Finland Tax Guide 2010

Transcription

1 Finland Tax Guide 2010

2 FOREWORD For any business looking to set up in a new market, one of the critical deciding factors will be the target country s tax regime. What is the corporate tax rate? What capital allowances can we benefit from? Are there double tax treaties? How will foreign source income be taxed? Foreword Since 1994, the PKF network of independent member firms, which is administered by PKF International Limited, has produced the PKF Worldwide Tax Guide (WWTG) to provide businesses with the answers to these key tax questions. This handy reference manual provides clients and professional practitioners with comprehensive international tax and business information for over 100 countries throughout the world. As you will appreciate, the production of the WWTG is a huge team effort and I would like to thank all the member firms of the PKF network who gave up their time to contribute the vital information on their country s taxes that forms the heart of this publication. I would also like thank Richard Jones, PKF (UK) LLP, Kevin Reilly, PKF Witt Mares, and Rachel Yeo and Scott McKay, PKF Melbourne for co-ordinating and checking the entries from within their regions. This year s WWTG is the largest ever reflecting both how the PKF network is growing and the strength of the tax capability offered by member firms throughout the world. I hope that you find that the combination of reference to the WWTG plus assistance from your local PKF member firm will provide you with the advice you need to make the right decisions for your international business. Mark Pollock PKF Perth Chairman, International Tax Committee of the PKF network I

3 IMPORTANT DISCLAIMER This publication should not be regarded as offering a complete explanation of the taxation matters that are contained within this publication. Disclaimer This publication has been sold or distributed on the express terms and understanding that the publishers and the authors are not responsible for the results of any actions which are undertaken on the basis of the information which is contained within this publication, nor for any error in, or omission from, this publication. The publishers and the authors expressly disclaim all and any liability and responsibility to any person, entity or corporation who acts or fails to act as a consequence of any reliance upon the whole or any part of the contents of this publication. Accordingly no person, entity or corporation should act or rely upon any matter or information as contained or implied within this publication without first obtaining advice from an appropriately qualified professional person or firm of advisors, and ensuring that such advice specifically relates to their particular circumstances. PKF International is a network of legally independent member firms administered by PKF International Limited (PKFI). Neither PKFI nor the member firms of the network generally accept any responsibility or liability for the actions or inactions on the part of any individual member firm or firms. II

4 PREFACE The (WWTG) has been prepared to provide an overview of the taxation and business regulation regimes of over 100 of the world s most significant trading countries. In compiling this publication, member firms of the PKF network have sought to base their summaries on information current as of 30 September 2009, while also noting imminent changes where necessary. Preface On a country-by-country basis, each summary addresses the major taxes applicable to business; how taxable income is determined; sundry other related taxation and business issues; and the country s personal tax regime. The final section of each country summary sets out the Double Tax Treaty and Non-Treaty rates of tax withholding relating to the payment of dividends, interest, royalties and other related payments. While the WWTG should not to be regarded as offering a complete explanation of the taxation issues in each country, we hope readers will use the publication as their first point of reference and then use the services of their local PKF member firm to provide specific information and advice. In addition to the printed version of the WWTG, individual country taxation guides are available in PDF format which can be downloaded from the PKF website at Finally, PKF International Limited gladly welcomes any comments or thoughts readers may wish to make in order to improve this publication for their needs. Please contact Kevin F Reilly, PKF Witt Mares, Eaton Place, Suite 440, Fairfax, Virginia 22030, USA by to kreilly@pkfwittmares.com PKF INTERNATIONAL LIMITED APRIL 2010 PKF INTERNATIONAL LIMITED ALL RIGHTS RESERVED USE APPROVED WITH ATTRIBUTION VI

5 ABOUT PKF INTERNATIONAL LIMITED PKF International Limited (PKFI) administers a network of legally independent firms. The PKF network is the 11th largest global accountancy network with over 240 legally independent member and correspondent firms which have a combined annual turnover of $1.9 billion. Located in 125 countries, the member firms of the PKF network share a commitment to providing clients with high quality, partner-led services tailored to meet each client s own specific requirements. The membership base of the PKF network has grown steadily since it was formed in Added to the sustained growth in the number of PKF member firms, this solidity has provided the foundations for the global sharing of expertise, experience and skills and the development of services that meet the evolving needs of all types of client, from the individual to the multi-national corporation. Services provided by member firms include: Assurance & Advisory Insolvency Corporate & Personal Financial Planning Taxation Corporate Finance Forensic Accounting Management Consultancy Hotel Consultancy IT Consultancy Introduction PKF member firms are organised into five geographical regions covering Africa; Latin America and the Caribbean; Asia Pacific; Europe, the Middle East & India (EMEI); and North America. Each region elects representatives to the board of PKF International Limited, which administers the network. While the member firms remain separate and independent, international tax, corporate finance, professional standards, audit, hotel consultancy and business development committees also work together to improve quality standards, develop initiatives and share knowledge across the network. Please visit for more information. VII

6 STRUCTURE OF COUNTRY DESCRIPTIONS A. TAXES PAYABLE FEDERAL TAXES AND LEVIES COMPANY TAX CAPITAL GAINS TAX BRANCH PROFITS TAX SALES TAX/VALUE ADDED TAX FRINGE BENEFITS TAX LOCAL TAXES OTHER TAXES B. DETERMINATION OF TAXABLE INCOME Structure CAPITAL ALLOWANCES DEPRECIATION STOCK/INVENTORY CAPITAL GAINS AND LOSSES DIVIDENDS INTEREST DEDUCTIONS LOSSES FOREIGN SOURCED INCOME INCENTIVES C. FOREIGN TAX RELIEF D. CORPORATE GROUPS E. RELATED PARTY TRANSACTIONS F. WITHHOLDING TAX G. EXCHANGE CONTROL H. PERSONAL TAX I. TREATY AND NON-TREATY WITHHOLDING TAX RATES VIII

7 INTERNATIONAL TIME ZONES AT 12 NOON, GREENWICH MEAN TIME, THE STANDARD TIME ELSEWHERE IS: A Angola...1 pm Argentina...9 am Australia - Melbourne...10 pm Sydney...10 pm Adelaide pm Perth...8 pm Austria...1 pm B Bahamas...7 am Bahrain...3 pm Barbados...8 am Belgium...1 pm Belize...6 am Bermuda...8 am Bolivia...8 am Botswana...2 pm Brazil am Brunei...8 pm Bulgaria pm C Cameroon...1 pm Canada - Toronto...7 am Winnipeg...6 am Calgary...5 am Vancouver...4 am Cayman Islands am Chile...8 am China - Beijing pm Colombia...7 am Costa Rica...6 am Croatia...1 pm Cyprus...2 pm Czech Republic pm D Denmark...1 pm Dominican Republic am E Ecuador...7 am Egypt...2 pm El Salvador...6 am Estonia...2 pm F Fiji...12 midnight Finland...2 pm France pm G Gambia (The) noon Germany...1 pm Ghana noon Greece...2 pm Grenada...8 am Guatemala...6 am Guernsey noon Guyana...8 am H Hong Kong...8 pm Hungary...1 pm I India pm Indonesia pm Ireland noon Israel...2 pm Italy...1 pm J Jamaica...7 am Japan...9 pm Jersey noon Jordan...2 pm K Kazakhstan...5 pm Kenya...3 pm Korea...9 pm Kuwait...3 pm L Latvia...2 pm Lebanon...2 pm Leeward Islands (Nevis, Antigua, St Kitts)....8 am Libya...2 pm Liberia noon Lithuania...2 pm Luxembourg...1 pm M Malaysia...8 pm Malta...1 pm Mauritius...4 pm Mexico...6 am Morocco noon N Namibia pm Netherlands (The) pm Netherlands Antilles am New Zealand midnight Nigeria...1 pm Norway...1 pm O Oman...4 pm P Panama am Papua New Guinea pm Peru...7 am Philippines...8 pm Poland pm Portugal...1 pm Puerto Rico...8 am Q Qatar am Romania...2 pm Russia - Moscow/St Petersburg pm S Sierra Leone noon Singapore...7 pm Slovak Republic pm South Africa...2 pm IX Time Zones

8 Spain...1 pm Swaziland...2 pm Sweden...1 pm Switzerland...1 pm T Taiwan...8 pm Tanzania...3 pm Thailand...7 pm Trinidad and Tobago am Turkey...2 pm Turks and Caicos Islands am Time Zones U Uganda...2 pm Ukraine...2 pm United Arab Emirates pm United Kingdom (GMT) 12 noon United States of America - New York City am Washington, D.C am Chicago...6 am Houston...6 am Denver...5 am Los Angeles...4 am San Francisco am Uruguay...9 am V Vanuatu...11 pm Venezuela...8 am Vietnam Z Zambia...2 pm X

9 Finland FINLAND Currency: Euro Dial Code To: 358 Dial Code Out: 990 (EUR) Please Oliver Grosse-Brauckmann, PKF International EMEI Director at for details of Finnish tax contacts. A. TAXES PAYABLE FEDERAL TAXES AND LEVIES COMPANY TAX Finnish resident companies are liable to corporate income tax on their worldwide income. Non-resident companies are taxed on their Finnish-sourced income only. Corporate residence is not defined in the tax legislation but residency is usually associated with registration. Corporate income tax rate is 26% of the taxable income. The tax year consists of the financial period (or periods) that end during the calendar year. The final tax assessment for the tax year is determined based on the tax return. Corporate bodies must file the tax return within four months of the end of their accounting period. Tax returns are processed within ten months of the end of the accounting period. CAPITAL GAINS TAX Capital gains are normally taxed as ordinary income. Where shares or land have been held for business purposes, the disposal is subject to normal income tax. In specific circumstances, capital gains from the disposal of shares of a subsidiary are tax exempt. The shares need to be owned for at least one year prior to disposal and the seller has to have owned at least 10% of the company whose shares are being disposed of. BRANCH PROFITS TAX There is no specific branch profits tax in Finland. The taxable income for branches of foreign companies in Finland is calculated on the same basis as for Finnish resident companies. SALES TAX/VALUE ADDED TAX (VAT) VAT is paid on the sale of goods and services, on the importation of goods, on intracommunity acquisitions, and on the removal of the goods from a fiscal warehousing arrangement when the removal takes place in Finland. In principle, all sales of goods and services are subject to VAT. However, there are some supplies of goods and services which are exempt under the conditions defined in the VAT Act. F The general VAT rate is 23%. Other applicable rates are as follows: accommodation and other services FRINGE BENEFITS TAX (FBT) There is no specific fringe benefits tax in Finland. However, the employer has a legal responsibility to withhold income taxes and social security contributions from salaries and benefits paid to their employees. LOCAL TAXES Basically, there are no local taxes imposed on companies. However, municipal real estate tax is levied on properties owned by companies. It is normally 0.22% to 0.5% of the taxation value of the immovable property, depending on the municipality where the property is situated, and is deductible, up to certain limits, for income tax purposes. OTHER TAXES Employers must make social security contributions to cover the costs of health insurance and, up to 31 December 2009, the national old-age pension. From 1 January to 31 March 2009, the total contributions were 2.801%, 5.001% or 5.901% of gross remuneration paid to employees. The rate is dependent on the amount of depreciation deduction taken and the amount of salaries paid during the last year for which the income tax assessment is final. From 1 April to 31 December 2009, the rates were reduced to 2%, 4.2% and 5.1%. In 2009 employers paid employment pension insurance contributions of 16.8% (on average), and unemployment insurance contribution of 0.65% on the first EUR 1,788,000 and 2.7% on the excess. They also pay an accidental injury insurance 1

10 Finland annual gross wages and salaries. B. DETERMINATION OF TAXABLE INCOME Taxable income is determined based on financial accounting income adjusted for nontaxable and non-deductible items. In practice, the determination of taxable income is closely connected to the determination of net income for financial statement purposes. Generally, all expenses incurred in acquiring or maintaining business income are deductible. One exception is entertainment expenses of which only 50% are deductible. DEPRECIATION Buildings and other constructions are depreciated by using the declining balance method. Depreciation for each building is calculated separately, with the maximum percentage varying from 4% to 20%, depending on the type of the construction. Depreciation of machinery and equipment is calculated using the declining balance method with a maximum rate of 30%. Patents and other intangible rights, such as goodwill, are amortised on a straight-line basis for ten years for tax purposes, unless the taxpayer demonstrates that the asset has a shorter useful life. Assets with a useful life of less than three years may be written off using the free depreciation method, i.e. deduct up to 100% of the costs of assets in a single tax year. STOCK/INVENTORY In principle, the acquisition costs of inventories are deducted when assets are sold, consumed or lost. Inventories on hand at the end of the tax year are valued at an amount not exceeding the lower of acquisition cost or market value. Acquisition cost is calculated on a FIFO basis. Certain overhead costs can be included in the acquisition cost of products. F CAPITAL GAINS AND LOSSES As discussed above, capital gains are usually taxable as ordinary income. In specific circumstances, capital losses arising on the disposal of shares of a subsidiary may only be offset against the capital gains from the sale of shares during the tax year and the next five years. If capital gains from the disposal of shares of a subsidiary are tax exempted, then capital losses are also not tax deductible. DIVIDENDS 70% of dividends between a quoted Finnish company and a resident private individual are counted as taxable capital income for the beneficiary. Dividends distributed by non-quoted companies representing a yield of less than 9% of the mathematical value of the shares are exempt from tax up to EUR 90,000 per private individual shareholder per year. Where the yield exceeds 9% of the net value, 70% of the dividend will be taxed as earned income for the beneficiary with the remaining 30% treated as exempt. Similarly, where the dividend exceeds the EUR 90,000 threshold but is below the 9% yield, 70% of the dividend is taxable and 30% is exempt. When dividends are paid to a non-resident, a withholding tax rate of 28% is applied unless a lower treaty rate applies. Inter-company dividends are tax exempt in most cases. Tax agreements may entitle non-residents either to benefit from a lower withholding tax rate or to receive an imputation credit. Dividends are exempt from withholding tax when paid to a company resident in a European Union country if the company pays national corporate tax and holds at least 10% of the share capital in the distributing company. Tax exemption does not apply if the recipient is entitled to imputation credit. INTEREST DEDUCTIONS Normally, interest on loans obtained for business purposes are deductible in full on an accruals basis. Interest paid by a company to its shareholders at a higher rate than is customary may be partially disallowed and treated as a deemed dividend distribution. LOSSES Losses may be carried forward and set off in the subsequent ten tax years. If more than 50% of the shares of the company are sold during a loss year or thereafter, 2

11 Finland losses from previous years cannot usually be deducted. The buyer of the shares can apply for exception to this rule from the tax office. FOREIGN SOURCED INCOME If a foreign company falls under the Finnish controlled foreign company (CFC) taxable income of a Finnish shareholder. The preconditions for the application of the CFC legislation are as follows: 50% of the capital or of the voting rights in the CFC or they are entitled to at least 50% of the yield of the net wealth of the CFC fifths of the tax of an equivalent company resident in Finland (currently 15.6%). INCENTIVES Major incentives are available on equal terms to Finnish and foreign enterprises for investment in areas that need development (e.g. investment grants and start-up subsidies). Free depreciation is available for some types of investments in certain districts within the development areas. C. FOREIGN TAX RELIEF Under tax treaties, foreign tax is most frequently relieved by an exemption or by a tax credit. If a tax treaty does not apply, Finnish domestic law grants a credit for foreign tax paid. The credit is granted only if the foreign tax is final. If the amount of the credit exceeds the Finnish tax due, the excess may be carried forward to the following year only. D. CORPORATE GROUPS Corporations are taxed separately in Finland. There is no concept of consolidated tax returns. However, it is possible to make group contributions if the parent company owns at least 90% of the subsidiary during the whole financial year. The payments will be tax deductible to the payer and taxable on the recipient. F E. RELATED PARTY TRANSACTIONS length pricing applies to transactions of all types including the purchasing of inventory and the provision of services and financial facilities. New documentation requirements apply to foreign-owned subsidiaries and branches in Finland and Finnish Groups with more than 250 employees and an annual turnover of above EUR 50m or a balance sheet of more than EUR 43m. F. WITHHOLDING TAX Withholding tax is not imposed on dividends paid to resident companies. Dividends paid to non-resident companies are generally subject to a final withholding tax of 28% which may be reduced or eliminated under tax treaties. Non-resident shareholders are not entitled to an imputation credit unless a tax treaty provides otherwise. Interest paid to resident companies is not subject to withholding tax. Interest paid to non-residents is generally exempt from tax. Withholding tax is not imposed on royalties paid to resident companies. Royalties paid to non-resident companies are generally subject to a final withholding tax of 28% which may be reduced or eliminated under a tax treaty. Royalties are, in certain cases, exempted from withholding tax when paid to a company resident in a European Union country. In certain circumstances, tax must be withheld on payments for work carried on by non-residents. G. EXCHANGE CONTROL In principle, there is no exchange control in Finland. H. PERSONAL TAX Finnish resident individuals are subject to tax in respect of their worldwide income. Nonresidents are taxed on their income derived from Finland. Wages of seconded employees 3

12 Finland will be subject to Finnish income tax if these employees have arrived from certain countries and stay in Finland for a period of time not exceeding six months. Furthermore, arrived from a country that does not have a tax treaty with Finland. Wage income will be subject to income tax from the first day onwards, regardless of length of stay. The tax year for individuals is the calendar year. Married persons are taxed separately both on earned income and investment income. Interest and insurance deductions are dependent, in certain circumstances, on the marital status of the taxpayer. In general, married persons will have their own deductions. Individuals are entitled to deduct from their investment income and earned income all expenses incurred in acquiring and maintaining such income. Individuals have a right to deduct interest expenses from investment income. Interest expenses are deductible if the debt is related to the acquisition of taxable An individual is deemed to be a resident in Finland if he has his main place of abode in Finland or if he is continuously present in Finland for a period of more than six months. A presence is deemed continuous irrespective of temporary absence. Finnish nationals are, in addition, subject to the three-year rule. According to this rule, a Finnish national is considered to remain resident in Finland for three years after the end of the year in which he left the country, unless he shows that he has not maintained essential ties in Finland during the tax years concerned. However, under the terms of tax treaties, the three-year rule may be negated if the individual is deemed resident in another country. An individual is taxed separately on earned income and on investment income. Earned income is subject to national income tax, municipal income tax and church tax. Earned income includes salaries, wages and benefits in kind. Investment income includes dividend income, capital gains, certain interest income and income from rental activities. F Finland imposes both inheritance and gift tax.. The minimum taxable amount for inheritance taxation is EUR 20,000 and for gift tax EUR 4,000. Tax rates for both inheritance and gift tax will vary from 10% to 32%, depending on who is the receiver of the inheritance or gift. Wages and salaries paid by an employer are subject to a withholding tax. The amount withheld is based on the amount of wages or salary as well as on the individual circumstances of the employee. The national income tax rates in 2010 for the earned income are as follows: Taxable income (EUR) Tax on lower amount (EUR) 15,200 22, ,601 36, ,801 66,400 2, ,401 and over 9, Rate on excess National tax on investment income is a proportional tax of 28%. Municipal income tax varies among municipalities from 16.5% to 21%. The church tax on income is between 1% and 2%. I. TREATY AND NON-TREATY WITHHOLDING TAX RATES Dividend (1) (2) Interest (3) Royalties Non-treaty countries: Treaty countries: Argentina Armenia /10 Australia Austria

13 Finland Dividend (1) (2) Interest (3) Royalties Barbados Belarus Belgium Bulgaria Canada China Croatia Denmark Egypt Estonia 15 0/ Faroe Islands France Georgia 10 0/5 0 0 Germany Greece Hungary Iceland India Indonesia Ireland Israel Italy Japan Korea, Republic of Latvia Lithuania Luxembourg Macedonia Malaysia Malta Mexico /15 10 Moldova /7 Morocco New Zealand Norway Pakistan 20 12/ Poland Romania Russia Serbia Singapore Slovenia F 5

14 Finland Dividend (1) (2) Interest (3) Royalties South Africa Spain Sri Lanka Sweden Thailand /25 15 Turkey Ukraine /10 10 United Kingdom United States United Arab Emirates Vietnam 15 10/ Zambia Tax at source on dividend. 2 The recipient is a company whose share in the company making the payment is at least the percentage indicated in the tax treaty. In some cases, the holding refers to share capital and in others to voting power. The relevant tax treaty should be checked to determine the exact requirements. 3 According to the domestic tax law, interest paid to a non-resident is usually exempt from taxation in Finland. F 6

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