Business Operations in Finland (Portfolio 7120)

Tax Management Portfolio, Business Operations in Finland, provides information on the country and its business climate, concentrating on Finland's corporate law and corporate tax rules, to enable U.S. and other foreign businesses to understand the commercial and legal framework likely to be of concern to them in their business dealings with Finland, and to aid their determination of the best method of conducting their operations in Finland from tax and other legal points of view.

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By way of an introduction, there is an overview of the foreign investment, trade, and commerce regulations, and immigration and labor laws in force in Finland. The Finnish corporate law and the taxation of domestic corporations are examined in more detail. The Portfolio explains the principal tax rules affecting foreign corporations, and the principles of international taxation, including the foreign tax credit provisions, avoidance of international double taxation, the tax treaties with the United States, and the few provisions relating to transfer pricing and tax haven operations.
The income taxation of resident and nonresident individuals, the inheritance and gift taxes, local taxes, the value-added tax (VAT), and some other taxes that may be relevant to a foreign investor are also discussed. Although the VAT is the biggest single revenue raiser for the government, only the main features of the VAT system are discussed. The VAT ordinarily is not considered to provide as substantial tax planning or saving opportunities as income tax. However, VAT issues can be quite complicated in practice.
The rates of local income taxes, although varying between approximately 17% and 22% within the country, are not individually provided because they are not relevant in the consideration of the location of a business. Instead, the regional incentives that are available in Finland may be more important, and these are discussed at various points.
Although effort was made to provide information on all matters of relevance to a foreign investor intending to operate in Finland, for obvious reasons, such individuals should use this Portfolio in conjunction with appropriate professional counsel.
Among the Worksheets are a list of countries with which Finland has a tax treaty, a list of withholding tax rates applied with respect to Finland, the text of the tax treaties between Finland and the United States, and some tax forms. A complete list of the Worksheets is shown in the Table of Worksheets.


Business Operations in Finland was authored by the following experts.
Petri Manninen

Petri Manninen, LL.B., 1993 (University of Helsinki), Varatuomari, 1995 (“lawyer trained in the court”), LL.M. in European Community Law (University of Leiden), 1996.

Kalle Kyläkallio

Kalle Kyläkallio, LL.B., 1993 (University of Lapland), Varatuomari, 1995 (“lawyer trained in the court”).

Risto Rytöhonka

Risto Rytöhonka, LL.B., 1978 (University of Helsinki), Diploma in European Integration, 1981 (University of Amsterdam), Varatuomari, 1984 (“lawyer trained in the court”), LL.M. in Taxation, 1992 (University of Miami); member of the international lawyers’ organization, The Nordlund Group.

Table of Contents

Detailed Analysis

I. Finland - The Country, Its People, and Economy

A. Geography, Population, and Climate

B. The Economy

C. The Judicial System

II. Operating a Business in Finland

A. Foreign Investment Regulations

1. Opportunities

2. Incentives

3. Restrictions

B. Currency and Exchange Controls

C. Trade and Commerce Regulations

1. Imports and Exports

a. Licenses and Quotas

b. Customs Duties and Other Taxes

c. Documentation

2. General Regulation of Business

a. Monopolies

b. Mergers

c. Restrictive Trade Practices

d. Price Controls

e. Securities Regulation

3. Licensing and Franchising in Finland

a. Patents

b. Trademarks and Trade Names

c. Utility Models and Integrated Circuits

d. Copyrights

D. Immigration Regulations

E. Labor Relations

F. Financing the Business

III. Forms of Doing Business in Finland

A. Principal Business Entities

B. Sole Proprietorship

C. Partnership

1. Formation

2. Administration

3. Dissolution

D. Joint Stock Corporation

1. General

2. Formation of a Joint Stock Corporation

a. Founder Shareholder

b. Charter of Incorporation

c. Articles of Association

(1) Corporate Name

(2) Purpose Clause

(3) Share Capital

d. Share Subscription

e. Registration

f. Capital Stock

g. Costs of Formation

3. Operation

a. License

b. Share Issue

c. Increase in Share Capital

d. Reduction in Share Capital

e. Amendment of the Articles of Association

f. Acquisition of Own Stock

g. Corporate Officers and Directors

(1) Board of Directors

(2) Managing Director

(3) Supervisory Board

(4) Employee Representation

h. Shareholders' Meeting

i. Books and Records

j. Auditors

k. Financial Statements

l. Dividends and Other Distribution of Assets

m. Equity and Reserves

n. Capital Loans

4. Dissolution

5. Statutory Merger

6. Division

7. Liquidation

E. Other Corporate Entities

F. Branch of a Foreign Corporation

1. Registration

2. Liability

3. Books and Records

G. Other Business Entities

H. Permits Granted by the Registration Authorities to Foreigners Conducting Business

1. Permit

a. Founder Shareholder of a Joint Stock Corporation

b. Shareholder of a Joint Stock Corporation

c. Ordinary/Deputy Member of the Board of Directors of a Joint Stock Corporation

d. Managing Director/Deputy Managing Director of a Joint Stock Corporation

e. Representative in Finland of a Joint Stock Corporation

f. Partner in a General or Limited Partnership

g. Representative in Finland of a Partnership

h. Private Entrepreneur (Sole Proprietorship)

i. Representative in Finland of a Private Entrepreneur (Sole Proprietorship)

j. Board Member or Managing Director of a Cooperative Association

k. Representative in Finland of a Cooperative Association

l. Branch of a Foreign Organization

2. Applying for a Permit

3. Appendices Required in Support of a Permit Application

a. Permit for a Member of the Board of Directors or Managing Director of a Joint Stock Corporation

b. Permit for a Partner in a General or Limited Partnership

c. Permit for a Private Entrepreneur (Sole Proprietorship)

d. Permit for a Branch

IV. Principal Taxes

A. Income Tax

B. Estate and Gift Tax

C. Sales Tax or Turnover Tax

D. Capital Investment Tax

E. Payroll Tax

F. Trade Tax

G. Net Wealth Tax

H. Local Taxes

I. Real Property Tax

J. Tax Legislation

V. Taxation of a Resident Corporation

A. What Is a Resident Corporation?

B. Corporate Income Tax

1. Taxation of Worldwide Income

2. Accounting

a. General

b. Accounting Periods

c. Accounting Methods

d. Inventories

e. Consolidated Returns

f. Reserves

g. Accounting Standards: International Accounting Standards/International Financial Reporting Standards

3. Calculation of Gross Income

a. General

b. Imputation System

c. Capital Gains

d. Dividend Income

e. Income from Foreign Sources

f. Stock Options and Other Financial Instruments

g. Exclusions from Gross Income

h. Group Contributions

4. Business Expenses

a. General

b. Organizational Expenses

c. Travel and Entertainment Expenses

d. Interest and Royalties

e. Taxes

f. Depreciation and Amortization

(1) Machinery and Equipment

(2) Buildings

(3) Other Tangible Assets

(4) Natural Resources

(5) Intangibles

(6) Other Expenses

g. Obsolete Equipment

h. Charitable Contributions

i. Capital Losses

j. Casualty Losses

k. Reserve Accounts

(1) Machinery and Equipment

(2) Buildings and Constructions

(3) Business Premises

(4) Use of the Replacement Reserve

l. Bad Debts

m. Inventory Write-downs

n. Rent

o. Salaries and Wages

p. Other Deductions from Gross Income

5. Tax Consequences of Mergers

6. Tax Consequences of Other Reorganizations

7. Tax Consequences of Liquidations

8. Capital Expenditure

9. Loss Carryovers and Carrybacks

10. Tax Credits

a. Foreign Tax Credit

b. Investment Tax Credit

c. Other Credits

11. Tax Rates and Calculation of Taxable Income

12. Assessment and Filing

13. New Companies Act and Taxation

C. Other Taxes

1. Dividend Tax

a. Dividend Distributions

b. Hidden Profit Distributions

2. Capital Investment Tax

3. Value Added Tax

4. Trade Tax

5. Real Property Tax

6. Local Taxes

7. Other Taxes

VI. Taxation of Foreign Corporations

A. What Is a Foreign Corporation?

B. Determination of Taxable Income

C. Method of Taxation

VII. Taxation of a Branch

A. Determination of Taxable Income

B. Method of Taxation

C. Subsidiary Versus Branch

VIII. Taxation of Partnerships

IX. Taxation of Other Business Entities

X. Taxation of Individuals - Residents

A. Scope of Taxation

B. Residence

C. Determination of Gross Income

1. Capital Income

2. Dividend Income

a. Dividends from a Domestic Listed Company

b. Dividends from a Domestic Nonlisted Company

c. Dividends from a Nonresident Company

3. Earned Income

D. Allowances, Deductions, and Credits

E. Rates and Calculation of Taxable Income

F. Assessment and Filing

XI. Taxation of Nonresident Aliens

A. General

B. Business Income

C. Salaries, Wages and Pensions

D. Investment Income

E. Capital Gains

F. Method of Taxation

XII. Inheritance and Gift Tax

A. General

B. Inheritance Tax

1. Liable Persons

2. Taxable Base

a. Taxable Property

b. Exempt Transfers

c. Deductible Liabilities

d. Personal Allowances

3. Tax Rates

C. Gift Tax

1. Liable Persons

2. Taxable Base

a. Taxable Property

b. Exempt Transfers

c. Deductible Liabilities

d. Personal Allowances

3. Tax Rates

XIII. Intercompany Pricing

A. Adjustment of Intercompany Prices

B. Determination of Arm's-Length Price

C. Competent Authority

XIV. Special Provisions Relating to Multinational Corporations

A. Foreign Family Foundations

B. Tax Haven Operations and Controlled Foreign Corporations

XV. Avoidance of Double Taxation

A. Domestic Law

1. General

2. Foreign Tax Credit

3. Exemption Method

B. Tax Treaties

1. General

2. Taxation of Business Income

a. Permanent Establishment

b. Industrial or Commercial Profits

c. Planning to Minimize Taxation of Business Income Under Finland's Tax Treaties

3. Taxation of Investment Income

a. What Is Investment Income?

b. Withholding Rates

C. Finland-United States Treaties

1. 1989 Finland-United States Tax Treaty

a. Residence

b. Saving Clause

c. Permanent Establishment

d. Business Profits

e. Income from Real Property

f. Dividends

g. Interest

h. Royalties

i. Salaries and Wages

j. Independent Personal Services

k. Elimination of Double Taxation

2. Finland-United States Inheritance Tax Treaty

a. Residence

b. Saving Clause

c. Situs Rules

d. Exemptions, Deductions, Allowances, and Credits

3. Other Treaties

XVI. Advance Rulings and International Assistance

A. Domestic Rulings

B. International Rulings

C. International Assistance

Working Papers

Working Papers

Table of Worksheets

Worksheet 1 List of Comprehensive Double Taxation Agreements and Related Protocols Signed by Finland as of March 1, 2009

Worksheet 2 List of Estate and Gift Tax Agreements Signed by Finland as of January 1, 2008

Worksheet 3 List of Social Security Agreements Signed by Finland as of November 11, 2008

Worksheet 4 1989 Finland-United States Income and Capital Tax Treaty

Worksheet 5 2006 Protocol to 1989 Finland-United States Income and Capital Tax Treaty

Worksheet 6 1952 Finland-United States Estate and Inheritance Tax Treaty

Worksheet 7 Table of Withholding Rates as of January 1, 2008

Worksheet 8 Instructions - Pre-completed Tax Return Form 2005 and Pre-Completed Tax Form 2005

Worksheet 9 Corporate Income Tax Return 2008 (Forms 6B and 62)

Worksheet 10 Corporate Income Tax Prepayment Application Form 2006

Worksheet 11 Transfer Tax Payable on the Transfer of Real Property and Securities

Worksheet 12 Employer Payroll Reports

Worksheet 13 Application Form for Tax Card or Change in Withholding Tax Percentage

Worksheet 14 Start-up Notification - Limited Companies, Co-operatives, Savings Banks, Foundations, Associations and Other Organizations

Worksheet 15 Notification of Amendments or Termination of Business - Limited Companies, Co-operatives, Savings Banks, Foundations, Associations and Other Organizations

Worksheet 16 Application Form/Repayment of VAT to Foreign Businesses

Worksheet 17 Refund of Value Added Tax to Foreign Businesses

Worksheet 18 Tax Guide - VAT Registration of Foreigners in Finland

Worksheet 19 Un-Prompted Taxes

Worksheet 20 Decision of National Board of Taxes on the Calculation Bases for Fringe Benefits

Worksheet 21 Decision of National Board of Taxes on the Compensation for Travel Expenses To Be Considered Exempt from Tax in 2006

Worksheet 22 Obligations of a Foreign Employer

Worksheet 23 Tax Guide - Value Added Taxation in Finland

Worksheet 24 Application for Refund of Finnish Withholding Tax

Worksheet 25 Application for the Extension of Time to Submit a Tax Return

Worksheet 26 Consequences of Delayed Payment as of January 1, 2008

Worksheet 27 Start-up Notification - Private Trader

Worksheet 28 Notification on Amendments or Termination of Business - Private Trader



Treatises and References: