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Either the payor, or the account operator/authorised intermediary providing services to the payor, must review and identify the beneficiary in order to ensure correct tax withholding and reporting. Read more about amounts withheld and the required reporting.
Under normal circumstances, the beneficiary is a shareholder whose name is on the company’s shareholder register. Exceptions include situations where a manager of nominee-registered holdings is registered in the company’s list of shareholders in place of the actual shareholder. There may be other exceptions (such as dividend distributions to a shareholder-beneficiary based on his or her work efforts, and payments of dividends to non-shareholder recipients).
For more information about exceptions, see:
Payors must make certain inquiries before payment:
Read more about dividend recipients’ tax liability and their rights to a lower withholding tax rate:
The payor company, account operator or authorised intermediary needs to determine before paying the dividends whether the natural person or estate of a deceased person is a resident or nonresident taxpayer. This is determined in accordance with the provisions of Finnish internal legislation, on an exclusive basis. In other words, the provisions of tax treaties have no impact on how the recipients’ status of tax liability is determined. Moreover, payors also need to note that the dividend recipients may be resident taxpayers for part of the year and nonresident for part of the year. The payors must determine the tax status that prevails at the time when dividends are paid.
For more information on how natural persons’ tax liability status is determined and on the impact of tax treaties, see Tax residency, nonresidency and residency in accordance with a tax treaty – natural persons.
Certain special rules laid down in national legislation may apply on natural persons (including special groups of beneficiaries of dividends defined in the Act on income tax). In addition, the provisions of international treaties may apply.
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A natural person is a resident taxpayer in Finland if the natural person resides in Finland. In accordance with the provisions of the Act on income taxation, individuals i.e. natural persons are considered to reside in Finland and thus resident taxpayers, when:
Estates of deceased persons are resident if the decedent had lived in Finland at the date of his or her death.
Resident taxpayers pay taxes in Finland for income earned in Finland and income earned in other countries (= liability to tax on worldwide income). If a natural person is a resident taxpayer in two countries at the same time, the country of residence for purposes of the applicable tax treaty will be determined using the criteria laid down in the tax treaty. In these circumstances, if the natural person is a beneficiary of dividend income, a claim must be submitted to the Tax Administration for treatment based on residency pursuant to a tax treaty. For more information, see Tax residency, nonresidency and residency in accordance with a tax treaty – natural persons, section 6.2 – Request on residency pursuant to a tax treaty.
Individuals who do not meet the characteristics of a resident taxpayer are nonresidents.
Nonresidents are liable to pay tax in Finland only on their income earned in Finland. If someone is a nonresident taxpayer in Finland, he or she cannot be considered a resident of Finland pursuant to a tax treaty. In these circumstances, they can be treated as resident of the other contracting state unless there is reason to believe that they do not have tax liability for worldwide income in the other contracting state either.
Read more about how a natural person can request for tax treatment as a nonresident, and about tax withholding at source on dividends paid to a nonresident natural person, in the detailed guidance Tax residency, nonresidency and residency in accordance with a tax treaty – natural persons (section 6.1 – Request for treatment as nonresident taxpayer).
The payor company, the account operator or authorised intermediary providing services to the company needs to determine before paying the dividends whether the corporate recipient is a Finnish resident taxpayer or a nonresident corporate entity. For more information on how the status of corporate entities is determined and on the impact of tax treaties, see Resident and nonresident tax liability of corporate entities.
When you are in the role of the payor, and you need to determine whether a corporate recipient is a resident or nonresident, we recommend that you pay special attention to the following matters:
Special provisions of national legislation (such as investment funds, withholding tax benefits according to the Act on the taxation of nonresidents' income) or provisions of international treaties may also apply on corporate entities.
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Under the provisions of § 3 of the Act on income tax, ‘corporate entity’ refers to:
Foreign taxpayers are treated as corporate entities for Finnish tax purposes if the authorities have determined that the foreign taxpayer is an entity comparable to those listed above. When Finnish public authorities test whether a particular foreign corporate entity – or a set of assets – should be deemed comparable to the Finnish entities, the primary focus is whether the foreign entity’s position from a civil-law perspective is the same as that of a Finnish entity listed above. Read more about the payor’s obligations related to above circumstances in Withholding tax at source on dividends, interest and royalties, and the payor’s obligations, section 1.3 – General tax at source pursuant to section 7 and section 2.4 – Tax at source benefits based in national legislation or EU law.
Finnish corporate entities are always seen as resident taxpayers. ‘Finnish corporate entity’ is an entity founded or registered in accordance with Finnish legislation.
Foreign corporate entities can be resident taxpayers in Finland only if the entity’s place of effective management is in Finland. Read more about what is deemed a “place of effective management” in Resident and nonresident tax liability of corporate entities (section 5 – Place of effective management).
Moreover, the activities of a foreign corporate entity in Finland can constitute a permanent establishment for the entity in Finland for income tax purposes, even if the actual place of management of the entity is not in Finland. In these circumstances, the way the dividends are taxed will depend on whether the dividend income is considered to be attributable to the income of the permanent establishment. For more information on what constitutes a permanent establishment in Finland and on the related income taxation, see Income taxation of nonresident foreign corporate entities – Business income and other income from sources in Finland.
Residents pay Finnish taxes on their income sourced to Finland as well as on their income sourced to other countries (= liability to tax on worldwide income). If in addition to Finland, a corporate entity is simultaneously a resident taxpayer in another country as well, the country of residence “for treaty purposes” will be determined using the criteria laid down in the applicable treaty. Read more about how the country of residence is determined in Resident and nonresident tax liability of corporate entities, section 7 – Impact of tax treaties on how taxing rights are divided between Contracting States.
Although the receipts of dividends were subject to tax for the company being the beneficiary, the payor is not to withhold any amounts when paying the dividends as the beneficiary is a resident corporate entity. Read more on dividends distributed to corporate entities.
Nonresident corporate entities are those that were set up or registered in other countries and have their place of effective management elsewhere, not in Finland, so they cannot be treated as Finnish resident entities. However, the activities of a foreign company in Finland can constitute the company to have a permanent establishment in Finland in income taxation even if the company’s place of effective management is not in Finland. In these circumstances, the way the dividends are taxed will depend on whether the dividend income is considered to be attributable to the income of the permanent establishment. For more information on what constitutes a permanent establishment in Finland and on the related income taxation, see Income taxation of nonresident foreign corporate entities – Business income and other income from sources in Finland.
Nonresident corporate entities must pay tax to Finland on income only on the income it receives from sources in Finland. The payors of dividends must withhold tax at source when paying dividends to a nonresident corporate entity. Firstly, the amount of withholding tax to be withheld is affected by whether the corporate entity is comparable to a Finnish corporate entity referred to in Section 3 of the Income Tax Act (see the list above). In order for the payor to be able to evaluate comparability to a Finnish corporate entity, the foreign recipient can provide the payor with its trade register extract or with a certificate issued by the tax authority of a foreign country. Alternatively, the payor can use public data sources for checking the legal form of the foreign corporate entity. The actual amount to be withheld at source may additionally be affected by the foreign corporate entity’s rights to exemption, which can be based on national legislation or on an international convention. Read more about tax withholding at source.
Read more about how recipients can be entitled to exemptions in Withholding tax at source on dividends, interest and royalties, and the payor’s obligations, section 1.4 – Tax at source benefits when making a payment.
For tax purposes, the following are partnerships:
For purposes of tax assessment, partnerships are seen as flow-through entities, fiscally transparent. This means that a partnership, in itself, cannot be regarded as a resident taxpayer nor a nonresident taxpayer. When the recipient is a partnership, the income-tax assessment is based on imposing tax on each owner.
However, the payor of dividends must determine whether the partnership is a Finnish or foreign partnership.
The following are domestic partnerships: general partnerships, limited partnerships and shipping companies under joint ownership, having their registrations in Finland and having been founded in accordance with Finnish legislation. When the recipient of dividends is a domestic partnership, the payor is not to withhold any amounts when paying the dividends. If a domestic partnership’s owner is a nonresident taxpayer, income taxes are imposed on that shareholder in accordance with the provisions of the Act on the taxation of nonresidents’ income. Read more about how taxes are imposed under the provisions of the Act on the taxation of nonresidents’ income in Payments of dividends, interest and royalties to non-residents, section 6.3 – Imposing unwithheld tax on the income recipient.
Read more about taxes on dividends distributed to business partnerships. For more detailed information , see “Taxation of dividend income” — Osinkotulojen verotus, section 4 – Tax treatment of the dividend income received by business partnerships (in Finnish and Swedish).
Business partnerships registered in other countries or established under the laws of a foreign country – not Finland’s legislation – are foreign partnerships. Generally, the payors must withhold tax at source when paying dividends to a foreign partnership.
Foreign partnerships may be treated as flow-through entities in their country of residence, in which case the applicable tax treaty will depend on the different owners’ countries of residence. For more information on the concept of ‘resident individual of the other Contracting State’ and on the withholding at source from income paid to a foreign partnership, see Payments of dividends, interest and royalties to nonresidents.
The dividend recipient may be entitled to a lower tax at source rate or an exemption from tax at source based on:
In these circumstances, the standard requirement is that the dividend recipient should provide evidence on their right to the tax at source benefit. The payer must review and make the checks that are necessary to determine that the evidence provided meets the requirements set for granting the benefits. No benefits – i.e. no lower withholdings – are allowed if the payor has not received sufficient evidence concerning the requirements, or if the dividend recipient’s rights to the benefit are still unclear or subject to interpretation. To solve the problem, the payor can demand that the dividend recipient submit an application to the Tax Administration for a tax card (tax-at-source card); or the payor can demand that the dividend recipient submit an application to the Tax Administration for an advance ruling.
When the underlying shares are nominee-registered, the payor does not necessarily have enough information on the dividend recipient. If it is determined that the dividend recipient is a Finnish resident but the payor still does not have enough information – and no other means is available to inquire dividend recipient identity, which is needed for the annual information to be filed with the Tax Administration – the payor must withhold 50%.
If the dividend recipient is a foreign entity or unit, and no information about the final beneficial owner are delivered to the Tax Administration, the payor can withhold 35% at source. For further instructions on how to make the necessary inquiries concerning the dividend recipient of publicly listed-company dividends in circumstances where the dividend-earning stocks are nominee-registered, see Nominee-registered shares.
If the shares of the company paying the dividend are in the book-entry system, in practice the account operators carry out the functions related to identification of the dividend recipient and the withholding and reporting of the tax on behalf of the payor. More information on identifying Finnish residents is available in the instructions How to withhold tax on dividends paid to a Finnish tax resident shareholder when the underlying shares are nominee-registered, section 3.3 – Identifying the beneficiary.
However, if a listed company is paying dividends to a nonresident, and the underlying stocks are nominee-registered, a set of responsibilities and obligations laid down in tax legislation also concern the Authorised intermediaries that carry out the transactions. Read more on authorised intermediaries’ obligations and liability.
If the payor of the dividends has doubts concerning the status (resident or nonresident) of the party receiving the dividends, or concerning an international agreement or other special provision that perhaps could be applied, the payor can demand that the dividend recipient submit an application to the Tax Administration for a tax card (tax-at-source card or another kind of tax card); or the payor can demand that the dividend recipient submit an application to the Tax Administration for an advance ruling.