October 2020
Government proposal issued: non-Finnish corporations whose place of effective management is in Finland will be treated as tax residents of Finland
In Finland, taxpayers are subject to either limited tax liability or unlimited tax liability. A non-Finnish corporation is a non-resident of Finland and is subject to limited tax liability. It is liable to pay income tax only on its Finnish-sourced income, including trade and business. Assuming a non-Finnish corporation has a permanent establishment in Finland, Finland has the right to tax only the income attributed to this permanent establishment. By contrast, a Finnish corporation is a tax resident of Finland and is subject to unlimited tax liability. In the current tax practice, a corporation is deemed as a Finnish tax resident only when it is established or incorporated in accordance with Finnish legislation.
In the Government proposal (HE 136/2020), issued on 1 October 2020, amendments are being proposed to the Finnish Income Tax Act. According to the proposal, corporations subject to unlimited tax liability will include not only Finnish corporations, but also non-Finnish corporations, if their “place of effective management” is in Finland. The bill defines the place of effective management as the location where the corporation’s significant daily management decisions are made.
The proposal aims to expand and secure Finland’s right of taxation in cases where a corporation is established abroad while the owners, management and activities are based in Finland. Thus, e.g. non-Finnish companies whose effective management is in Finland would also become tax residents of Finland. Tax residency would lead to an obligation to file an income tax return and declare worldwide income in Finland.
If the proposal is passed and becomes law, these amendments to the legislation will be effective as of January 1, 2021.
In the Government proposal (HE 136/2020), issued on 1 October 2020, amendments are being proposed to the Finnish Income Tax Act. According to the proposal, corporations subject to unlimited tax liability will include not only Finnish corporations, but also non-Finnish corporations, if their “place of effective management” is in Finland. The bill defines the place of effective management as the location where the corporation’s significant daily management decisions are made.
The proposal aims to expand and secure Finland’s right of taxation in cases where a corporation is established abroad while the owners, management and activities are based in Finland. Thus, e.g. non-Finnish companies whose effective management is in Finland would also become tax residents of Finland. Tax residency would lead to an obligation to file an income tax return and declare worldwide income in Finland.
If the proposal is passed and becomes law, these amendments to the legislation will be effective as of January 1, 2021.
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The information in this site has been prepared for general informational purposes only and it should not be used as a substitute for consultation with a professional tax, legal or other competent advisor. While we have made every attempt to ensure that the information contained in this site has been obtained from reliable sources, Effektiivi Oy is not responsible for any errors or omissions, or for the results obtained from the use of this information.
The information in this site has been prepared for general informational purposes only and it should not be used as a substitute for consultation with a professional tax, legal or other competent advisor. While we have made every attempt to ensure that the information contained in this site has been obtained from reliable sources, Effektiivi Oy is not responsible for any errors or omissions, or for the results obtained from the use of this information.
