On 17 June 2011 the new Finnish government reached agreement on the new Government Programme. The Programme includes the definition of Government's fiscal policy for the commenced term of four years. The fiscal policy pursues to secure the financing of welfare services and to balance the national economy while strengthening the economic growth and employment.

In order to promote the competitiveness of Finnish enterprises the corporate income tax will be reduced from 26% to 25%. The Government is committed to follow the development of corporate tax rates in other European countries and is prepared to further reductions if needed. In addition the Government will pursue an extensive reform of corporate tax system especially as regards the group taxation, interest deductions, balancing of losses and use of deductions. The introduction of R&D-deduction will also be examined.

In pursuance of the corporate tax reform the taxation of dividends and taxation of capital income taxation is expected to tighten. The Government will propose a reduction to the amount of tax-exempt dividends received by individuals from non-listed companies. Currently an individual may receive tax-exempt dividends from non-listed companies up to EUR 90.000 per year but the amount is to be reduced to EUR 60.000. Dividends from listed companies received by individuals will be affected by the increase of capital income tax rate as 70% of such dividends are subject to capital income taxation. The general capital income tax rate will be increased from 28% to 30% and made progressive so that the tax rate will be 32% for capital income in excess of EUR 50.000. The increase should affect the domestic withholding tax rates accordingly.

Additionally, several amendments are expected to taxation of earnings in order to promote employment and to narrow income differentials between income groups. Also, the taxation of large inheritances will be tightened.

The Programme shifts the focus of taxation from taxation of employment and entrepreneurship towards environmental and health-based taxes. For example, the Government plans to raise the taxes of liquid fuel and taxes on waste. In addition the excise duties on alcohol and tobacco, as well as on sugared products, will be increased.

The entry into force of the amendments is still unclear as any legislative drafts have not been published. First government bills are expected during the autumn 2011 but most of the reforms will inevitably be postponed to the coming years.

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