Legal Alerts/28 Sep 2018

Legal Alert – New Interest Deduction Limitation Rules Entering into Force at the Beginning of 2019

The Finnish Government issued a government bill amending the Finnish rules on interest deduction limitations on 27 September 2018. The proposal suggests significant restrictions on deducting net interest expenses paid to both group entities and external lenders. Even though the proposed legislation is stricter in comparison to current legislation, the proposal is, for the most part, limited to the implementation of the minimum requirements established in the EU Anti-Tax Avoidance Directive (ATAD). Revised exemptions applicable to group companies and certain financial institutions will be available.

Key changes

The government bill proposes the following key changes:

  • The rules will apply to all Finnish tax resident corporate entities (including the real estate sector), i.e. not only to entities conducting business activities;
  • Interest paid on loans from third parties, e.g. bank loans and bonds, will also become subject to regulation (and may become non-tax deductible). However, a grandfathering clause exempts certain existing external debts from the scope of limitations;
  • Financial institutions and e.g. UCITS and AIFs are exempt from the scope of limitations as are entities involved in certain social housing production sectors;
  • The current ‘safe haven’ rule will remain at EUR 500,000 for net interest expenses, but a safe haven rule of EUR 3 million for net interest expenses paid on loans from independent entities will be introduced; and
  • The definition of interest will extend to cover expenses incurred in connection with the raising of debt and apply e.g. to guarantee fees and banks’ arrangement fees.


The proposed amendments will have a significant impact on interest deductibility across business sectors. Specifically, investors and developers in the real estate sector are facing significant changes. The fact that the restrictions will also apply to external debt will emphasise the need for tax planning e.g. in connection with M&A and capital markets transactions.

Interest expenses incurred for certain existing loans from independent parties may, however, be excluded from the interest deduction limitations provided that such existing loans have been drawn down before 17 June 2016. In addition, certain capitalised interest costs may remain deductible if they are capitalised before 1 January 2019.

The current exemptions that apply to group companies and certain financial institutions (e.g. banks and insurance companies) will remain available after slight revisions due to the requirements established in the ATAD. Furthermore, state-subsidised social housing production will be exempt from interest deduction limitations.

Further steps

The amendments are proposed to enter into force on 1 January 2019 and apply to the fiscal year 2019. We will continue to monitor the legislative process of this proposal closely and provide updates if necessary.

Borenius’ lawyers are available to assist in addressing any questions you may have regarding this legal alert. Please feel free to contact any of the Borenius’ attorneys listed in this alert or those with whom you usually work.

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Additional information

Heikki Wahlroos



Einari Karhu