Direct distribution

Ownership structures

May a foreign supplier establish its own entity to import and distribute its products in your jurisdiction?

Yes. Whether from the European Economic Area (EEA) or not, inward investments are welcome. For private limited companies, generally, the only hurdle is the paid-in minimum share capital of €2,500. Depending on which by-laws (articles of association) you require, the cost of setting up a company varies between about €3,000 and €10,000, including the fixed registration fee, establishing a bank account and tax account for the purpose of income tax, VAT and the employer liabilities.

May a foreign supplier be a partial owner with a local company of the importer of its products?

There are no quota limitations for foreign participation.

What types of business entities are best suited for an importer owned by a foreign supplier? How are they formed? What laws govern them?

The private limited liability company is by far best suited. It can be formed by one person, whether physical or juridical. Mainly, all that is needed is to adopt the by-laws containing, at a minimum, the company name, domicile and field of operations, sign the memorandum of association that rarely fills more than one sheet of paper, and file the notification with the Companies’ Registry: the Trade Registry, operated by the Finnish Patent and Registration Office. However, a person must be careful not to encroach upon anyone else’s trade name or trademark, and be able to bring forth evidence to the effect that the subscribed number of shares has been fully paid for in advance to a bank account within the European Union, this being, additionally, confirmed by a chartered accountant and all the directors to be registered.

In principle, the Companies Act (624/2006), and for the incorporation procedure the Trade Registry Act (129/1979) and Ordinance (208/1979) govern them.


Does your jurisdiction restrict foreign businesses from operating in the jurisdiction, or limit foreign investment in or ownership of domestic business entities?

In general, the foreigner-specific restrictions in respect of operating are limited to foreigners from outside the EEA and concern mainly the fields of defence, banking, financing and insurance. In general, there are no restrictions in respect of title to shares or business assets. However, a business operating in a narrow business sector, perceived as putting at risk an important national interest, such as in the business of banned dual-use goods requiring a licence for export, would be well advised, under the Monitoring Act (1612/1992), to seek formal permission from the Ministry of Employment and Economy. This notwithstanding, running a branch of a foreign entity from outside the EEA requires the consent of the Companies Registry. Normally, consent is readily granted. If the foreign business runs a Finnish subsidiary, at least one of the directors, including the managing director (eg, CEO, president), must be a resident of the EEA, unless the Companies Registry grants an exemption. The auditor should be a resident authorised or approved public accountant. In the event that there is no person within the EEA entitled to sign in the name of the subsidiary or the branch, there must be a registered agent for service of process in Finland.

Equity interests

May the foreign supplier own an equity interest in the local entity that distributes its products?

Yes. See question 4.

Tax considerations

What are the tax considerations for foreign suppliers and for the formation of an importer owned by a foreign supplier? What taxes are applicable to foreign businesses and individuals that operate in your jurisdiction or own interests in local businesses?

According to the main rule, foreign businesses are taxed on income sourced in Finland only. On the formation of an importer owned by the foreign supplier, no tax is levied, just a modest handling fee.

Should the foreign business have a permanent establishment (PE) in Finland, it will be liable to tax on all income attributable to the PE. Moreover, dependent on its domicile and the kind and origin of the products imported, the foreign supplier may be subject to customs duties as well. In addition, with regard to its imports, the supplier may be subject to car purchase tax and excise duties levied on, for example, tobacco, alcoholic beverages, soft drinks and liquid fuels.

Given that foreign businesses are taxed only on income sourced in Finland, and that the foreign business will be liable to tax on all income attributable to the PE, sales revenue, interest, royalties and capital gains are included, but costs, expenses and losses attributable to the business are deductible. If a PE’s business operation results in loss, such loss will be deductible during the subsequent 10 tax years, applying the same loss carry-forward rules that are applied in respect of Finnish business entities. However, these rules will not apply should more than half the ownership of the company change hands.

Dividends are generally totally tax-exempt both domestically and under either the EU Parent-Subsidiary Directive, subject to the 10 per cent minimum shareholding requirement, or tax-exempt to a quarter subject to a double tax treaty between Finland and the country from which the dividends are distributed. The corporate tax rate is 20 per cent. Since there are currently no thin capitalisation restrictions, a business can be financed from abroad, however, subject to some rather intricate rules on the deductibility of interests paid in excess of €500,000.

Generally, the tax treaties provide for tax on dividends and royalties varying between 5 and 15 per cent to be withheld at source. However, where the EU Parent-Subsidiary Directive is applicable, no withholding tax is levied on profit distribution, such as dividends, to a parent company holding, directly, at least 10 per cent of equity of the profit-distributing company. But where the Directive is not applicable, the withholding tax at source on dividends is 15 per cent.

However, for other non-resident corporate bodies, generally, the rate of withholding is 20 per cent on profit distribution, interest (where not completely tax-exempt) and royalties. For physical persons, the rate is 35 per cent on income from employment, pensions and distributions by employee investment funds, unless otherwise agreed in the tax treaty concluded with the recipient’s country of residence. Most income of non-residents derived from Finland, other than above indicated, is taxed on an assessment basis.

From the viewpoint of the foreign business electing to use as its vehicle the limited liability company, it is notable that Finland has concluded 116 treaties for avoidance of double taxation and tax evasion, some of which are multilateral and take prevalence over domestic tax law. The most frequent method for eliminating double taxation is the ordinary credit method.

Where there is no double tax treaty with the domicile state of the foreign taxpayer, the country’s tax rights will be determined by domestic tax laws.

Non-Finnish residents are taxed in Finland on income sourced in the country, subject to any applicable treaties for avoidance of double taxation. Under certain conditions and subject to the approval of an application, salary earners with special expertise may, for a maximum period of four years, be entitled to participate in a regime permitting the employer to withhold, in lieu of income and municipality tax, 35 per cent of salary earned. Otherwise, alien employees will be liable for progressive tax on their salary or wages should they stay in Finland for longer than six months, regardless of citizenship. If the stay lasts no longer than six months, the Finnish employer will collect 35 per cent tax at source on the pay, as well as withhold social security payments unless the pay is effectuated by and encumbers a foreign company. Royalties paid to holders of intellectual property rights who are not Finnish residents are subject to a 28 per cent tax at source. The tax rate is 30 per cent for capital income, and 32 per cent where capital income exceeds €40,000.

In general, goods and services supplied in Finland in the course of business are subject to VAT. The general rate of VAT is currently 24 per cent, although the rate for food and restaurant and catering services is 14 per cent and the rate for categories such as books, subscribed newspapers, cultural events, medicines, fitness services, passenger transport and accommodation is 10 per cent.

Real estate tax is assessed on the taxable value of the property, whether land or buildings. Transfer of title to shares of a private limited liability company is generally subject to a transfer tax of 1.6 per cent of the price agreed. On transfer of real estate, the tax rate is 4 per cent.