Any person or company can hold ownership rights over real estate, and these rights are registered with the central land register. A great deal of Finnish property is, however, held by specialised real estate companies. Usually there is one company per property, and that property represents the company’s only relevant asset. Using real estate companies, the property can be transferred by transferring the shares in the company without having to make any registrations with the land register.

This form of ownership offers significant advantages for investors as compared to direct ownership. The transfer of real estate shares does not involve any special formalities and is favourable with regard to taxation: a transfer tax of 4% of the purchase price is imposed on the transfer of estates, while the same tax is only 1.6% when transferring negotiable instruments such as shares. Today, the vast majority of industrial and business properties are transferred in the form of real estate companies.

Any rent receipts gained from the property in Finland are subject to taxation in Finland. The tax rate for corporations is presently 26%. This tax applies also to properties that are held within real estate companies. However, there are two structurally different models of real estate companies with different tax effects.

One of these forms is technically a normal limited company that is the owner of real estate. As the company is the owner, it also acts as the lessor for any rooms in the estate in rental contracts. Accordingly, tax liability for this income lies with the company. The investor, i.e. the owner of the shares in the company, participates in the profits by way of dividends paid by the real estate company. These dividends are subject to normal dividend taxation (as described in the article “Taxation of Share Acquisitions and Dividends”).

A special form of real estate company, sometimes called “mutual real estate company”, has special provisions in its articles of association with the effect that specific shares of the company are directly related to specific premises in the building. Ownership of the shares therefore equals to the right to use and control the premises. In these cases, the company does not act as the landlord of the premises. Instead, rental contracts are made directly between the shareholder and the tenant. The shareholder will also be directly liable for the respective income tax.

While mutual real estate companies are the common form of ownership for apartment buildings, but also for business buildings that are held by several parties, properties that are acquired by a single investor are more commonly held in a regular real estate company.

Taxes on rental income gained from a Finnish estate must be paid in Finland regardless of the place of residence of the owner. According to the tax treaties between Finland and most European countries, this tax can be deducted from the corresponding taxes due in the owner’s home country.

The profit made in the case of the sale of Finnish real estate is generally subject to a sales profit tax. As before, the tax rate for corporations is presently 26% and is calculated on the basis of the difference between the sales price and the acquisition costs.

This tax burden concerns all cases in which the Finnish real estate company sells the property held by that company. Whether or not sales profit taxes have to be paid upon the sale of all or part of the shares in the real estate company by a foreign shareholder, must be determined on the basis of the provisions of the applicable taxation treaties. Therefore, the results vary depending on the home country of the investor.

Many bilateral tax treaties provide that Finnish sales profit tax is applied also in the case that shares in a Finnish mutual real estate company are sold. Conversely, many treaties allow the shares of regular (non-mutual) real estate companies to be sold without the liability to pay sales profit tax in Finland.

Letting and leasing of real estate is generally not subject to turnover tax in Finland, but the owner of the property in question may apply for turnover tax liability in order to be able to make use of the deduction of prior turnover tax. Whether this option is worthwhile depends on a number of factors, amongst them the lessee’s taxation.

Since the beginning of 2006, property tax no longer exists in Finland.