Legal Alert – Tax Policy Introduced by the New Finnish Government
On Wednesday 27 May 2015 the negotiators to form a new Finnish government reached agreement on the governmental programme, including the new tax policy framework for the following four years.
In order to improve the challenging status of the Finnish economy, the new tax policy aims to support employment, growth and entrepreneurship. The total tax rate will remain the same. The current broad tax base policy and measures to combat tax avoidance coupled with low/moderate tax rates will continue.
Taxation of earned income will be decreased, however, having the emphasis on low and medium income earners.
The corporate income tax rate will be kept at a competitive level and a new 5% deduction for other than limited liability companies will be introduced. Tax reliefs in changes of generation will be broadened and/or otherwise developed.
Structural improvements include measures alleviating the current distinction between different sources of income by allowing losses in one source to be set off by profits in other sources of income in limited liability companies, and allowing capital losses to be deducted from all capital income (and not only from capital gains).
In addition, share/option incentives can be offered to key employees in non-listed companies with lower values compared to private equity investors without tax consequences (subject to certain preconditions which are to be set later on).
The above-mentioned minor tax decreases will be financed by increases in certain taxes, for example real estate tax, taxes relating to energy and use of vehicles (as well as by introducing a new tax on registered boats and motor vehicles), waste tax, tobacco tax, sweets tax etc. In addition, interest deductions on housing loans will be significantly reduced.
Moreover, measures for combating grey economy and tax avoidance will be further strengthened and as a new feature, the government will introduce a tax amnesty for declaring previously undeclared income on tax payer’s own initiative.
Furthermore, there are several important issues which still need to be further evaluated, for example introduction of a new reserve for supporting investments, aligning the dividend taxation of companies listed on the First North with non-listed companies, and introducing tax-exemption for dividend income up to EUR 500. Taxation of capital income, wealth and different forms of investing will also be evaluated in more detail.
In addition to the above-explained tax policy changes, the government strives to combat the public economy deficit by enforcing extensive cost-cutting programmes and the government also expects that employers and employee unions will agree on additional savings– if not, the government will implement certain additional measures to increase taxes.