Finland Taxation Changes Spell Big Opportunities for Foreign Investors in 2020

Foreign investors should take advantage of the 2019-passed amendments to Finnish legislation related to the taxation of investment funds. These amendments came into force on January 1st 2020 and are aimed at making Finland a more attractive investment market as well as allowing Finnish investment management firms to explore international investment opportunities without added taxation costs. 

The changes to the legislation clarify the definitions of investment funds and special investment funds and outline the requirements for tax exemption for these entities. 

The amendments clarify the scope of the law, reduces the administrative burden on the management company and removes ambiguities regarding current regulation. In addition, the proposal implements nationally the money market regulation, the regulation on European venture capital funds and European social entrepreneurship funds, and the regulation on reporting and transparency of financial transactions in securities. In short, for investment firms outside of Finland with investments in the Finnish marketplace, this means that your withholding tax refund requests will become a much more streamlined process.

The new legislation also calls for the reassessment of certain provisions such as inter alia, regulation of the meeting of unit-holders, the obligation for the auditor to review the correctness of the calculation of the fund six times a year and requirements regarding the minimum number of unit-holders. 

In addition, the newly-passed legislation extends the domestic exemption enjoyed by Finnish investment funds to Foreign investment funds that are deemed comparable based on clearly defined criteria. This means that a domestic reclaim mechanism now exists to assist qualifying foreign investment funds to reclaim the fullwithholding tax.

The Finnish Tax Authorities intend to make Finnish investment funds more attractive for foreign investors. The Authorities also want to make it easier for Finnish investors to invest abroad. The Finnish tax authorities state the following in the Impact and Benefits section of the Legislative change:

“Mutual funds provide opportunities for different types of investors to invest indirectly in both domestic and foreign destinations and to take advantage of the opportunities offered by large investment branches to generate returns and diversification. In order to remain competitive in the Finnish fund business and to contribute to the development of the operating environment, national mutual fund legislation also needs to be updated. Such changes in the operating environment include in particular developments in financial technology and regulatory projects at EU level to increase cross-border supply of funds in Europe. Reforming mutual fund legislation could have a cost-cutting effect on management companies. In addition, the reforms would make it easier for Finnish management companies to operate in the international market as national regulation diminishes.”

WTax provides foreign investment firms with an end-to-end withholding tax refund solution. We help businesses explore all reclaim opportunities including Double Taxation Treaty claims, Domestic Exemptions and European Court of Justice Claims. Using our in-depth knowledge of your local tax laws, we can assist in evaluating if your foreign investment fund meets the exemption criteria. To find out how we can help your business claim withholding tax in Finland, get in touch with us.

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