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Updates to dividend taxation of private individuals
The Finnish Government has announced further adjustments to the planned dividend tax system. Taxand Finland discusses the proposed amendments to the taxation of private individuals in 2014.
Based on the adjusted announcement, only 25% of the dividends received by private individuals from unlisted companies will be taxable as capital income, provided that the dividend does not exceed an amount equal to an 8% annual return on the net asset value of the shares owned. The remaining 75% will be tax-exempt. However, this alleviated taxation applies to dividend amounts not greater than EUR 150,000. If the dividend exceeds the EUR 150,000 limit, 85% of such dividend is treated as taxable capital income. If the dividend exceeds the 8% limit, 75% of such exceeding amount is treated as earned income (which is taxed at progressive tax rates).
The new dividend tax model is therefore only a modification of the current legislation which allows a fully tax-exempt dividend amount of a maximum of EUR 60,000 within a limit of 9% annual return on the net asset value of the shares owned. If the dividend falls within the 9% limit but exceeds the EUR 60,000 limit, 70% of the dividend is taxable as capital income. Of dividends exceeding the 9% limit, 70% is taxed as earned income, the rest being tax-exempt.
With regard to dividends received from listed companies, the Government does not propose any new adjustments when compared to the final frame agreement concluded in the spring. Therefore, 85% of dividends received by private individuals from listed companies will be taxed as capital income (at the rate of 30% or 32%, the rate depending on the amount of aggregate taxable capital income).
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For unlisted companies the adjustments mean that, depending on the circumstances, dividends may either enjoy greatly alleviated taxation, just slightly alleviated taxation or be partly subject to often strict taxation as earned income.
For listed companies the lack of adjustment in 2014 will clearly tighten the taxation when compared to the current situation with 70% of the dividends being taxable. However, as the CIT rate will decrease to 20%, the total tax rate will remain the same in practice.