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Expert group: Finland’s business taxation is competitive

Ministry of Finance
Publication date 9.2.2017 10.01
Press release

The expert group on business taxation set up by the Ministry of Finance does not propose any changes to Finland’s business taxation, because the system, it says, is already internationally competitive. The expert group does, however, propose changes to the taxation of dividends and earned income, with the intention of increasing the efficacy of taxation.

The expert group’s proposals are aimed at promoting neutral taxation that will not influence taxpayers’ choices. This will be an effective way of enhancing productivity and economic growth.

Changes to business taxation only if strong grounds exist

In Finland, limited liability companies and other corporate entities pay 20 per cent corporate income  tax on their taxable income. This is less, on average, than in the other Nordic and EU countries.

The expert group considers the corporate income tax rate to be competitive and sees no immediate need to reduce it. Finland should nevertheless ensure that the corporate income tax rate remains at an internationally competitive level in future years, too.

The expert group regards the current company taxation model to be justified. The experts do not, for instance, put forward the ACE and CBIT models that have been a focus of international debate and which aim to remove differences in the tax treatment of equity and debt finance. Neither were there found to be justifications for adopting the Estonian model of business taxation.

The expert group also concluded that there is no reason to amend the provisions concerning calculation of the taxable income of businesses.  The experts do not propose the introduction of a tax incentive for research and development or the use of a profit equalisation reserve or investment reserve.

The expert group considers it extremely important that taxation is predictable and stable, and that changes should be introduced only if strong grounds exist for doing so. Finland’s current business taxation system is competitive and is not the reason for the subdued growth and low investment seen in recent times.

Reform of the taxation of unlisted companies’ dividends

The expert group concluded that the taxation of dividends should be reformed, as the demand for a return on investment varies among businesses as a result of the way in which dividends are taxed. This adversely affects the channelling of investment into the most productive assets in the economy.

The system for taxing dividends also has a substantial impact on dividend distribution, creates tension in relation to the taxation of earned income and differentiates too greatly between listed and unlisted companies.

The expert group proposes the following changes to the taxation of dividends distributed by unlisted companies:

  • The rate of return used for calculating the portion of the dividend on which relief is given would be reduced to 4 per cent from the current 8 per cent.
  • The taxable portion of the dividend would be raised to 40 per cent from 25 per cent.
  • The threshold of EUR 150,000 connected with the relief given in dividend taxation would be abolished.
  • Seventy-five per cent of the portion of the dividend in excess of the rate of return would be earned income, as it is at present.

As a consequence of these changes, shareholders would be permitted to withdraw a lesser amount of dividends with relief than is currently the case, which would add to taxation for the majority of dividend recipients. The removal of the EUR 150,000 limit would reduce taxation in certain situations, though few in number, where the shareholder withdraws substantial dividends from a high net worth company.

According to the expert group, the changes would simplify the taxation of dividends and encourage companies to grow. There would also be less tax-related variation in investment incentives among different businesses, which would encourage more effective allocation of investment.

The total tax ratio for dividends attracting tax relief would rise closer to the rate for taxation of capital. Taxation would then apply more equally to investments in the taxpayer’s own company and those made elsewhere.

The expert group proposes no changes to the taxation of listed companies’ dividends.

Greater incentive from taxation of earned income

The expert group examined the taxation of earned income from the perspective of skills enhancement and productivity. It proposes changes in the marginal tax on earned income, i.e. in the tax applying to extra income:

  • The marginal tax rate for earned income would be lowered for those with annual earnings of EUR 82,000–128,000.
  • In the long run, efforts would be made to reduce marginal tax rates so that they do not exceed 50 per cent at any income level.

This would encourage employees to build up their skills and expertise and thus improve their productivity. This would, in turn, boost economic growth in the longer run, concluded the expert group.

The changes proposed in the taxation of dividends and earned income would narrow the difference between the taxation of capital income and earned income. Even though the proposals would not narrow the difference completely, this would nevertheless reduce the incentive to operate as a limited liability company as opposed to operating as an employee.

The expert group also proposes that the current training deduction be abolished and a separate provision added to the Income Tax Act concerning tax exemption for employer-provided training in employee taxation.

Examining the impact of the expert group’s proposals on general government finances, the changes in the taxation of dividends and earned income would largely balance each other out. The proposals would increase annual tax revenues to the public sector by EUR 44 million, excluding any effects related to taxpayer behaviour.

Report of the expert group on business taxation (in Finnish with English abstract)

Photos from the press conference (Flickr)


Terhi Järvikare, Director General, chair of expert group, tel. +358 2955 30113, terhi.jarvikare(at)
Tarja Järvinen, Legislative Counsellor, tel. +358 2955 30089, tarja.jarvinen(at)
Ilari Valjus, Economist, tel. +358 2955 30093, ilari.valjus(at)