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Finland

General Information

Country Name: Finland
Currency: Euro (EUR, €)
Primary Tax Authority: Finnish Tax Administration (Verohallinto)

Key Legislation:

  • Constitution of Finland (Suomen perustuslaki): Establishes the legal framework for taxation and the duties of public authorities.
  • Income Tax Act (Tuloverolaki): Governs the taxation of personal and corporate income.
  • Value Added Tax Act (Arvonlisäverolaki): Regulates the imposition of VAT on goods and services.
  • Tax Procedure Act (Laki verotusmenettelystä): Outlines tax administration procedures, appeals, and compliance.
  • Act on International Tax Relations (Laki kansainvälisistä verosuhteista): Establishes rules for cross-border taxation and the application of tax treaties.

Tax Authority and Collection Competence

Fiscal Authority Allocation:
Finland has a centralized tax system, with most taxes being administered by the Finnish Tax Administration.

Taxes Collected by Central Authorities:
Personal and corporate income taxes, VAT, and excise duties are collected centrally.

Revenue Sharing Mechanisms:
Municipalities receive a portion of the income tax revenues, which helps fund local services. There is a distinction between state, municipal, and church taxes, with separate collection but coordinated processes.

Corporate Income Tax (CIT)

  • Standard CIT Rate: 20%
  • Taxable Income Definition: Companies are taxed on their worldwide income. Foreign companies are taxed only on Finland-sourced income.
  • Deductible Expenses: Expenses incurred in generating taxable income are deductible, including salaries, interest, and R&D costs.
  • Loss Carryforwards/Carrybacks: Losses can be carried forward indefinitely, but carrybacks are not permitted.
  • Tax Incentives: Tax incentives exist for research and development (R&D) activities, environmental projects, and certain energy-efficient investments.

Value-Added Tax (VAT)

  • Standard VAT Rate: 24%
  • Reduced VAT Rates: 14% (on food and restaurant services), 10% (on cultural events, medicines, books, and passenger transport).
  • Exemptions: Financial services, healthcare, and education are generally VAT-exempt.
  • VAT Scope: Most goods and services are subject to VAT, with some exemptions and reduced rates applying.

Personal Income Tax (PIT)

  • PIT Rates: Finland has a progressive personal income tax system with state, municipal, and church taxes.
    • National income tax rates range from 6% to 31.25%.
    • Municipal income taxes range from 16.5% to 23.5%, depending on the municipality.
  • Municipal Tax: This tax is paid alongside national income tax and varies across municipalities.
  • Deductions: Common deductions include mortgage interest, student loan interest, and pension contributions.
  • Foreign Income: Residents are taxed on their worldwide income. Non-residents are taxed on income sourced in Finland.

Additional Mandatory Contributions

Overview:
In addition to income tax, there are mandatory contributions for social security.

  • Employer Contributions: Employers pay 20.15% of gross wages for social security, including pension and health insurance contributions.
  • Employee Contributions: Employees contribute 7.15% of gross wages for pension and health insurance.
  • Pension Contributions: Both employers and employees contribute to the earnings-related pension system.

Withholding Taxes

  • Dividends: 20% withholding tax on dividends paid to non-residents, which may be reduced under tax treaties.
  • Interest: No withholding tax on interest payments to non-residents.
  • Royalties: 20% withholding tax on royalties, reduced under applicable tax treaties.
  • Tax Treaty Benefits: Finland has a wide network of tax treaties that reduce withholding taxes on dividends, interest, and royalties.

Transfer Pricing Rules

  • Documentation Requirements: Finland adheres to the OECD transfer pricing guidelines. Multinational companies must prepare documentation to demonstrate that related-party transactions comply with the arm’s length principle.
  • Penalties: Non-compliance with transfer pricing regulations can lead to significant penalties, including fines and adjustments to taxable income.

Special Tax Regimes

  • Holding Companies: Finland offers favorable tax treatment for holding companies, particularly for dividends and capital gains from shares.
  • R&D Incentives: Companies engaged in R&D may benefit from deductions or credits, particularly for innovative projects and technological advancements.
  • Energy Taxation: Finland provides tax relief for companies involved in renewable energy projects and energy-efficient technologies.

Other Taxes

  • Real Estate Transfer Tax: 4% of the property’s value for buildings and land, 2% for share transfers in housing companies.
  • Capital Gains Tax: Capital gains are taxed at progressive rates of 30% (up to €30,000) and 34% (on income exceeding €30,000).
  • Inheritance and Gift Tax: Progressive rates apply, ranging from 10% to 20% for close relatives and 33% for others.
  • Property Tax: Municipalities levy property taxes, with rates typically ranging from 0.41% to 1.0% for residential properties and up to 3% for commercial properties.

Double Taxation Agreements (DTAs)

Key Partner Countries:
Finland has tax treaties with over 70 countries, including the United States, Germany, China, and other EU member states. These treaties reduce withholding taxes and prevent double taxation on income and capital.

Local Taxes

Municipal Income Taxes:
Municipalities levy their own income taxes, with rates ranging between 16.5% and 23.5%, depending on the municipality.

Compliance and Reporting

  • Corporate Tax Filing Deadlines: Corporate tax returns are due by April 30th of the following year.
  • VAT Filing Requirements: VAT returns are typically filed monthly or quarterly, depending on the company’s turnover.
  • Penalties: Late filing or payment of taxes results in interest charges and penalties. Non-compliance with reporting requirements can result in significant fines.

Recent Developments

Recent Tax Law Changes:
Finland has recently made several adjustments to its tax laws to ensure compliance with international tax standards, particularly around transfer pricing and anti-tax avoidance measures. Increased scrutiny is applied to multinational companies operating in Finland, with new requirements for documenting related-party transactions.

Upcoming Reforms:
Finland is considering changes to its corporate tax regime, particularly in relation to digital services and environmental taxation, as part of its efforts to remain competitive in the global market.

Global Tax Initiatives:
Finland has been actively participating in OECD-led global tax reform discussions, particularly on the digital economy and the Base Erosion and Profit Shifting (BEPS) framework. The country is implementing measures to ensure that multinational corporations pay their fair share of taxes.

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