CORPORATE TAXES
SIGNIFICANT DEVELOPMENTS
There have been no significant tax or regulatory developments in the past year.
TAXES ON CORPORATE INCOME
The corporate tax rate is 28%.
CORPORATE RESIDENCE
A company is deemed to be resident where it is incorporated (registered).
OTHER TAXES
Value-added tax/Value-added tax legislation entered into force in Finland on June 1,1994. VAT is payable on the sale and import of all goods and services when relating to business activities. The normal VAT rate is 22%. A rate of 17% applies to foodstuffs. A rate of 8% applies to medicines, books, cinema performances, sports activities, passenger transport, and
hotel accommodation. Subscriptions to newspapers and eriodicals are zero-rated.
Input VAT cannot be reclaimed on the following goods and services.
1.Motorcars and their operating costs, such as petrol and repair and maintenance costs. However, only the input VAT on motorcas, goods and services acquired for rental or transportation activities or for a company's business use can be reclaimed.
2.Entertainment costs.
3.Company housing and real estate used for leisure activities and their operating costs.
4.Gifts.
Real estate tax/Municipalities impose a real estate tax. The tax is levied on the taxable value of buildings and land. The tax rate, which is determined by the municipal council, rangs from 0.1% to 0.5% for permanent dwellings and from 0.1% to 1.1% for other real estate. the tax is deductible for income tax purposes if the real estate is used for business.
BRANCH INCOME
Tax rates on branch profits are the same as on corporate profits. No tax is withheld on transfers of profits to the head office. As a general rule a branch is taxed on profits attributable to it, provided the branch constitutes a permanent establishment in Finland.
INCOME DETERMINATION
Inventory valuation/Inventories may be written down to the lowest of direct FIFO cost, replacement cost or net realizable value. Conformity between book and tax reporting is required.
Capital gains/Capital gains and losses are generally included in taxable income, i. e., sales proceeds are included in the taxable income, and the undepreciated balance of the asset sold is deducted in the sales year. However, the entire stock of machinery and equipment is treated as a single item, and the capital gain on machinery and equipment is entered as income indirectly by deducting the selling price from the remaining value of the stock of machinery and equipment.
Intercompany dividends/Dividends plus 7/18 of the dividend received by a Finnish corporation from another Finnish corporation, whether or not a subsidiary, are included in taxable income. This 7/18 share (the minimum tax) corresponds to the income tax that the company distrbuting a profit will have to pay. (Note that if the tax payable by a company under the normal tax rules is less than 7/18 of the distributed profit, the difference will be levied as a compensatory tax. If the company's income tax exceeds 7/18 of the dividends distributed, the difference (tax surplus) can be utilized in dividend distributions during the following ten years if the tax based on the taxable income is smaller than the minimum tax.)
Income from controlled foreign corporations/New CFC legislation came into force at the beginning of 1995. A Finnish shareholder resident for tax purposes in Finland can be taxed on income of a foreign entity (e. g., company, trust), even though profits have not been distributed from the foreign entity to the Finnish shareholders. CFC legislation is not applied to corporations carrying out manufacture of similar production activities in a foreign country or to selling or marketing activities directly serving the above-mentioned manufacturing or production activities in the foreign country. Corporations resident in a country with which Finland has a double-taxation treaty are mainly outside the scope of CFC legislation if the tax rete in the country of residence does not substantially differ from tax rates in Finland and the company does not benefit from any special tax incentives.
The provisions of the legislation will be applied only if the tax rate in the foreign country is less than three-fifths of the tax rate in Finland and the foreign entity is in the power of Finnish residents, i. e., Finnish residents own a total of at least 50% of the share capital or at least 50% of the voting power in the foreign entity. The taxable income of the foreign entity can be allocated only to a Finnish shareholder that
owns more than 10% of the share capital of the foreign entity or whose proportion of the total return of the foreign entity is at least 10%.
Foreign income/A Finnish corporation is taxed on foreign branch income as earned and on foreign dividends when received. Double taxation is avoided either by treaties or by foreig
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