Tax liability of foreign corporate entities is determined by the place of effective management starting 1 January 2021

News, 12/22/2020

Due to a change in legislation, corporate entities whose place of effective management is located in Finland are also considered resident taxpayers in Finland. The place of effective management is the place where the corporation’s highest-level decisions concerning daily management are made. The change in legislation will enter into effect on 1 January 2021.

After the change, Finnish regulations on corporate tax liability will be more in line with those of other countries. The change in legislation allows corporate taxation to be conducted within Finland to the same extent as it already is in a number of other countries.

The change concerns foreign corporate entities whose place of effective management is in Finland. The change does not concern foreign corporate entities whose place of effective management is not in Finland or corporate entities that are already treated as resident taxpayers.

After the new legislation has entered into effect, foreign corporate entities treated as resident taxpayers must report all their worldwide income to the Finnish Tax Administration by filing a tax return. If a corporate entity is a resident taxpayer in Finland, Finland has the right to tax its income from everywhere in the world. The corporate entity’s period of tax liability usually begins from the date it was founded or registered or from the date when Finland became the country of its place of effective management.

If the foreign corporate entity already has a permanent establishment in Finland, after the legislative change’s entry into effect the business activities conducted by this permanent establishment are considered the activities of a foreign corporate entity treated as a resident taxpayer due to its place of effective management. The permanent establishment’s Business ID will remain the same, because the establishment is still the same legal person regardless of the change in legislation.

Foreign corporate entities treated as resident taxpayers in Finland due to their place of effective management must submit a tax return to the Finnish Tax Administration. After the change in legislation, foreign corporate entities treated as resident taxpayers must file tax return 6B.

New detailed guidance and instructions relating to the change in legislation will be available in early 2021.