general features of finnish corporate taxation jouni honka-aho
TRANSCRIPT
General Features of Finnish Corporate
TaxationJouni 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 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.
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
Attorneys at law Borenius Ltd
Yrjönkatu 13 A, FI-00120 Helsinki, Finland
Office +358 9 615 333 Fax +358 9 6153 3499
[email protected] - www.borenius.com
Jouni Honka-aho
Senior AssociateDirect +358 9 6153 3267Mobile +358 50 512 4749
Email [email protected]
