s business and should be included in the taxpayer’s pool of movable fixed assets for tax purposes. In addition, it is required that the machinery or equipment be taken into use on 1 January 2020 at the earliest and that the acquired machinery or equipment must be new; that is, it cannot be used. At the end of 2022, the rules were extended to
apply also to the 2024 and 2025 fiscal years (that is, new assets taken into use during these fiscal years).
Additional research and development deduction. New rules concerning an additional tax deduction for expenses related to research and development (R&D) entered into force on 1 January 2021 and apply for the 2021 through 2025 fiscal years. The applicability of the rules was extended at the end of 2021 so that the rules now apply for the 2021 through 2027 fiscal years. A taxpayer may apply the additional deduction for R&D activities related to its business. The deduction is based on subcontracting invoices from a research organization operating in the EEA that meets certain requirements. The amount of the additional deduction is 50% of approved R&D expenses invoiced by the research organization. Effective for the tax assessment for the 2022 fiscal year and onward, the amount of the additional deduction is 150% of approved R&D expenses invoiced by the research organization. The maximum amount of the additional deduction is EUR500,000 per fiscal year, and the deduction is not granted if the deductible amount is less than EUR5,000 per fiscal year. The deduction is available also for a Finnish permanent establishment of a nonresident taxpayer.
Parallel to the above, rules concerning an additional R&D expenses related deduction entered into force on 1 January 2023. This deduction is a combination incentive with the following two elements:
• The basic element is an additional deduction (general additional deduction) based on the expenses related to the R&D activities of the taxpayer (salaries of the taxpayer’s R&D personnel and expenses related to purchased R&D services).
• An additional element (supplementary additional deduction) is an additional deduction based on an increase in the amount of the R&D expenses in comparison with the previous fiscal year.
The general additional deduction is 50% of the expenditure calculated as a basis for the additional deduction. However, the amount to be deducted in a tax year should be at least EUR5,000, and the upper limit for the general additional deduction is EUR500,000 per fiscal year. The supplementary additional deduction amounts to 45%, and it is based on the increased total expenditure on salaries and purchased services in R&D activities. The basis is the difference between the items of expenditure on which the general additional deduction is based and the corresponding items of expenditure in the previous fiscal year. As with the general additional deduction, the maximum amount of the supplementary additional deduction is EUR500,000 per fiscal year. There is no lower limit for the supplementary additional deduction. The rules on the general additional deduction apply from the tax assessment for the 2023 fiscal year while the rules on the supplementary additional deduction apply from the 2024 fiscal year. The additional deductions cannot be obtained for exactly the same expenditure for which an additional deduction or other public aid has already been granted under other provisions.
Relief for losses. Losses may be carried forward for 10 years. However, a direct or indirect change in the ownership of the company involving more than 50% of the shares results in the
tax penalty of up to 30% of the adjusted amount of income for tax assessment of the 2017 fiscal year and earlier years. From the tax assessment of the 2018 fiscal year and future years, a tax penalty of up to 10% of the adjusted amount of taxable income may be imposed on a corporation and, in certain special cases, the penalty may be up to 50% of the amount of adjusted tax. The adjusted amount of tax also incurs penalty interest.
Country-by-Country Reporting obligations are also implemented under Finnish domestic law, with an annual obligation to file a notification regarding the reporting group entity with the Finnish tax authorities.
The Finnish transfer-pricing adjustment provision has been amended, and the new formulation of the provision applies to tax assessments for the 2022 fiscal year and onward. The amended provision contains new separate rules that allow the delineating and disregarding of related-party transactions, which expands the scope of the earlier transfer-pricing adjustment provision.
Debt-to-equity rules. Finland does not have any specific thincapitalization legislation. The law does not provide a specific debt-to-equity ratio, and a very limited amount of case law exists. Interest determined on an arm’s-length basis on a loan obtained for business purposes is normally fully deductible. In the case of insufficient business reasons for the loan, the deductibility of the interest might be challenged through application of the general anti-avoidance provision.
Interest deduction limitation rules. The restrictions on the tax deductibility of interest do not apply if the taxpayer establishes that the ratio of its book equity to total assets in the financial statements is equal to or higher than the corresponding ratio in the consolidated financial statements of its ultimate parent company. Starting from the tax assessment for the 2022 fiscal year, when making the above equity to total assets comparison, debt on the consolidated group financial statements that has been granted by related parties, as defined under the Finnish provisions, is considered to be equity in the consolidated group financial statements for the purposes of the comparison of the ratios. Furthermore, for the tax assessment for the 2023 fiscal year and onward, the balance-sheet exemption does not apply if the amount of interest paid to certain associated parties in the consolidated group financial statements is at least 20% of all interest paid outside the group.
Under the above provisions, interest expenses are fully deductible against interest income. Any interest expenses exceeding interest income (that is, net interest expenses) may be fully deducted if the total amount of net interest expenses does not exceed EUR500,000 during the fiscal year.
If the EUR500,000 threshold is exceeded, net interest expenses may be deducted only to the extent that they do not exceed 25% of the taxable business profit (calculated under Section 3 of the Finnish Business Income Tax Act) after adding back the following:
• Interest expenses
• Tax depreciation
• Group contributions received (group contributions paid are subtracted)
Non-related-party net interest expenses are deductible up to EUR3 million, and they are deducted primarily as a part of the 25% tax earnings before interest, tax, depreciation and amortization (EBITDA) quota.
The rules described in the preceding paragraph do not apply to non-related-party interest expenses from loans (for example, bank loans) obtained before 17 June 2016. The exception does not apply to later changes of the loans that would affect the amount of the loan or the loan period.
In general, the rules do not apply to financial institutions and to insurance and pension companies. Based on the so-called infrastructure exception, the new rules also do not apply to social housing projects that have received interest subsidies.
The nondeductible amount of interest expenses may be deducted during subsequent years within the respective limitations for each tax year.
Controlled foreign companies. A foreign permanent establishment (PE) of a foreign corporation is categorized as a controlled foreign company (CFC) under the same conditions as subsidiaries if the foreign PE is located in a different state than the foreign corporation and if the income of the foreign PE is not taxed in the residence state of the foreign corporation. To determine whether a company is a CFC, the steps described below must be followed:
It first must be determined whether the company is controlled by a Finnish resident either alone or with related parties (resident or nonresident). If not, the CFC rules do not apply. Under the rules applicable from the 2019 tax assessment, a company is controlled by Finnish residents if residents of Finland for tax purposes own directly or indirectly more than 25% of the share capital or the voting shares of the company or if one or more Finnish tax residents are entitled to at least 25% of the profits or the return on capital of the company.
In addition, the foreign company’s effective tax rate in its country of residence should be less than three-fifths of the Finnish corporate income tax rate (that is, less than 12%).
If both of the above conditions are fulfilled, the foreign company is considered as a CFC for Finnish tax purposes unless an exemption, as described below, applies.
Under the rules applicable from the 2019 tax assessment, a foreign company is not considered a CFC if it is genuinely established in the jurisdiction of its tax residence and if it carries out genuine economic activities in that jurisdiction. The description of genuine economic activities remains largely in line with the description earlier applicable to EEA resident entities. However, in addition to the conditions related to the genuine establishment in terms of personnel, premises and assets, companies tax resident in a jurisdiction outside the EEA fall within the scope of the exemption only if the following conditions are fulfilled:
• The company’s income mostly arises from industrial production activities, other comparable production or service activities, shipping activities, or sales or marketing activities directly serving these activities, and the activities are carried out in the jurisdiction of the company’s tax residence, or the company’s
Dividends (w) Royalties (y) %
Russian Federation 5/12 (p) 0
Serbia (s) 5/15 (b) 10
Singapore 5/10 (f) 5
Slovak Republic 5/15 (b) 0/1/5/10 (hh)
Slovenia 5/15 (b) 5
South Africa 5/15 (aa) 0
Spain (nn) 5/15 (f) 0
Sri Lanka (mm) 7.5/10 (b) 10
Sweden 0/15 (aa) 0
Switzerland 0/10 (aa) 0
Tajikistan 5/15 (b) 5
Tanzania 20 20
Thailand 15/20/30 (n) 15
Türkiye 5/15 (b) 10
Turkmenistan 5/15 (b) 10
Ukraine 5/15 (a) 0/5/10 (z)
United Arab
Emirates 0 0
United Kingdom 0 0
United States 0/5/15 (f)(o) 0
Uruguay 5/15 (b) 5/10 (gg)
Uzbekistan 5/15 (f) 0/5/10 (ee)
Vietnam 5/10/15 (x) 10
Zambia 5/15 (b) 0/5/15 (q)
Non-treaty jurisdictions 20 20
(a) The lower rate applies if the recipient is a corporation owning at least 20% of the payer.
(b) The lower rate applies if the recipient is a corporation owning at least 25% of the payer.
(c) The rate is 0% for royalties received for the use of, or the right to use, copyrights of literary, artistic or scientific works, including cinematographic films or tapes for television or radio broadcasting.
(d) The most-favored-nation clause has led to the application of 0% withholding tax on royalties under the tax treaty.
(e) Copyright royalties for the production or reproduction of any literary, dramatic, musical or artistic work (other than motion picture films) are exempt from tax.
(f) The lower rate applies if the recipient is a company owning at least 10% of the voting power of the payer.
(g) The rate is 10% for royalties for copyrights of literary, artistic or scientific works, including films and tapes; otherwise, the rate is 15%.
(h) The 5% rate applies if the recipient is a corporation owning at least 25% and more than EUR200,000 of the capital of the payer.
(i) The rate is 0% for royalties received for the use of or the right to use any copyright of literary, artistic or scientific work, excluding cinematographic films or films and tapes for television or radio broadcasting.
(j) The 10% rate applies if the recipient has owned at least 25% of the voting rights of the payer for at least six months before the end of the payer’s fiscal year. The 15% rate applies to other dividends.
(k) The lower rate applies to royalties paid for the use of computer software and for equipment leasing.
(l) The rate is 15% for royalties paid by an enterprise registered with and engaged in preferred areas of activities, for royalties for cinematographic films or tapes for television or broadcasting, and for royalties for the use of, or the right to use, any copyright of literary, artistic or scientific work.
(m) The 0% rate applies if the recipient is a corporation owning at least 5% of the payer.
(n) The 20% rate applies if the recipient of the dividends is a corporation that owns at least 25% of the payer. The 15% rate applies to dividends paid by industrial enterprises to recipients described in the preceding sentence. Otherwise, the domestic rates of 20% or 30% apply.