According to various rankings, Finland is among the most innovative countries in the world and has a fairly reasonably structured taxation framework that enables the growth of new businesses along with the stable functioning of society. Cryptocurrencies are generally popular in Finland among the population and are favourably viewed by the government.
The Finnish Tax Administration is in charge of the collection of taxes and the imposition of taxation rules. The authority also advises on specific taxable events, as well as carries out inspections of taxpayers when needed. It doesn’t consider cryptocurrencies legal tender, even if their value is tied to a fiat currency. Instead, they’re treated as assets for tax purposes.
The tax authority is also responsible for ensuring that international tax rules are followed, and top standards are adhered to. For instance, the latest amendments to the EU’s Directive on Administrative Cooperation (DAC) have introduced the reporting of income sourced from crypto activities by users residing in the EU. The information is exchangeable between tax authorities within the EU. DAC is aligned with the Crypto-Asset Reporting Framework (CARF), recently introduced by OECD, the purpose of which is to improve crypto taxation and tax reporting standards through automated tax reporting and information-sharing among international tax authorities.
Advantages of the Finish Tax System
Finland has almost 80 international agreements on the elimination of double taxation, which allow for more efficient cross-border investments. The agreements stipulate priority rights for taxation, however, they don’t include specific taxation rules as every tax authority is obligated to apply a national taxation framework. One of the advantages is that often they allow for the adjustment of applicable tax rates, which reduces the tax burden. Importantly, the double taxation agreements also aim to prevent tax evasion.
The data show that Finland is a leader in promoting research and development (R&D) activities and the available funding is constantly growing as the goal is to reach 4% of GDP by 2030. On the 1st of January 2023, in accordance with the Act on Research and Development Funding, new rules for R&D tax relief were introduced allowing companies developing their own R&D projects to accelerate their activities. The new incentives consist of the general additional deduction based on the total amount of R&D expenses and an additional deduction based on the increase in R&D expenses compared to the previous year.
The amount of the general additional deduction is 50% of the expenses, which must start from 5,000 EUR and is capped at 500,000 EUR. The amount of the additional deduction is 45%, and it’s calculated by identifying increased R&D expenses, which can be a salary or a purchase of a service. There is no annual lower limit for the additional deduction, but it’s capped at 500,000 EUR a year.
Corporate Income Tax
In Finland, the standard Corporate Income Tax rate is 20%. Finish tax resident companies and Finnish permanent establishments of non-resident companies are subject to paying tax on their income sourced in Finland and abroad, and non-residents are obligated to pay tax on their income sourced in Finland. A tax resident is a company that is incorporated in Finland under national law or if it’s incorporated elsewhere, but its place of effective management is based in Finland.
All crypto companies are obligated to follow general taxation rules. It includes filing tax returns electronically within four months following the end of the accounting period. Companies have to make advance payments either in two or 12 instalments during the financial year. If the total amount due doesn’t exceed 2,000 EUR, the payments must be made during the third and ninth months of the accounting period. If the payable amount is over 2,000 EUR, payments must be made monthly by the 23rd of each month.
Crypto companies are entitled to deduct various expenses incurred when trying to source taxable income. For instance, they can deduct startup expenses, charitable contributions, and such crypto-specific costs as the purchase of mining equipment. Depending on the demonstrable use of the equipment, an eligible business can deduct between 25% and 100%.
In Finland, the Withholding Tax varies from 15% to 35% for foreign corporate recipients and from 30% to 35% for non-resident individuals. In certain cases, it can be levied on dividends, interest, and royalties. If there is any tax withheld in excess, it can be reclaimed by submitting a refund application to the Finnish Tax Administration.
The following payments are exempt from the Withholding Tax:
- Interest paid to non-residents
- Dividends paid to a company referred to in the EU’s Parent-Subsidiary Directive provided that it owns at least 10% of the capital of the company distributing the dividends
- Under certain conditions, dividends paid to companies that are residents of the EU/EEA
- Fees for technical services
Capital Gains Tax
For businesses, capital gains are included in the tax base, regarded either as business income or other income, and are taxed at a 20% Corporate Income Tax rate. However, profits from the sale of shares are tax-exempt, provided that the seller, inter alia, isn’t a company engaged in private equity activities, has owned at least 10% of shares for at least a year, and the shares are part of the seller’s capital assets.
For individuals, the Capital Gains Tax rate varies between 30% (if the proceeds don’t exceed 30,000 EUR) and 34% (if the proceeds are over 30,000 EUR). A variety of crypto activities can trigger a taxable event for Capital Gains Tax purposes, including the exchange of cryptocurrencies for other cryptocurrencies and fiat money, staking, and using cryptocurrencies to pay for products or services.
Any losses incurred by the sale of cryptocurrencies can be offset when calculating tax. To calculate the taxable amount (in euros), the acquisition price and associated transaction and broker fees should be subtracted from the sale price by applying the first-in-first-out (FIFO) method which means that the cryptocurrency that was bought first, is the one that was sold first.
The acquisition costs are calculated automatically in accordance with taxation rules and are as follows:
- If cryptocurrencies were owned for less than 10 years – 20% of the selling price
- If cryptocurrencies were owned for 10 years and more – 40% of the selling price
The standard VAT rate is 24% which is in line with EU VAT legislation. It’s levied on most of the products and services sold in Finland. In many cases, it also applies to crypto companies, which is why they have to register as VAT payers. Exemptions apply to companies with small turnover, but they can still register voluntarily.
There’s an advantage in registering as a VAT payer if the company acquires huge quantities of products or services subject to VAT for its taxable business operations and wants to deduct the VAT included in the acquired products or services. A business is considered small if the company’s annual turnover doesn’t exceed 15,000 EUR. Once this threshold is exceeded, it’s mandatory to register as a VAT payer in Finland.
While many crypto-related businesses are generally obligated to pay VAT, crypto exchanges (including exchange into fiat money and vice versa) are VAT-exempt in line with the decision of the Court of Justice of the European Union (CJEU) which ruled that transactions to exchange fiat money for cryptocurrencies (and vice versa) are exempt from VAT under the provision concerning transactions relating to legal tender.
Payroll Taxes in Finland
If a crypto company employs people in Finland, it’s legally required to withhold Individual Income Tax and Social Security Contributions from the salaries of its employees. Residents are taxed on their worldwide income at progressive tax rates for national tax purposes and at a flat tax rate for municipal tax purposes. The national tax rate can reach 44%, and the municipal tax rate ranges from 16.5% to 23.5%.
The rates of Social Security Contributions payable by employers are as follows:
- Health insurance contribution – 1.53%
- Pension insurance contribution – 17.39%
- Group life insurance premium – 0.06%
- Accident insurance premium – 0.57%
- Unemployment insurance contribution – 0.52% for the first 2,251,500 EUR of gross salaries and 2.06% for the portion of the gross salaries exceeding 2,251,500 EUR
If you’re determined to develop your crypto business in one of the most innovative countries in the world, our team of dedicated and quality-focused legal consultants here at Regulated United Europe (RUE) will be delighted to provide you with tailored, value-added support in optimising your taxes in accordance with applicable legislation. Moreover, we also offer comprehensive Finnish crypto company formation, crypto licensing, and financial accounting services. Contact us now to schedule a personalised consultation and set the stage for long-lasting success.
At the moment, the main services of our company are legal and compliance solutions for FinTech projects. Our offices are located in Tallinn, Vilnius, Prague, and Warsaw. The legal team can assist with legal analysis, project structuring, and legal regulation.
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