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New Finnish Government Adjusts Tax Rates
In June 2011 the new Finnish government reached an agreement on the governmental programme. The agreement includes the fiscal policy for the next four years, aiming to secure financing for welfare services and to balance the national economy while strengthening economic growth and employment. In September the government published the 2012 budget proposal. The budget proposal includes several tax changes, most of which would come into force already from the beginning of 2012. Taxand Finland reviews the impending tax reforms and what they will mean for MNCs and individuals operating in Finland.
In order to promote the competitiveness of Finnish enterprises and improve growth and investment opportunities the corporate income tax rate will be reduced from 26% to 25%.
At the same time, the taxation of dividends and capital income will be tightened. The general capital income tax rate (applicable to private individuals) will be increased from 28% to 30% and made progressive so that the tax rate will be 32% for capital income exceeding EUR 50,000.
Dividends from listed companies received by individuals will be directly affected by the increase in the capital income tax rate as 70% of such dividends will be subject to capital income tax. The maximum amount of tax-exempt dividends receivable by individuals from unlisted companies will be lowered to EUR 60,000.
Several amendments are expected to be made to the tax on earnings (as well as to welfare benefits) to promote employment and to narrow income differentials between income groups. The taxation of earnings is not set to be increased in any income bracket. Inheritance tax on large estates will be tightened, however.
Certain specific income tax benefits such as the domestic help credit and the interest deduction on home loans will be reduced. The home loan interest deductions will be reduced even further in 2013-2014.
Certain specific VAT rates will be raised. In addition, environmental and health-based taxes linked to consumption will be increased. These include the excise duties on alcohol, tobacco and sugared products as well as the energy taxes, for which also additional increases are proposed for 2013.
The first government bills are currently expected to be published in October 2011. The new government plans to have the reforms mentioned above entering into force on 1 January 2012 (with certain additional tightening of the reform in the coming years).
In addition to the "tax rate adjustment" kind of amendments presented above, some of the more profound reforms mentioned in the governmental programme still require separate assessment and will inevitably be pushed back to later years. Among these are an extensive reform of the corporate tax system (i.e. group taxation, interest deductions, balancing of losses, review of deductions and possibility of an R&D incentives), the replacement of the excise duty on sweets and ice cream with a uniform sugar tax beginning in 2013, and the possible taxes on packaging, soil materials and uranium.
The government will also look into possible measures to make it easier for companies to list their shares.
The fact that a large proportion of the amendments will enter into force at the beginning of the next calendar year presents tax planning opportunities for individuals and MNCs. The window of opportunity, however, is rather small as it will only last until the end of the year.
The focus of business taxation will shift moderately from taxing corporate profits towards taxing funds received from companies.
The focus will also move toward environmentally- and health-motivated taxation. As inheritance and gift taxation and capital income taxation will be increased (and the latter made slightly progressive in 2012), consideration should be given to ensuring that the receipt of large amounts of capital income by private individuals takes place this year, as should, for instance, potential generational succession at family firms.
The outcome of the larger review of the corporate taxation system in the future years will yet remain to be seen. All in all, at least the lower corporate income tax percentage is good news for MNCs in these times of turmoil.
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