Finland intends to expand its taxation right with respect to capital gains from indirect real estate investments into the Finnish property market. Capital gains from typically used holding company structures will become taxable for a foreign investor provided that the applicable double tax treaty allows Finland to use its taxation right. Finland also intends to withdraw its qualification to the multilateral instrument (MLI), which would widen the number of tax treaties allowing Finnish taxation.
The new law is relevant for investors from all Nordic countries, the UK, Ireland, Spain and Malta, who have investments in Finnish or foreign entities of any legal form where the majority of such entity’s assets comprise of real estates located in Finland. Also, Germany and Switzerland have been mentioned in the draft bill as tax treaties that would fall under the new law.
Alienation of even small stakes in a qualifying entity may trigger taxation as there is no minimum threshold for the ownership in the entity. A foreign investor is obliged to file a tax return in Finland if the capital gain is subject to Finnish tax. Investment funds are not excluded from the scope of the new law (however, foreign investment funds may be deemed tax exempt in certain cases). The law will not be applied if the entity’s shares are publicly listed in a share exchange. New law is intended to enter into force during spring 2023.
For further information on the topic, please contact Sebastian Kellas and Antti Leppänen from our Tax & Structuring practice.