Mere ownership of shares in a Finnish company does not give rise to any tax obligations. Property tax has been abolished in Finland. Conversely, tax duties can emerge in the context of the acquisition and sale of shares as well as that of payment of dividends.

In Finland, the transfer of shares in limited companies is subject to a transfer tax of 1.6% of the agreed purchase price. The purchaser must declare and pay the tax on his or her own initiative within two months of the date of transfer. The transfer of shares in listed companies is exempt from the tax.

The transfer is subject to transfer tax even if the purchaser is not a resident of Finland as long as the previous shareholder is liable to pay tax in Finland. In this case, the seller is obliged by law to ensure that the tax is paid, and is held personally liable for doing so. In such cases, it is reasonable to avoid complications and agree in the transfer contract that the seller shall be responsible for paying the transfer tax. Transfer tax need not be paid only where neither party to the transfer are residents of Finland.

The transfer tax is not applied when shares are acquired by way of subscription for newly issued shares in the company. However, if the company issues shares that it has previously acquired from a (former) shareholder, these issued shared are subject to transfer tax.

If the sale of the shares generates a higher price than that for which the seller had originally acquired them, then the resulting profit is regarded as income subject to taxation in Finland. This sales profit tax is not affected by the kind of property sold and the purpose of the sale, and it is levied regardless of the duration of the seller’s ownership of the shares.

The tax rate of 28% is calculated based on the difference between the purchase price and the sale price. If the purchase price was very low or cannot be determined, the tax burden can be reduced by applying a fixed purchase price of 20% of the sale price, or 40% if the seller has held the shares for longer than ten years. Therefore, in the latter case the sales profit tax is calculated only on the basis of 60% or the sale price. This possibility is only open to sellers who are natural persons.

As a consequence of these rules, the duration of ownership of specific shares can play an important role in the taxation of sales profits. It is therefore advisable to determine the effects on the calculation of ownership time in all situations in which corporate restructuring measures are taken.

In general, Finnish transfer profit tax is levied only if the person making the sales profit – the seller - is generally liable for tax in Finland; i.e. if he or she is either a resident of Finland or has a permanent establishment in Finland. However, the tax is levied regardless of the seller’s place of residence if the profit is made from the sale of shares in a company more than half of the assets of which consist of real estate situated in Finland. This concerns in particular the sale of shares in a Finnish real estate company.

Taxation of dividends paid by Finnish companies is subject to diverse, layered, and partly overlapping national and international laws, regulations, and treaties. The result can be variable, depending on the recipient of the dividends, his or her country of residence or establishment, and the number of shares held in the company. Dividends paid by listed companies are again subject to different rules, but this topic is beyond the scope of this article.

If the recipient of the dividends is a Finnish corporation, then dividends paid by another Finnish company are not subject to tax. Conversely, in respect of dividends paid to a natural person resident in Finland, a share of 30% of the dividends is tax-free, with the remaining share being subject to general income tax calculated by reference to progressive tax rates. However, preferred treatment is given to a part of the dividend that corresponds to 9% of the company’s equity capital represented by the shares held by the shareholder. For this part, the capital income tax rate of 28% applies, and within certain limits this part is even tax-free. Regardless of the applicable calculation method, corporate tax paid by the company itself is not credited any more.

Whenever dividends are paid by a Finnish company to a shareholder resident or established abroad, Finnish tax law provides for the obligation to pay source tax that must be withheld by the company when making the dividend payment. According to national Finnish law, the tax rate is 28%. In practically all cases, however, this rate is replaced by the lower tax rates provided for in the applicable bilateral tax treaties.

The tax rate actually applicable in any given case is therefore dependent on the place of residence or establishment of the recipient of the dividend. For a German shareholder, for example, the tax rate is 15%, which is reduced to 10% if the shareholder holds at least 25% of the shares in the company. For the United States, the relevant tax rates are 15% and 5%. For France, the tax treaty provides that the payments are entirely exempt from Finnish source tax. When paying dividends, the company must withhold the correct amount of source tax. In order for the company to be able to take the different tax rates into account, the shareholder must advise the company of the relevant facts in good time.

Another layer of applicable provisions is added by the European Union’s parent-subsidiary directive and the related national provisions. The directive provides that dividends paid by a Finnish company to a company established in another EU Member State are exempt from Finnish source tax, provided that the shareholding company is subject to corporate tax in its country of establishment and that it has at least a 20% shareholding in the Finnish company.

Regardless of the question of whether and to what extent a foreign shareholder must pay tax on dividends in Finland, these payments are in any case subject to taxation in the shareholder’s home country. The tax treaties provide for various mechanisms that are intended to prevent effective double taxation. The measures to be taken by the shareholder in this respect again vary from country to country.