Legal Alerts/5 Apr 2022

The Finnish Real Estate Tax Reform Takes One Step Forward

The Finnish Ministry of Finance issued a draft government bill concerning the reform of Finnish real estate taxation on 25 March 2022 (the “Bill”). The reform seeks to ensure a better overall match between real estate tax values and the fair value of properties as, according to reports that predate the Bill, the taxable values of buildings and land areas have fallen behind the general price development.

The prices of the land areas have diverged regionally, and new types of buildings have been introduced after the current system was introduced in Finland. As such, another purpose of the reform is to fix the inequality caused by the underdevelopment of the taxable values.

Proposed changes

The proposed changes cover various different aspects that have affected and will continue to affect real estate taxation. Some of these aspects include e.g. area prices, value determination, the impact of renovations on taxable value, and the applicable tax rate. The most pertinent proposed changes are discussed below.

Area prices

Going forward, the area prices of land would be determined by a database on current market values maintained by the National Land Survey of Finland, and no minimum area price would exist. Currently, an area price map is used to determine the area price per square metre, and the area prices are calculated based on the average fair market values, which in turn are defined based on realised real estate transactions and other contributing factors. The proposed changes seek to better reflect the fair market values of these areas, since the new database would be constantly updated.

Replacement value and basic value

The replacement value used to determine a building’s taxable value would be replaced by a basic value. In the current model, the replacement value is 75% of the building’s value, which is determined based on a certain set of characteristics (including e.g. building size, quality, and building type) or building costs. Location currently does not affect the value of a building, but the proposed changes include location as one of the characteristics that will affect the calculation of the proposed basic value.

The proposed basic value would be 50% of the building’s value, and it would be determined based on e.g. the aforementioned location as well as construction costs and building type. An extensive database of building values maintained by Statistics Finland, which covers 100 different building types, would be used to determine the basic value.

The building type classification that is currently used in real estate taxation is set out in the Replacement Value Decree issued each year by the Finnish Ministry of Finance. The classification is only used for taxation purposes and includes only a handful of different building types. As such, the reform seeks to abolish the current classification and replace it with the database maintained by Statistics Finland to better reflect the real value of the buildings concerned.

Factors that will no longer affect taxable value

If the Bill passes, renovations or other improvements of the building or construction would no longer have effect on its taxable value. In the current model, renovating or otherwise improving a building increases the taxable value of the building because it reduces age depreciation.

Furthermore, the value of a building would no longer be affected by the building materials used during construction. Currently, if significantly better or inferior building materials are used during construction or if the resulting building is otherwise better or, on the contrary, has lost more of its value than the average building of the same type, the building’s value will be adjusted based on these characteristics by up to 30%.

A proposed new tax rate and tax increase cap, and the impact of environmental aspects

If the bill passes, the current general tax rate, which is 0.93–2.00%, will be lowered to 0.53–1.70%.The tax rate used for land would be separated from the general tax rate, and it would be set between 0.13% and 2.00%. In addition, the tax rate for vacant construction sites would be lowered to a maximum of 3% from the current maximum of 6%.

Furthermore, the Bill proposes a cap on possible tax increases for years 2024–2026. The Bill suggests that if the payable amount of real estate tax increases by more than 30% and EUR 200 compared to the previous year, the maximum increase for each year will be capped at EUR 200.

The reform aims to give environmental aspects more weight. The Bill proposes that the real estate tax payable on offshore wind farms should be lowered and that all areas protected under the Finnish Nature Conservation Act should be exempted from real estate tax.

What is not covered by the Bill?

The Bill does not propose any changes to taxation procedure. With this being the case, real estate tax decisions will continue to be sent to taxpayers by the Finnish Tax Administration. These decisions contain real estate information, a calculation of payable real estate tax, payment information, and the ending date of the assessment process.

What are the implications of the Bill?

The proposed legislative changes would update the baseline used to calculate the taxable value of both land and buildings. The reform has sought to remain neutral when it comes to collected taxes, but in fact, the real estate tax burden of some taxpayers would increase significantly while some taxpayers would benefit from the reform, depending on where their property is located and what type of building is in question.

For example, the Bill estimates that the tax burden will increase by 44% for buildings used in the mining industry and decrease by 35% for office buildings. The unequal increases or decreases are the result of the new base values, which will differ depending on the type and location of the building.

As such, the Bill should be borne in mind when contemplating real estate transactions. Different industries should also prepare to be affected by changes in their current real estate tax burden. Notably, paid real estate tax is deductible in corporate income taxation, provided that the company owns the real property.

What comes next?

Should the Bill pass within the proposed schedule, the new provisions would take effect on 1 November 2022. The new provisions that will be introduced to the Finnish Act on the Valuation of Assessments in Taxation would be applied to the valuation of real estate for the year 2023 and used as a base for real estate taxation in 2024. The new provisions that will be introduced to the Finnish Real Estate Tax Law, on the other hand, would only begin to apply in 2024. For now, the Bill is being circulated for comments until mid-May.

We will continue to monitor the situation for any developments as the proposal proceeds towards implementation. If you have any questions regarding the matter, please feel free to contact any of Borenius’ attorneys listed in this alert or those with whom you usually work.

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Additional information

Heikki Wahlroos



Ida-Maria Wikström



Jonna Yli-Äyhö

Senior Associate