Company in Finland

General information

Finland has revised its foreign trade policy to promote exchanges with the European Union. Enjoying a sustained surplus, foreign trade plays an important role in the country’s economy. Finland has achieved levels of growth and development that make it one of the richest countries in the world today.

Types of companies

There are several types of businesses for foreign investors:

• Limited liability company (Oy)
• Limited company (osakeyhtiö, Oyj)
• Partnership
• Small private company, usually an individual farmer
• Branch of a foreign company

Limited liability companies (Oys) are the most common corporate status of medium and large businesses. It is usually used by foreign companies to become established in the country.

Company registration procedure

Registration of the company:

• Preparation of the articles of association and the articles of association of the company.
• Subscription of shares.
• The first general meeting of shareholders must approve the articles of association and the management.
• Depositing capital in a bank account.
• Checking whether a selected company name is available can be done in the Business Information System (YTJ) where the name is also pre-registered.
• Registration of the company in the Commercial Register (Kaupparekisteri) maintained by the National Patent and Registration Office (PRH). This is done by submitting a completed registration form together with a set of documents: the articles of association, a copy of the articles of association, a report on the founding meeting of shareholders and the election of the chairman of the board, as well as a confirmation of payment of capital and a declaration on the establishment of the company in accordance with company law and previously obtained permits and concessions.
• Upon entry in the register, the company acquires legal personality and receives a registration number.
• Registration of the company with the tax office.

Shareholders:

There are no restrictions on the number of shareholders, however, a minimum of one shareholder is required to establish a company. A shareholder can be either a natural person or a legal entity. Foreign shareholders are allowed.

Management Board:

Management is done by the board of directors. The Board may appoint one director to run the company. In this case, it must be included in the articles of association. His or her job is to manage the current affairs of the company in accordance with the instructions issued by the board. The board must have between one and five members, unless the articles of association state otherwise. If the board has less than 3 members, there must also be at least one deputy member.

Supervision:

Appointment of the supervisory board is not mandatory.

Registered office:

The company must have a registration address, telephone and post forwarding. It is suggested to have a stationary office or warehouse for commercial activities.

Time to set up a company:

The time to set up a company is 3 weeks.

Capital:

The minimum capital is €2500 and must be paid into the account in full at the time of registration of the company.

Taxes and finances

Tax residence of the company

A company is resident if it is registered in Finland. Residents pay tax on income from both domestic and non-resident activities. Non-residents only pay tax on income earned in Finland. It is levied on the company’s receipts from its activities, passive income and capital gains.

CIT rate

20% Operating expenses are deductible for tax purposes. The maximum annual depreciation rates are 25% for machinery and equipment; from 4% to 20% for buildings. Two methods are used depending on the type of assets: degressive and straight-line. Losses can be deducted from income for 10 years. Retrospective deduction is not permitted. They may also not be deducted if more than 50% of the shares are transferred within or after the year in which the loss occurred. Capital gains are taxed at the basic CIT rate (20%).

Double taxation

Double taxation is excluded on the basis of tax treaties concluded with other countries.

Counteracting tax avoidance

Transfer pricing system – full regulation in line with OECD and EU recommendations. Full documentation is required for related party transactions. There are no thin capitalization rules as such. The introduced regulations concern the limitation of intra-group deductions of interest costs. They may be deducted up to a maximum of 25% of income. This rule does not apply if: net interest costs do not exceed 500,000 Euros; a Finnish entrepreneur demonstrates that the capital balance sheet ratio is equal to or greater than the group ratio. CFC: a foreign company is controlled by a Finnish resident if he or she holds directly or indirectly a minimum of 50% of its shares or majority voting rights or if he or she has the right to a minimum of 50% of profits. An entrepreneur accounts for the income of a foreign company if he or she owns at least 25% of the shares or at least 25% of the profits and if the tax rate at the place of residence of the foreign company is less than 3/5th of Finland’s income tax. International companies with a total turnover in excess of 750 million euros must prepare a report on their activities in each country. The deadline is 12 months from the end of the accounting period.

Accounting

The tax year does not have to last 12 months. If there are more than one of them during a calendar year, they are combined for tax purposes. The company is obliged to submit tax returns electronically within 4 months from the end of the tax year. The tax is paid monthly in advance. The time limitation is 3 years from the year following the tax year.

Withholding taxes

Dividends and royalties paid to a non-resident company are subject to 20% tax unless tax agreements or EU directives reduce it.

VAT

The standard rate is 24% (reduced by 14%; 10%; 0%). Entrepreneurs with an annual turnover in excess of €10000 are obliged to register for VAT. Tax returns are submitted and paid monthly until the 12th day of the following month (companies with a turnover of less than EUR 30000 or EUR 100000, depending on the circumstances, may submit quarterly or annual declarations).

Other taxes

• The property tax is levied by the local authorities at a rate ranging from 0.41% to 6%. This tax is deductible.
• Transaction tax on the sale of assets – a tax of 1.6% is levied on the transfer of securities. The tax levied on transactions resulting in a change of ownership of real estate is 4%.
• Customs duty is levied on products originating outside the EU. Customs duty is levied on alcohol, alcoholic beverages, fuels, tobacco, cigarette products, electricity.
• Environmental taxes – Waste tax; road taxes.