Corporations are subject to the national income tax at a rate of 28%. Corporations are not subject to municipal income tax or church tax. See Appendix 7, page 83, for a sample corporate income tax calculation.


Companies resident in Finland are liable for tax on their worldwide income, including business profits, certain dividends, interest, rents and royalties. A company is considered to be resident in Finland if it is registered in Finland or is otherwise established there according to Finnish law. Non-resident companies are subject to the national income tax at a rate of 28% on their Finnish-source income only.


Taxable income is determined based on financial income adjusted for non-taxable and non-deductible items. In practice, there is a close connection between the determination of net income for tax and for financial statement purposes. The relationship between taxable income and financial income is defined in the Business Income Tax Act (EVL, Sec. 54).


Capital gains are taxed as ordinary income under the Business Income Tax Act. Capital losses are fully deductible from taxable income.
Because machinery and equipment are depreciated as if they were a single asset, proceeds from the sale of such assets are not reported as taxable income, but are used to reduce the remaining book value of that class of assets for tax purposes.

Some companies may hold real estate and shares that are not classified as business assets. The sale of such property is taxed based on the Individual Income Tax Act (TVL), which is described in Section F.5, page 50. The deductibility of capital losses in this income category is limited to similar gains under TVL. Under the TVL in effect from 1 January 1993, no indexation is permitted in calculating the gain on such property sold by a company. Although individuals may deduct the original purchase price or, alternatively, 30% (or in some cases 50%) of the sales price in determining their gain, companies do not have that option. They must use the purchase price.


The taxation of dividends was changed to an imputation system in 1990. Under the imputation system, domestic shareholders receive a tax credit for the full amount of the corporate tax paid on distributed dividends. However, domestic tax-exempt entities, such as investment funds, employee investment funds and charitable organisations, are not eligible for the imputation credit.

A resident company receiving dividends from another resident company includes cash dividends received and an imputed tax credit equal to the amount of the computed tax in its taxable income. The imputed credit is subtracted from the recipient company's corporate income tax liability. An excess credit is not is refunded in cash but can be used against future taxes.

Under the imputation system, the amount of tax to be credited to a resident shareholder is computed based on a fixed corporate tax rate. The fixed rates and corresponding credits are listed in the following table.

                CORPORATE TAX RATE             CREDIT ON
    YEAR                 %                CASH DIVIDEND RECEIVED

   1992                 36                        9/16

   1993-1995            25                        1/3

   1996                 28                        7/18

An imputed tax credit is granted regardless of whether the company's income was actually taxed at the presumed full 28% rate. The effective rate actually paid may be lower if the company received income that is wholly or partially tax-exempt. The minimum tax, discussed in the next paragraph, will ensure, however, that the effective tax rate for the distributed profit will be increased to 28% (1996).

A minimum tax has been incorporated into the system to ensure that shareholders are not credited with more tax than has been paid. The method used in Finland differs from that used elsewhere. The distributing company computes a tentative corporate tax (28% in 1996) on its taxable income and also a minimum tax of 7/18 (in 1996) of its dividend distribution. If the minimum tax exceeds the tentative corporate income tax liability for the tax year, the corporation has to pay the difference as a supplementary tax. To ensure that the distributing company's income will not be taxed twice, tentative corporate taxes not used to pay for minimum taxes may be carried forward for 10 years.

Non-resident shareholders are not eligible for the imputed tax credit, except if a tax treaty provides otherwise. Treaty provisions grant a partial imputation credit for UK and Irish residents. Imputation credit has to be applied from the municipal tax office.


Dividends received from a foreign subsidiary are usually tax-exempt for a Finnish parent company because of domestic temporary law EVL Sec. 6 or tax treaty provisions. Dividends received are tax-exempt if the Finnish recipient owns at least 10% of the voting power or 25 % of the share capital of the foreign company, the recipient is liable for tax according to the provisions of the Business Income Tax Act (EVL) and there is a tax treaty in force between the recipient and the distributing company.

Dividends received from abroad are fully taxable if the Finnish recipient owns less than 10% of the voting power and less than 25 % of the share capital of the company paying the dividends.


Effective January 1, 1995, supplementary tax is not payable if a Finnish company receives tax-free dividends from a foreign company of which the Finnish company owns at least 10 % of the share capital and if these dividends are redistributed to another foreign company that owns at least 25% of the Finnish company at the end of the relevant tax year. This exemption does not apply if the foreign recipient of the dividends is controlled by Finnish nationals.


Inventories on hand at the end of the financial period are valued for tax purposes at the lowest of acquisition cost, market (realisable) value or replacement cost at that date. Acquisition cost is calculated on a first-in, first-out (FIFO) basis. Companies are permitted to include fixed manufacturing overhead in inventory for tax purposes if elected for book purposes.

Fixed assets are reported in the balance sheet at their acquisition cost, less depreciation. Companies are permitted to include related fixed manufacturing overhead in the acquisition cost of fixed assets if the election has been made for book purposes. Fixed assets may be revalued upwards for financial reporting, but not for tax purposes.

Debentures, bonds and similar securities may be written down to their current market values at the end of the financial period if the company can demonstrate that their values are lower than their acquisition costs. If the securities subsequently increase in value, the increase up to the amount of the previous devaluation must be included in taxable income.

Companies may use the percentage-of-completion method to value long-term contracts for book purposes if certain requirements are met. If elected for book purposes, the percentage-of-completion method must be used for tax purposes.


  • Business Expenses

Expenses are generally deductible if they were incurred for the purpose of obtaining or maintaining taxable income. The company's intent to incur a particular expense for this purpose is usually the decisive test for tax deductibility.

  • Depreciation And Amortisation

The Business Tax Act provides detailed rules for the depreciation of different types of assets. The depreciable base is acquisition cost, which includes related levies, taxes and installation costs. Depreciation expense for tax purposes is not permitted to exceed the cumulative depreciation expense reported in the annual financial statements. Plant, machinery, equipment and buildings are generally depreciated by the declining-balance method.

Machinery and equipment are combined into a pool for depreciation purposes. Companies may vary the annual depreciation on this pool from 0% to 30%. The depreciable basis is decreased by sales proceeds from sales of assets in the pool. The maximum depreciation rates for buildings vary between 4% and 20%, depending on the construction materials used and the building's purpose. Patents and other intangible rights, such as goodwill, are amortised on a straight-line basis for 10 years for tax purposes unless the taxpayer demonstrates that the asset's useful life is shorter than 10 years. A table of depreciation rates is provided in Appendix 8, page 84.

  • Tax-Free Reserves

The deduction for tax-exempt reserves was eliminated in the 1993 tax reform.

  • Bad Debts And Doubtful Accounts

Bad debts from trade receivables are deductible when deducted in the books according to generally accepted accounting principles. Special rules apply to banks, insurance companies and pension institutions.

  • Warranty Reserve

Companies engaged in the construction industry, shipbuilding or the manufacture of heavy machinery are permitted to deduct a provision for the costs of repairs under product warranty agreements. The amount of the provision may not exceed expected warranty expenses under generally accepted accounting principles. Unused warranty provisions are taxed as income in the year in which the warranty expires.

  • Irrevocable Purchase Orders

If it can demonstrate that at the balance sheet date the replacement cost of undelivered purchases intended for inventory is at least 10% lower than the fixed price agreed on in a binding written contract with the supplier, a company may deduct the excess of the contract price over replacement cost as an expense.

  • Taxes

Income taxes, whether foreign or domestic, are not deductible.

  • Organisation And Start-Up Costs

Expenses to establish or reorganise a business may, at the taxpayer's option, be deducted in the year in which they are incurred or capitalised and written off in equal annual instalments over any period up to 10 years.

  • Interest And Royalties

Normally, interest on loans obtained for business purposes is deductible in full on an accrual basis. Interest on loans used to finance the construction of new power stations, mines or other industrial facilities, however, may, at the company's request, be capitalised and deducted in equal annual instalments over any period up to 10 years.

Interest paid by a company to its shareholders at a higher rate than what is customary may be partially disallowed as a deemed dividend distribution. However, Finland has no prescribed maximum debt-to-equity ratio, which, if exceeded, results in the disallowance of a portion of interest expense.

Royalties of all types are usually deductible in full.

  • Foreign-Currency Gains And Losses

Foreign-currency gains are usually taxable on realisation. If, however, it actually represents the recovery of an exchange loss previously deducted for tax purposes, an exchange gain is taxable in the year in which it is recovered.

Losses are deductible in the year during which the exchange rate changes. Alternatively, a loss may be capitalised and written off over subsequent years, but not later than in the year in which the loss is actually realised.

  • Entertainment Expenses

Fifty per cent of entertainment expenses is deductible.

  • Charitable Contributions

Reasonable charitable contributions are deductible.

  • Transactions With Related Parties

Payments to related companies are generally deductible provided they are at arm's length. The tax authorities can adjust taxable income if transactions between a taxpayer and associated companies are not at arm's length. Amounts disallowed are treated as deemed dividend distributions.


  • Foreign Tax Credit

Finland does not have a system of indirect tax credits. Foreign withholding tax paid on dividends, interest and royalties repatriated to Finland is credited against Finnish taxes on the same income. Because dividends from tax treaty countries are usually tax-exempt, the foreign withholding tax is the final cost to the Finnish recipient.


For treatment of the imputation credit under the dividend imputation system, see Dividend Imputation, page 40.


Losses may be carried forward or offset against future profits for 10 years. Losses cease to be available for carryforward if there is an ownership change of more than 50% of the shares, other than a change resulting from an inheritance of shares. Even an indirect change of ownership may cause a loss of carry forward. If there is a an ownership change of more than 50 % of the shares in company A that owns at least 20 % of the shares in an company B, there is seen an ownership change in company B. If company A owned 20 % of the shares in company B, 20 % of the shares has changed ownership. Because the change in ownership has to at least 50 %, in this case loss carry forward is still possible in company B. But if company A owned 55 % of the shares in company B, loss carry forward in company B is not possible without exception. Exceptions to this rule may be granted by the Ministry of Finance. Losses may not be carried back.

In the event of a merger, the surviving company may carry forward and deduct the losses of the merged company, provided that those losses arose in years during which the surviving company, its shareholders or both together owned more than 50% of the merged company's share capital.


  • Group Contributions

Members of a group of companies are taxed individually. There are no provisions for filing consolidated tax returns. However, a system of group contributions permits a qualifying group of companies to use the losses incurred by unprofitable companies within the group against profits earned by other companies in the group.

Under the following conditions, amounts contributed by one company in a group to another may be deducted for tax purposes by the contributing company, while the recipient company recognises the receipt as taxable income:

  • The companies must consist of a Finnish parent company and one or more resident subsidiaries at least 90% of whose share capital has been owned directly or indirectly by the parent during the entire financial year.
  • The parent and the subsidiaries must engage in active trades or businesses and must not be financial or pension institutions or insurance companies.
  • The financial year of the companies must end on the same date, unless an exception is granted by the Accounting Committee, an expert committee working under the Ministry of Trade and Industry.
  • The companies must report the contribution in their annual financial statements, and the contribution must affect their annual net income.

A group contribution is not allowed to be carried forward for tax purposes as part of the contributing company's available operating losses.

  • Other Group Issues

Finnish tax law includes no special provisions for tax-free transfers of assets among members of a group of companies except, subject to certain conditions, for mergers or spin-offs.

Dividends received from other group members are treated in the same manner as dividends received from any other domestic corporation. Because of the imputation system, domestic intercompany dividends are taxed only once at the recipient's effective tax rate.


The tax status of a company in liquidation is exactly the same as that of an on-going company. Capital gains and any other income realised by a company during the liquidation period are, therefore, computed and taxed according to the normal rules.

Liquidation distributions are tax-exempt to shareholders if they represent a repayment of the shareholder's original investment. Distributions in excess of that amount are regarded as capital gains for tax purposes.


  • Dividends

Dividends received by a non-resident company from a resident company are usually subject to a final withholding tax (see Section F.6, page 55). As a part of European Union however, Finland does not levy any withholding tax on dividends paid to a company resident in another EU country, if the other company owns at least 25 % of the share capital of the Finnish company.

A non-resident company is not entitled to the imputed tax credit, unless a tax treaty provides otherwise (see Dividend Imputation, page 41).

  • Interest And Royalties

Normally, interest on loans obtained for business purposes is deductible in full on an accrual basis. Interest paid by a company to its shareholders at a higher rate than customary may be partially disallowed as a deemed dividend distribution.

Royalties of all types are usually deductible in full.
For treaty withholding taxes on interest and royalties, see Appendix 13, page 91. Because of domestic legislation, interest received by a non-resident is usually tax-exempt.

The content of this article is intended to provide a general information on the subject matter. It is therefore not a substitute for specialist advice.