Legislative change: nominee-registered shares
The government proposal HE 282/2018 vp to amend the Act on the Taxation of Nonresidents' Income, the Act on Assessment Procedure, the Act on Tax Prepayment, and legislation on the publicity and confidentiality of tax information has passed in the Parliament of Finland. The legislative change has also been referred to as the legislative change regarding nominee-registered shares.
The legislative change will impact the taxation and taxation procedure of dividends paid to nominee-registered shares, and will include the implementation of the OECD Treaty Relief and Compliance Enhancement (TRACE) model.
What will change
Finland will implement the OECD TRACE model
The OECD TRACE model, which has been co-developed by the OECD, the financial industry and tax administrations, was created to standardise the procedures for providing treaty relief at source. In Finland, the implementation of TRACE will include direct TRACE reporting to the Finnish Tax Administration as well as the adoption of the Investor Self Declaration procedure.
In the future, the technical reporting of annual information returns will be submitted with the TRACE XML Schema. The OECD’s version of the Schema has been published on the OECD’s website. The Finnish Tax Administration will publish its own Schema and related technical instructions in the spring of 2020. The TRACE Schema will be familiar to financial actors in both structure and content, as FATCA, CRS and DAC2 XML Schemas are based on the TRACE Schema.
The Foreign Custodian Register will no longer be in use
At present the so-called simplified procedure, as described in § 10 b of the Act on the Taxation of Nonresidents' Income, has been available to those foreign custodians and intermediaries that have registered in the Custodian Register. As a result of the legislative change, both the Custodian Register and related simplified procedure will no longer be in use. The last validity date of the register will be the 31st of December 2020.
The OECD TRACE model's Register of Authorised Intermediaries will be adopted
The Register of Authorised Intermediaries, as outlined in the OECD TRACE model, will replace the current Custodian Register. Registration into the new register is not mandatory, but authorised intermediaries do enjoy certain benefits in comparison to non-registered intermediaries. Benefits of registration include direct reporting of dividend beneficiary information to the Finnish Tax Administration, without having to send client information through the custody chain to other intermediaries.
Treaty benefits can be provided at source even after the legislative change; however, there will be some changes in the procedure of granting such benefits. The Finnish Tax Administration will give further guidance on the responsibilities of an authorised intermediary as well the investigation and identification of dividend beneficiaries (see Preliminary publication timeframe for guidance).
Intermediaries can apply for registration into the Register of Authorised Intermediaries from the 1st of July 2020 onwards, which is 6 months before the register is published on the 1st of January 2021.
The amount of withholding will be amended
The statutory rates applicable to individuals and corporate entities will not change with the upcoming legislative change. Identified individuals are still subject to 30% tax-at-source and identified corporate entities subject to 20% tax-at-source. The legislative change will also not have an impact on agreed upon tax rates in tax conventions.
However, for nominee-registered shares the current applicable tax-at-source rate has usually been 30%, as the dividend beneficiary is often unidentified at the time of payment. With the inception of the new legislation, unidentified dividend beneficiaries will be subject to 35% tax-at-source when there is no knowledge of the applicable country of tax residence. The 30% tax-at-source rate will instead be applicable in cases where the beneficiary has been identified, but it is unclear at what rate the tax-at-source should be withheld. For example, the dividend beneficiary can be identified as an investment fund, but it is unclear whether the investment fund is entitled to treaty benefits. The new 30% and 35% tax-at-source rates in accordance with the new legislation will be applied to dividends paid on the 1st of January 2021 or thereafter.
Dividends paid to nominee-registered shares held by a Finnish tax resident will become subject to a 50% withholding tax if the information on the dividend beneficiary is not given. These new regulations regarding nominee-registered shares held by Finnish tax residents will be applied to dividends paid on the 1st of January 2020 or thereafter. Detailed guidance on the 50% preliminary withholding tax has been published.
- How to withhold tax on dividends paid to a Finnish tax resident shareholder when the underlying shares are nominee-registered, detailed guidance
Timeframe for the legislative change
The legislative change to the Prepayment Act will first be applied to dividends paid on the 1st of 1 January 2020 or thereafter. Under the new law, a 50% withholding tax will be applied to dividends paid to nominee-registered shares held by a Finnish tax resident, in the case that beneficial owner information is not provided.
Custodians and other intermediaries can apply to register in the new Register of Authorised Intermediaries from 1 July 2020 onwards. The register will be published on 1 January 2021, the effective date of the new legislation.
The new legislation will enter into force on 1 January 2021. The regulations regarding dividends paid to nominee-registered shares will first be applied to dividends paid on 1 January 2021 or thereafter.
The first annual information returns in accordance with the new legislation must be submitted by the end of January 2022.
Preliminary publication timeframe for guidance
- How to withhold tax on dividends paid to a Finnish tax resident shareholder when the underlying shares are nominee-registered, (official instructions)
- Investigating and identifying dividend beneficiaries and the Investor Self Declaration (ISD) procedure (official instructions)
- Registration into the Register of Authorised Intermediaries and the responsibilities of an authorised intermediary (official instructions)
- TRACE Schema technical instructions
- Dividends paid to nominee-registered shares (comprehensive guidance)
How to get involved
In addition to the official hearing of the industry concerned by the current legal amendment, which will be conducted in Finnish and Swedish, we look forward to hearing your thoughts and comments regarding the legislative change and its application along the way. Let us know if you would be interested in e.g. testing the TRACE schema, developing the refund application process, or commenting on drafted guidance, by emailing us at financialsector(a)vero.fi.
Online meetings, where we go through the progress of the legislative change and its implementation, will continue in 2020. The online meetings will be organised in English.
The online meetings also provide you an opportunity to ask questions about the legislative change. We ask that you send your questions in advance to financialsector(a)vero.fi.
Timeframe for online meetings in 2020:
- 22nd of January 2020
- 26th of February 2020
- 25th of March 2020
- 22nd of April 2020
- Legislative change regarding nominee-registered shares: what will change and when (28.5.2019)
News and newsletters
The best way to keep up-to-date on the legislative change is to subscribe to our newsletter for the financial sector. The newsletter also covers information on current tax matters and upcoming legislative changes more broadly that are relevant for businesses operating in the financial sector. The newsletter is published in Finnish, Swedish and English.
- Subscribe for the newsletter
- Newsletter for the Financial Sector: Legislative change regarding nominee registered shares
- Read other published newsletters
From time to time we also publish news bulletins related to the legislative change. The most up-to-date news bulletins can always be found on the front page of the financial sector and taxation page.
- The government proposal to amend tax legislation, including the Act on the Taxation of Nonresidents' Income, has passed in the Parliament of Finland
- Content and status of the legislative change - only available in Finnish (Ministry of Finance)
- Legal amendments - only available in Finnish and Swedish (Finlex)
- 522/2019: Laki rajoitetusti verovelvollisen tulon verottamisesta annetun lain muuttamisesta
- 523/2019: Laki verotusmenettelystä annetun lain muuttamisesta
- 524/2019: Laki ennakkoperintälain muuttamisesta
- 525/2019: Laki oma-aloitteisten verojen verotusmenettelystä annetun lain muuttamisesta
- 526/2019: Laki verotustietojen julkisuudesta ja salassapidosta annetun lain 9 §:n muuttamisesta
- Unofficial English translation of the legal amendments
- Treaty Relief and Compliance Enhancement (TRACE) - Implementation Package