August  2022
Draft bill published in Finland concerning the introduction of an exit tax   ​​

A draft bill concerning the introduction of an exit tax on natural persons emigrating from Finland was published by the Ministry of Finance on 12 August, and will be circulated for comments until 12 September, 2022. The intention is that the proposed amendments to the Income Tax Act will enter into force from the beginning of 2023 and will be applied to 2023 taxation. Introduction of the exit tax is an objective set out in the Government Programme of Prime Minister Sanna Marin. The bill is published in spite of the “Report on an Exit Tax on Natural Persons” published by the Ministry of Finance in February 2020, which did not support the introduction of an exit tax in Finland since, in the words of the Ministry, “it may have detrimental effects on Finland’s competitiveness, attractiveness as an investment target, immigration and emigration, and economic efficiency”. 

The draft bill in a nutshell: 
  • If an individual becomes either non-resident for Finnish tax purposes, or a “treaty resident” of another country under an applicable double taxation treaty, that individual may become subject to an exit tax in Finland.  
  • Unrealized gains of the “exit tax assets” accrued while the individual was a tax resident of Finland may be taxed as capital gains, with the taxable moment being deemed as the date preceding the date of the actual move from Finland. The Finnish tax on capital gains is 30%, except in cases of capital income annually exceeding EUR 30,000, when the tax will be 34%. Although the exit taxation may be postponed, at the taxpayer’s request, until the assets are actually sold or donated, the bill also allows the Tax Administration to demand a warranty to secure payment of the tax. 
  • No exit tax will be applied in cases where the asset is to be realized only on  the 8th year of moving abroad from Finland, or later. 
  • Only movable property will be subject to the exit tax rules. Thus, real estate located in Finland or abroad, as well as the shares of Finnish housing companies, will be excluded. Otherwise, “movable property” is interpreted rather broadly and includes, for example, the shares of listed and unlisted Finnish and non-Finnish companies, funds, options, various insurance-based investments and pension products, as well as virtual currencies. 
  • The exit tax rules will not be applied if the market value of the taxpayer’s total assets that would otherwise be subject to an exit tax is less than EUR 500,000, and if the estimated unrealized profit from these same assets is less than EUR 100,000.
  • The exit tax will be applied to natural persons who have been tax residents of Finland and treaty residents of Finland for at least 4 years during the 10 years prior to their emigration from Finland. 
  • The exit tax rules will also apply to non-Finnish citizens.
The draft bill takes no account of the already complex Finnish tax environment for non-Finnish workers and other non-Finnish individuals coming to Finland. For example, unlike in many other countries, Finland does not specify the exact number of days that will trigger Finnish tax residency. In addition, it’s not unusual for an individual’s treaty residence status to be transferred abroad, even if the individual does not actually move abroad. This may take place, for example, if the taxpayer’s spouse moves away from Finland. In addition, the draft bill would unfairly extend the exit taxation and capital income tax consequences to donations made after a move from Finland, whereas donations are normally subject to gift taxation in Finland. Furthermore, based on the draft proposal, no capital losses on the disposal of “non-exit tax assets”, including losses on the sale of real estate in Finland, would be deductible from the income tax imposed on exit capital.  The draft bill prepared by the Ministry of Finance also addresses many practical and administrative complexities regarding, for example, the elimination of double taxation. 

This draft bill is not final, and changes may be introduced after the period for feedback is over. However, no matter whether you are planning to move to Finland for employment, business or retirement, or whether you currently live in Finland, the impact of an exit tax on your total tax burden should be carefully reviewed. 

(Update on 17 November 2022: the Government abandoned the proposal for an exit tax. Thus, no bill of an exit tax will be submitted for parliamentary consideration.) ​
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