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13.2.1. Main Rules

Effective 1 January 2019, Finland's controlled foreign company (CFC) rules are amended to comply with the EU Anti-Tax Avoidance Directive. The rules are applicable to a Finnish resident:

  • holding, itself or together with related parties, direct or indirect participation of at least 25% of the capital, voting rights, or rights to profit or gains of the foreign company or is entitled to at least 25% of the yield of the foreign company's assets; and
  • the effective tax rate in the  foreign company's jurisdiction is less than 3/5 of the Finnish corporate tax rate.

Effective 1 January 2019, the rules also cover persons subject to limited tax liability in Finland, if the CFC income relates to the taxpayer’s permanent establishment in Finland.

When the CFC conditions are met, the net income of the CFC is attributed to the Finnish controlling company and taxable whether the income is distributed or not.

The CFC rules do not apply in the following cases:

  • The foreign company’s income is mainly derived from industrial or comparable production activities or from shipping activities;
  • The foreign company is resident in a jurisdiction with which Finland has entered a tax treaty, its income is subject to an effective tax rate of at least 3/4 of the Finnish corporate tax rate, and is not subject to a special tax regime in that jurisdiction;
  • The foreign company is located in a jurisdiction with which Finland has exchange of information mechanisms in place and the company is actually located and conducts business in that jurisdiction; or
  • Effective 1 January 2019, the foreign company is resident in a jurisdiction with which Finland has an information exchange agreement in case of non-EEA countries, the relevant jurisdiction is not listed as non-cooperative by the EU and the foreign company carries on substantive economic activity supported by staff, equipment, assets, and premises. A white list has been published of non-EEA jurisdictions with which Finland has an information exchange agreement.

For CFC rules, effective tax year 2014, the following jurisdictions have been identified as jurisdictions having an effective tax rate which is significantly lower than the Finnish tax rate:

Barbados; Bosnia and Herzegovina; Georgia; Kazakhstan; Macedonia; Malaysia; Moldova; Montenegro; Serbia; Singapore; Switzerland; Tajikistan; United Arab Emirates; Uruguay; and Uzbekistan.

Effective 1 January 2019, for CFC purposes, the blacklist and prior exemptions applicable to certain industries and EEA and tax treaty countries have been abolished.