Finland money

Spotlight on the structuring and regulation of heritage in Finland

All the questions

Structuring and regulation of heritage

i Asset structuring vehicles

Finnish law does not recognize the common law institution of the trust. There is, however, some case law, for example, regarding foreign trusts and their treatment in Finnish taxation. Trusts can lead to various substantial tax risks in Finland, such as CFC taxation and income, gift or inheritance tax for the beneficiaries, sometimes even before any actual payment has been received from the trust. The sparse Finnish case law on trusts and the varying characteristics of trusts underline the need for a case-by-case analysis.

In addition, the use of foundations for wealth structuring purposes is very limited, as foundations are generally required to have a charitable purpose and they are subject to strict supervision and even criminal sanctions. Limited partnerships, on the other hand, are primarily used by private equity investors and in other circumstances where the characteristics of a transparent entity are desirable.

Thus, the most common vehicle for structuring assets remains the limited liability company. Since the taxation of dividends in the hands of an individual shareholder is affected by the value of the net assets of the company paying the dividends, capitalization in a limited liability company is often advantageous from a tax point of view.14 The creation of a limited liability company is very simple and, since July 2019, there is no minimum share capital required. At least one member of the Board of Directors must reside in the EU or EEA, unless otherwise permitted.

Another reason why corporations are an attractive vehicle for accumulating wealth is that billing through personal services companies or holding companies, particularly in the area of ​​professional services, can to some extent be used. as an alternative to receiving the same amount of income as salary. As noted above, labor income is taxed at rates of up to around 55%, while the tax burden when charged through a corporation may be more modest – the corporate tax rate corporations is 20% and dividend distributions are often only taxed at 7.5%. hundred. Depending on the circumstances, it might not even be necessary to distribute dividends, resulting in later tax savings.

Exit tax provisions for companies introduced from 2020 could trigger exit taxation, if running the company from another country results in the company’s residence moving to that other country and Finland loses the right to tax business assets. The February 2019 judgments of the Court of Justice of the European Union on the concept of beneficial ownership and the misuse of EU law could limit the possibilities of using foreign intermediary holding companies (for example, as as investment vehicles in Finland). In addition, from 2021, legal persons whose place of effective management is located in Finland are considered to have unlimited tax liability in Finland.

Legislative amendments aimed at better aligning the tax treatment of the different forms of investment have been applied from 2020. Among other things, these amendments have greatly reduced the attractiveness of insurance packages, for example by removing the possibility of withdrawing the capital invested without triggering taxation and complete loss of tax deferral when the contract holder cedes too close control over the underlying assets. For example, the explicit or implicit possibility to exercise voting rights on the underlying investment object or to circumvent the insurance company when placing buy and sell orders (self-management) entails the total forfeiture of the tax deferral. In 2022, the tax administration set up a new task force, which targets tax non-compliance and criminal behavior related to insurance packaging.

From 2020, Finnish contract investment funds must meet certain conditions related to, for example, a minimum number of unitholders and openness to be exempt from tax. HNWIs, which tend to choose limited liability companies or insurance companies, rarely use Finnish investment funds as vehicles for wealth structuring. For many HNWIs, foreign private funds might be a more attractive alternative, especially after the 2020 amendments.

ii Regulation of financial service providers and prevention of money laundering

Marketing and offering of financial products and services in Finland by investment firms and fund managers of UCITS (i.e. funds established under the European Directive on undertakings for collective investment in transferable securities ) and alternative investment funds (i.e. funds governed by the Directive on Alternative Investment Fund Managers) require prior authorization or registration with the Finnish Financial Supervisory Authority, which is also the supervisory authority. When the marketing is aimed at non-professional investors (retail investors), certain additional requirements, such as the obligation to provide a key investor information document and the rules of the Consumer Protection Act, apply. The definition of a professional client under the Investment Services Act is based on the requirements set out in the European Markets in Financial Instruments Directive.

Finnish legislation on the prevention of money laundering is largely based on international standards, which include the EU Anti-Money Laundering Directives, which are based on the recommendations of the Financial Action Task Force. EU anti-money laundering directives have been implemented in Finnish legislation in the Prevention of Money Laundering and Terrorist Financing Act (AML Act), the Financial Intelligence Unit Act and the Penal Code Finnish. The requirements under the AML Act apply, inter alia, to investment firms, fund managers, credit institutions and other entities providing finance in Finland. Duties include customer identification and verification, ongoing monitoring of customer relationships, record keeping, detection and analysis of suspicious transactions and reporting of suspicious transactions to the Financial Intelligence Unit, which operates in conjunction with the National Bureau of Investigation. Violations are subject to administrative and criminal penalties, and failure to comply with obligations may result in corporate criminal liability and criminal liability for individual employees. Money laundering offenses are punishable by the Penal Code.