Taxation of capital income

In Finland, earned income and capital income are taxed separately. Capital income includes

  • dividend income
  • capital income from entrepreneurial income
  • rental income
  • profit-share and capital gains
  • income from extractable land resources
  • income from sales of timber
  • certain interest income.

The taxation of capital income is progressive. The capital tax rate is 30%; for the portion of taxable capital income that exceeds 30,000, the tax rate is 34%.

Taxable capital income is determined on the basis of gross income and deductions thereof. Deductions from capital income may include

  • all expenses incurred in the acquisition or maintenance of such income (including related interest)
  • interest related to the acquisition of an owner-occupied dwelling
  • interest on study loans guaranteed by the Finnish Government
  • losses on a source of income.

Credit for deficit in capital income

A deficit in capital income refers to a situation in which the total amount of the deductions from capital income exceeds the total amount of capital income. The total amount of the deficit consists of the difference between the taxable capital income and the deductible expenses incurred in acquiring or maintaining income, interest payable, and the losses deductible from capital income.

Some of the capital deficit can be deducted in earned income taxation as credit for deficit in capital income. The deduction from earned income tax is calculated on the basis of the capital income rate, or 30% of the deficit. However, the credit can be €1,400 at maximum.