In Finland, the right of taxation belongs to the State, the municipalities, and both state churches (Evangelic-Lutheran and Greek-Orthodox).
Different corporate forms are taxed differently. The following tax rates are the ones currently in use.
The net result of a business is added up with the other income of the entrepreneur. Of the profit of the business a 0-20% yield calculated on the net property of the previous year is considered capital income.
The rest is taxed as earning income.
The tax rate of capital income is 34%, the rate of earnings income is progressive, between 0 to 57%.
A general or limited partnership is not a separately liable tax entity; instead its result is divided and taxed as income of the partners. The income is divided between the partners in accordance with their profit share agreed upon in the partnership agreement.
Of the income share of a partner, the amount of capital income equals a 20% annual yield on their share of the net assets of the partnership at the end of the previous tax year. The rest is taxed as earnings income.
The tax rate for both private and public limited companies is 20%. Finnish companies are taxed for their worldwide income in Finland.
Finland has no separate small companies’ rate.
The dividend income for domestic shareholders of Finnish limited companies is considered to be tax-exempt income, capital income or earned income for the receiver, depending on the company’s net property and the number of dividends distributed.
The assessment of tax on dividends paid by a non-public Finnish limited company in Finland depends on whether the company distributes as dividends a return of more or less than 8% of the value of equity. If the dividends are in total less than 8% of the value of equity, they will be subject to a reduced tax for the shareholder up to 150,000 €. The proportion of the dividends exceeding 150,000 € will be taxed partly as capital income. If, however, the company distributes as dividends more than 8% of the value of equity, the amount exceeding will be taxed partly as earned income (0-57%).
Dividends from one private limited company to another are tax exempt, as are dividends from a private limited company to a public limited company. Dividends from a public limited company to a private company are taxed.
The branch of a foreign company is considered a fixed business facility and is taxed in Finland as if it were a Finnish limited company.
Prepayment of taxes shall be effected either as withholding of taxes (employees) or as payment of taxes in advance (business undertakings). Withholding of taxes shall be carried out by the employer, who is also responsible for paying the withheld amount to the tax authorities.
Tax authorities assess the advance tax for companies based on earlier years. The advance tax is usually paid monthly. As the income of the partnerships is taxed on its partners, the advance taxes are levied directly on them.
Capital gains are taxed at a tax rate of 30 – 34%. Almost all capital gains are subject to tax. The main exemptions are: profit made on the sale of a personal residence and the profit made from the sale of shares belonging to fixed assets. The latter applies only to limited companies and is highly regulated.
Real property situated in Finland is subject to real estate tax. Land used in forestry or agriculture is exempted.
Real estate tax is payable by those who own taxable property at the beginning of the calendar year.
The amounts of real estate tax are based on the tax value of the real property. Tax rates vary in different municipalities between 0.8% and 1.55% of the taxable value. The rate for living residences is between 0.37% and 0.8% of the taxable value.
The Finnish value added tax (VAT) applies to the sale of goods and services in the conduct of business in Finland, the import of goods to Finland and to intracommunity acquisitions of goods in Finland.
The VAT is always payable on sales unless there is a specific provision in the legislation supporting the exemption of the sales from the tax.
The sale of goods and service may be exempt from tax under the following grounds:
The seller of the goods or services is liable to pay tax for those goods or services sold.
If the seller is a foreigner entity, the liability to pay the tax is often shifted to the buyer if the seller does not have a fixed place of business in Finland.
The importer of goods is always liable to pay tax for the imported goods.
The corporate form is not relevant in the regard of tax liability.
Small-scale activity for which the seller is not liable to pay VAT, refers to any business activity were the net sales for the accounting period do not exceed 10,000 €. If the net sales do not exceed 30,000 €, the taxpayer is entitled to a tax concession.
The VAT rates in Finland are: