Dividends, interest and royalties from abroad
How foreign dividends, interest and royalties are taxed in Finland depends on tax treaties with the countries in question – as does the treatment abroad of those paid out from Finland. The precise definitions of dividend, interest and royalty vary from treaty to treaty.
Receiving dividends, interest and royalties
The tax treatment of cross-border dividends, interest and royalties depends on domestic tax law, tax treaties and EU law. The most important factors are:
- any ownership relationship between the payer and the recipient;
- the payer’s home state
- whether the income relates to that of the permanent establishment of a Finnish company in the source state.
In the case of dividend income, the following may also be relevant:
- Are the companies listed or not?
- What class of asset gave rise to the dividend distribution?
The provisions of tax treaties generally allow the source country to withhold at a treaty-specified rate (such as 15%). When the Finnish Tax Administration assesses how much tax you have to pay on the income, you receive a credit for the tax that was withheld abroad. You must include the foreign-sourced income in your tax return in Finland together with a request for relief from double taxation.
However, if the source country has levied more tax than allowed in the treaty, you cannot be credited for the excess in Finland. In this case, you must make an appeal to the source country. You will need to fill in a form from the tax authorities of the source country; you may be able to get one from the payer. You will probably need to enclose a Certificate of Tax Residence from your local Finnish tax office with your completed form.
If a Finnish entity pays dividends, interest or royalties to nonresidents, it must withhold tax upon payment. The tax rate is 20 % when the beneficiary is a corporate entity, 30 % when the beneficiary is an individual taxpayer or a comparable taxpayer (other than a corporate entity), and 35 % when there is no information on the dividend beneficiary of a nominee-registered share of a publicly listed company. Tax treaties or other legal grounds can have an effect on the applied tax-at-source rate.
If you are making interest payments to nonresidents, you can normally do so without withholding any tax in Finland. If you are paying royalties, you do not have to withhold tax if they are royalties within the meaning of the Directive 2003/49/EC on interests and royalties. Under Directive 90/435/EEC – the Parent-Subsidiary Directive –you do not have to withhold any tax on dividends if the beneficiary company owns at least 10 percent of your company.