Legal Alerts/1 Dec 2020

Share Issues to Employees: New Favourable Regime to Apply as of 1 January 2021

The Finnish Parliament’s Finance Committee approved new provisions on share issues to employees on 27 November 2020 with minor amendments. The new provisions are expected to come into force on 1 January 2021. We have discussed the new regime in a previous legal alert. This legal alert is an update that discusses the final version of the soon-to-be adopted provisions.


In accordance with the proposed new rules, employees can subscribe shares in their employer company based on the mathematic value of the shares (i.e. in practice their substance value) without receiving any taxable benefit. Employees will receive taxable employment benefit only if the paid subscription price is lower than the determined mathematic value of the shares. If these shares are disposed of in the future, the paid subscription price will be treated as the tax-deductible acquisition cost, and the gained profit will be taxed as capital gain.

Proposed changes for tax treatment

Based on the new rules, taxable income will be assessed only if the subscription price is lower than the determined mathematic value of the relevant shares. The new rules will apply only if all of the following conditions are met at the moment when the relevant shares are subscribed:

  • The opportunity to subscribe shares issued by the employer company is offered to the majority of the personnel on the same terms and conditions. The number of shares offered to each employee can, however, depend on the value that the employee generates for the employer company. The majority means more than 50% of the company’s employees.
  • The company that issues the shares is the employer of the taxpayer who subscribes the shares. The employees of subsidiaries are not eligible.
  • The company issuing the shares is located in the EEA or in a jurisdiction that secures a sufficient change of information on tax matters based on an agreement concluded with Finland, and the shares of the company are not publicly traded.
  • The taxpayer or their family members do not directly or indirectly own more than 10% of the company’s shares or, alternatively, do not possess more than 10% of the voting rights in the company. Option rights issued by the company are not taken into consideration in this assessment.
  • The company issuing the shares carries out business activities as provided in the Finnish Business Income Tax Act and is registered in the employer register as a company that pays salaries on regular basis. The company must also be registered in the prepayment register and it must be free of any recorded tax defaults.
  • The new rules do not apply to the members of the relevant company’s board of directors (or the members of a similar legal organ) if the members have not additionally concluded an employment contract with the company.
  • The new rules do not apply if the subscribed shares do not entitle to any shareholder rights (e.g. dividend, voting rights or a right to assets that will be distributed if the company is liquidated).

Key takeaways

The proposed changes will provide more options for more extensive employee ownership in private companies, which renders this a good amendment. The new rules will also eliminate some of the uncertainties related to the valuation of shares.

Companies should carefully plan how they will apply the new regime in order to meet the requirements for favourable tax treatment.

Borenius’ lawyers are available to assist in addressing any questions you may have regarding these new provisions.

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Additional information

Heikki Wahlroos