Taxation on non-cash dividends

This is an unofficial translation. The official instruction is drafted in Finnish and Swedish languages (VH/7226/00.01.00/2023).

These instructions describe taxation on non-cash dividends. These instructions do not cover value added tax.

Updates were made to the instructions to reflect changes in the act on transfer tax (Varain­siirtovero­laki (931/1996)). The changes involve reduction of the tax rate from the previous 4.0% to 3.0% concerning real estate and buildings, reduction of the tax rate from the previous rates 2.0% and 1.6%, to 1.5%, concerning shares of residential housing companies and other real estate holding companies, and similarly concerning other securities. The changes to the act on transfer tax came into force on 1 January 2024. However, the changed provisions concerning tax rates are applied on a retroactive basis to sales, purchases and other conveyances of property for which the contract was signed on 12 October 2023 or later.

1 Introduction

A limited liability company can pay dividends in assets other than cash (dividend in kind). A typical example of a non-cash dividend is a dividend paid as shares in another company. Securities, real estate units, apartment shares or vehicles may also be distributed as dividends.

A cash dividend may also be distributed simultaneously with dividend in kind. If dividends are distributed as shares, some shareholders can be paid cash dividends so that an amount equalling fractional shares is credited to recipients of dividends in cash.

The amount of dividend in kind is deemed to be the fair market value of assets on the day on which the dividend is available for withdrawal. If the dividend withdrawal date has not been separately decided at a general meeting, the dividend can be withdrawn on the same day on which the general meeting was held. If the distributor of dividends is a listed company, the dividend withdrawal date is the payment date determined in the dividend distribution decision. Therefore, if shares in a listed company are distributed as dividends, the amount of the dividends is the weighted average price of the shares on the dividend payment date.

These instructions describe taxation on non-cash dividends in Finland from the perspectives of recipients of dividends who are resident taxpayers or non-resident taxpayers and distributors of dividends who are resident taxpayers. According to section 9, subsection 1, paragraph 1 of the act on income tax (Tuloverolaki 1535/1992), individuals who resided in Finland during the tax year, Finnish corporate entities, and corporate entities established or registered abroad that have their place of effective management in Finland, benefits under joint administration and estates are considered resident taxpayers in Finland. According to section 9, subsection 1, paragraph 2 of the act on income tax, individuals who have not resided in Finland during the tax year and foreign corporate entities that do not have their place of effective management in Finland are considered non-resident taxpayers. More detailed information on the resident and non-resident tax liability of natural persons can be found in the Tax Administration’s guidance ‘Tax residency, nonresidency and residency in accordance with a tax treaty – natural persons’. More detailed information on the resident and non-resident tax liability of corporate entities can be found in the Tax Administration’s guidance ‘Resident and nonresident tax liability of corporate entities’.

In the income taxation of recipients of dividends, dividend in kind is taxable income in the same way as cash dividends. Therefore, the type of assets received as dividends does not affect income taxation on dividends. The tax treatment of dividends in the income taxation of recipients of dividends is affected, for example, by whether the dividend payer is a listed or unlisted company and whether the recipient of dividends is a natural person or a company. Taxation on dividend income is discussed in more detail in the Tax Administration’s guidance ‘Taxes on receipts of dividends’ (Osinkotulojen verotus, available only in Finnish or Swedish).

If securities or real estate units are distributed as dividends, transfer tax must be paid on the conveyance. In addition to the type of assets, the amount, payment and reporting of transfer tax are affected by whether the recipient of dividends is a resident or non-resident taxpayer. Each party with an obligation to report information must submit a separate transfer tax return. The dividend payer can only submit a transfer tax return on the dividend recipient’s behalf based on authorisation. Exceptions include situations referred to in section 16, subsection 2 of the act on transfer tax (Varainsiirtoverolaki 931/1996) where the transferor is obligated to collect tax and submit a return. Transfer tax is paid using the taxpayer-specific transfer tax reference number. If the company distributing dividends is committed to covering the transfer tax payable by the recipient of dividends, the transfer tax will be part of dividend income in the recipient’s income taxation (Supreme Administrative Court 2020:127).

The payer of dividends may be obligated to withhold tax from taxable dividends or collect tax at source if cash dividends have also been distributed simultaneously with dividend in kind. If no cash dividends have been distributed simultaneously with dividend in kind or the recipient of dividends is a corporate entity or a business partnership, the recipient must independently pay income tax or tax at source, if necessary. The payer of dividends must submit an annual information return on dividends.

2 Income tax

2.1 A natural person or estate as the recipient of dividends

In the taxation of natural persons and estates, the taxability of dividend in kind is determined in the same way as that of cash dividends. If the payer of dividends is committed to covering transfer tax on the dividend recipient’s behalf, transfer tax will be part of dividend income, and its taxability will be determined in the same way as that of cash dividends.

The amount of dividend in kind is deemed to be the fair market value of assets on the day on which the dividend is available for withdrawal. If the dividend withdrawal date has not been separately decided at an general meeting, the dividend can be withdrawn on the same day on which the general meeting was held. In the taxation of natural persons and estates, dividend in kind is income in the tax year, during which the dividend was available for withdrawal based on the general meeting’s decision. If the distributor of dividends is a listed company, the dividend withdrawal date is the payment date determined in the dividend distribution decision. Therefore, if shares in a listed company are distributed as dividends, the amount of the dividends is the weighted average price of the shares on the dividend payment date.

The taxability of dividend in kind distributed by a listed company is determined on the basis of section 33 a, subsection 1 of the act on income tax if the dividend is part of personal sources of income. The definition of a listed company and taxation on dividends received from listed companies as a personal source of income are discussed in more detail in section 2.1 of the Tax Administration’s guidance ‘Taxes on receipts of dividends’ (Osinkotulojen verotus, available only in Finnish or Swedish).

Dividend in kind received by a natural person or estate from an unlisted company is regarded as capital income or earned income in the same way as cash income (section 33 b, subsections 1 and 2 of the act on income tax) if the dividend is part of personal sources of income. Taxation on dividends received from unlisted companies as a personal source of income is discussed in more detail in section 2.2 of the Tax Administration’s guidance ‘Taxes on receipts of dividends’(Osinkotulojen verotus, available only in Finnish or Swedish).

Taxation on dividends as part of personal business or agricultural sources of income for natural persons or estates is discussed in more detail in section 2.4 of the Tax Administration’s guidance ‘Taxes on receipts of dividends’ (Osinkotulojen verotus, available only in Finnish or Swedish).

Dividend in kind received by a resident natural person or estate is shown on the pre-completed tax return of the natural person or estate based on the annual information return submitted by the company paying the dividend.

2.2 A company as the recipient of dividends

Companies include corporate entities, such as limited liability companies and cooperatives, and business partnerships, such as general and limited partnerships. In companies’ taxation, dividend in kind is taxed in the same way as cash dividends. If the company paying dividends is committed to covering transfer tax on the dividend recipient’s behalf, transfer tax will be part of dividend income, and its taxability will be determined in the same way as that of cash dividends. 

The tax treatment of dividend in kind received by a limited liability company or cooperative is usually determined on the basis of section 6 a of the Act on the Taxation of Business Income, regardless of the source of income applied to the dividend. Taxation on dividends received by corporate entities is discussed in more detail in section 3 of the Tax Administration’s guidance ‘Taxes on receipts of dividends’ (Osinkotulojen verotus, available only in Finnish or Swedish).

Dividends received by partnership-type companies (ay, ky, öb, kb) are taxed as the partners’ income on the basis of section 16, subsections 3 and 4 of the act on income tax, similarly to other income of business partnerships. The taxable and tax-exempt portions of dividends are determined in partners’ taxation in accordance with in accordance with the tax provisions that are applied in partners’ taxations. Taxation on dividends received by business partnerships is discussed in more detail in section 4 of the Tax Administration’s guidance ‘Taxes on receipts of dividends’ (Osinkotulojen verotus, available only in Finnish or Swedish).

The amount of dividend in kind is deemed to be the fair market value of assets on the day on which the dividend is available for withdrawal. If the dividend withdrawal date has not been separately decided at a general meeting, the dividend can be withdrawn on the same day on which the general meeting was held. If the distributor of dividends is a listed company, the dividend withdrawal date is the payment date determined in the dividend distribution decision. In income taxation on companies, is considered to be income for the tax year during which the dividend distribution decision was made.

Corporate entities and business partnerships must report the dividends they have received on their income tax return themselves.

2.3 The acquisition cost and the date when the assets were received

The acquisition cost of assets received as dividends is considered, in income taxation on the recipient of dividends, to be the full fair market value of the assets on the date on which the dividends were available for withdrawal, even if the dividend income is wholly or partially tax-exempt income for the recipient. Transfer tax paid on the receipt of assets is added to the acquisition cost of the assets received as dividends, regardless of whether the transfer tax was paid by the recipient or payer of the dividends. If the payer of the dividends has paid transfer tax on the recipient’s behalf, the whole amount of the transfer tax will be added to the acquisition cost of the assets, even if it had been wholly or partially tax-exempt income for the recipient of the dividends.

The significance of the acquisition cost of assets in income taxation varies depending on the type of assets, the recipient of dividends, the source of income and the asset type. For example, if the recipient of dividends has the right to deduct the acquisition cost of assets received as dividends through depreciation, the acquisition cost will form the basis of depreciating the assets. Furthermore, the remaining acquisition cost of assets is usually used in taxation in calculating the net assets of companies. If assets received as dividends are later conveyed, and the conveyance is taxable, the acquisition cost will have an impact on the calculation of capital gains or losses.

In taxation, the period of ownership of assets received by all taxpayers as dividends is calculated from the date on which the dividends were available for withdrawal. The period of ownership may affect the calculation and taxability of capital gains or the deductibility of capital losses. The calculation of the period of ownership for shares received as dividends and the conveyance of shares in the taxation of natural persons are discussed in more detail in the Tax Administration’s guidance ‘Taxes on sales and other conveyances of securities’ (Arvopapereiden luovutusten verotus, available only in Finnish or Swedish).

2.4 Taxation on the company paying dividends

From the perspective of companies distributing dividend in kind, the question is of the conveyance of assets at the fair market value. The conveyance is deemed to take place on the date, on which the dividend is available for withdrawal (Central Tax Board 72/1997). The selling price (or other comparable price) of assets distributed as dividend in kind is deemed to be the fair market value of the assets on the date on which the dividend was available for withdrawal.

As a rule, the fair market value of assets distributed as dividends is taxable income in the income taxation of the company distributing the dividends, and the undepreciated acquisition cost of the assets is deducted as an expense. With regard to business sources of income, the asset type of assets distributed as dividends may, however, affect the taxability of the selling price (or other comparable price) and the deductibility of the acquisition cost. For example, if shares in another company are distributed as dividends, the selling price of the shares may be tax-exempt and the acquisition cost may be non-deductible based on section 6 b of the Act on the Taxation of Business Income. The acquisition cost of assets may also be deductible with limitations when the assets belong to the asset type of other assets.

The conditions of the application of section 6 b of the Act on the Taxation of Business Income are discussed in more detail in the Tax Administration’s guidance ‘Tax treatment of the transfer of shares in corporations’ (Yhteisön käyttöomaisuusosakkeiden luovutusten verokohtelu, available only in Finnish or Swedish). The deduction of the acquisition cost of commodities belonging to the asset type of other assets is discussed in more detail in the Tax Administration’s guidance ‘Removal of the previous division between different sources of income’ (Eräiden yhteisöjen tulolähdejaon poistaminen, available only in Finnish or Swedish).

If securities or real estate units are distributed as dividends in kind, the recipient of the dividends is obligated to pay transfer tax on the receipt. If the company distributing dividends commits to covering the transfer tax payable by the recipient of the dividends, the amount of transfer tax will be regarded as distribution of profit in the taxation of the company that distributed the dividends. The above distribution of profit is non-deductible for the company that distributed the dividends because the question is not of expenses arising from obtaining or retaining income (see Supreme Administrative Court 2015:84 and Central Tax Board 63/2019 (no amendment, ruling 4279 of the Supreme Administrative Court, 25 November 2020)).

3 Transfer tax

3.1 Reporting and paying transfer tax

If securities or real estate units are distributed as dividends, the question is, regarding transfer tax, of the conveyance of securities or real estate units through the distribution of assets, on which transfer tax must be paid.

With regard to the conveyance of securities, the transfer tax return must be submitted and transfer tax must be paid within two months after the date on which the dividends received as securities were available for withdrawal. If no withdrawal date has been defined in the dividend distribution decision, the return must be submitted and transfer tax must be paid within two months after the date on which the dividend distribution decision was made. With regard to the conveyance of real estate units, the transfer tax return must be submitted and transfer tax must be paid no later than when applying for the transfer or registration of title or, if the transfer or registration of title has not been applied for within the prescribed time or it is not necessary, within six months after entering into the conveyance agreement.

Transfer tax is based on the fair market value of the securities or real estate units received as dividends on the date when the dividends were first available for withdrawal. The amount of tax payable on securities received as dividends is 1.5 per cent of the fair market value of the securities. If any shares referred to in section 20, subsection 3 of the act on transfer tax are distributed as dividends (including shares in housing and real estate companies), the amount of tax to be paid is 1.5 per cent of the fair market value of the shares. In this case, the company loans referred to in section 20, subsection 4 and subsection 5 of the act on transfer tax will also be included in the base. The amount of transfer tax payable on real estate units received as dividends is 3 per cent of the fair market value of the real estate units.

No transfer tax needs to be paid if the amount of transfer tax payable is less than EUR 10 per dividend recipient. However, a transfer tax return must be submitted, even if the amount of tax is less than EUR 10 and no tax needs to be paid. The reporting and payment of transfer tax are discussed in more detail in the Tax Administration’s guidance ‘Transfer tax on the conveyance of securities’ (Varainsiirtovero arvopapereiden luovutuksessa, available only in Finnish or Swedish) and ‘Transfer tax on the conveyance of real estate units’ (Varainsiirtovero kiinteistön luovutuksessa, available only in Finnish or Swedish).

3.2 A resident taxpayer as the recipient of dividends

If the recipient of dividends is a resident taxpayer in Finland in accordance with the act on income tax (section 9, subsection 1, paragraph 1 of the act on income tax), the recipient is obligated to submit a transfer tax return and pay transfer tax using their transfer tax reference number, regardless of what assets subject to transfer tax are distributed as dividends.

The payer and recipient of dividends may mutually agree that the payer of dividends covers the transfer tax payable on dividend in kind. However, this has no impact on the obligation to report and pay transfer tax. In the aforementioned situations, the payer of dividends or other agent may only take care of reporting on the recipient’s behalf on the basis of authorisation. In this case as well, the transfer tax return must be submitted in the dividend recipient’s name, and transfer tax must be paid using the dividend recipient’s transfer tax reference number.

If the recipient of dividends is a natural person, estate or general or limited partnership, the transfer tax return can be submitted online in the MyTax service or on paper. If the recipient is a corporate entity, the transfer tax return must be submitted online in the MyTax service.

3.3 A non-resident taxpayer as the recipient of dividends

If corporate stocks are distributed as dividends in kind and the recipient of the dividends is a non-resident taxpayer in accordance with section 9, subsection 1, paragraph 2 of the act on income tax, the payer of the dividends must collect tax from the non-resident recipient and pay it on that recipient’s behalf unless the latter has submitted a transfer tax return and paid the tax independently (section 16, subsection 2 of the act on transfer tax). In this case, the payer of the dividends must submit the transfer tax return and pay transfer tax using their transfer tax reference number. The payer of the dividends must submit a separate transfer tax return for each non-resident taxpayer. Even though the payer of the dividends is ultimately responsible for the payment of tax in these situations, the payer and recipient of the dividends may agree that the recipient who is a non-resident taxpayer submits the transfer tax return and pays transfer tax using their transfer tax reference number. Accordingly, the obligation imposed on the payer (the party that conveys property to another party) to collect the tax from non-resident recipients of dividends ceases when the recipient (of the conveyed property) has acted independently and thus paid the transfer tax.

If a non-resident taxpayer receives any shares referred to in section 20, subsection 3 of the act on transfer tax as dividend in kind, such as shares in housing or real estate companies, or real estate units, the non-resident taxpayer must submit the transfer tax return and pay transfer tax using their transfer tax reference number. In these circumstances, he payer and recipient of dividends may mutually agree that the payer of dividends covers the transfer tax payable on dividend in kind. However, this has no impact on the obligation to report and pay transfer tax. The payer of dividends or other agent may only take care of reporting on the recipient’s behalf on the basis of authorisation. In this case as well, the transfer tax return must be submitted in the dividend recipient’s name, and transfer tax must be paid using the dividend recipient’s transfer tax reference number. Applying for a non-resident taxpayer’s reference number is discussed in more detail in the Tax Administration’s guidance ‘Buyers from outside Finland – how to request a reference number for transfer tax’.

By way of exception from the above, if the recipient of dividends is a Finnish branch office of a foreign credit institution or a Finnish branch office of a foreign investment service company, fund company or EEA UCITS fund manager, the procedures described in Section 3.2 apply to the reporting and payment of transfer tax.

4  Withholding 

As a rule, the payer of dividends must withhold tax from dividends if the recipient is a natural person or estate treated as a resident taxpayer in Finland on the basis of section 9, subsection 1, paragraph 1 of the act on income tax. If dividends are only paid in assets other cash, the payer of the dividends cannot, however, withhold tax from the dividends. Therefore, the payer of dividends cannot withhold tax from the proportion of transfer tax paid on the recipient’s behalf (section 11 of the act on tax prepayments (Ennakkoperintälaki 1118/1996)).

If cash dividends have also been paid to all or some shareholders in conjunction with the distribution of dividend in kind, the payer of the dividends must withhold tax from the dividends of the shareholders who received cash dividends. In this case, tax is withheld equalling at most the amount of the cash dividends. If the payer of dividends distributes cash dividends later during the same year based on a separate dividend distribution decision, any non-withheld tax from the earlier dividend in kind does not need to be taken into account in the amount of tax withheld from the cash dividends. Withholding is discussed in more detail in the Tax Administration’s guidance ‘Tax withheld from dividends and returns submitted to the Tax Administration’ (Ennakonpidätys osingosta ja Verohallinnolle annettavat ilmoitukset, available only in Finnish or Swedish) and ‘Withholding’ (Ennakonpidätyksen toimittaminen, available only in Finnish or Swedish).

If the payer of dividends cannot have withheld tax from dividend income or tax has only been withheld in part, the recipient of dividends may avoid having to pay any back taxes by applying for a prepayment or additional prepayment. Applying for a prepayment or additional prepayment is discussed in more detail in the Tax Administration’s guidance ‘Prepayments on rental income or sales profits’. 

Corporate entities and business partnerships must take dividends into account in the prepayment amount or by applying for an additional prepayment. Applying for a prepayment or additional prepayment is discussed in more detail in the Tax Administration’s guidance ‘Tax prepayment – corporate tax payers.

5 Tax at source

On the basis of section 3 of the act on the taxation of non-residents’ income (Laki rajoitetusti verovelvollisen tulon verottamisesta 627/1978), the payer of dividends must usually collect tax at source on dividends if the recipient of dividends is a non-resident taxpayer. If cash dividends have also been paid to shareholders in conjunction with the distribution of dividend in kind, the payer of the dividends must collect tax at source on the dividends of the shareholders who received cash dividends. In this case, tax at source is collected equalling at most the amount of the cash dividends. Tax at source rates are discussed in more detail in the Tax Administration’s guidance ‘Tax rates on dividends and other payments from Finland to non-residents’.

If dividends are only paid in assets other cash, the payer of the dividends cannot collect tax at source on the dividends. Therefore, the payer of dividends cannot collect tax at source on the proportion of transfer tax paid on the recipient’s behalf. If the payer of dividends cannot have collected tax at source on dividend income, the recipient of dividends who is a non-resident taxpayer must apply for tax at source from the Tax Administration (section 16 of the act on the taxation of non-residents’ income). The recipient of dividends must also apply for tax at source if the payer of dividends can only have collected tax at source in part. Natural persons can apply for tax at source using the form ‘Information on income for the calculation of tax at source – natural person’.

The recipient of dividends who is a non-resident taxpayer must apply for tax at source based on dividend in kind no later than when the taxpayer should submit a tax return for the tax year, in which the dividends were regarded as income. In the taxation of natural persons, dividends are income in the tax year, during which the dividends were available for withdrawal. In the taxation of corporate entities and business partnerships, dividends are income in the tax year, during which the dividend distribution decision was made. If the recipient of dividends applies for tax at source late, this may result in a punitive tax increase.

If the recipient of dividends has not applied for tax at source independently, the Tax Administration may impose the missing tax at source and any punitive tax increase on the recipient of dividends who is a non-resident taxpayer.

If the recipient of dividends wants that tax treaty provisions apply to the imposition of tax at source, the recipient of dividends must provide the information required for the application of the tax treaty. The application of tax treaties is discussed in more detail in the Tax Administration’s guidance ‘Paying dividends, interest and royalties to nonresidents’.

If the preconditions of section 13, subsection 1, paragraph 3 of the act on the taxation of non-residents’ income are met, natural persons may claim taxation on dividend income in the order laid down in the act on assessment procedure (Verotusmenettelylaki 1558/1995). For further instructions for submitting the claim, see the Tax Administration’s guidance ‘Paying dividends, interest and royalties to nonresidents’.

6 Annual information return

The payer of dividends is obligated to report the dividend in kind they have paid by submitting an annual information return to the Tax Administration (section 15, subsection 1 of the act on assessment procedure and section 8, subsection 2 of the Tax Administration decision on the general duty to disclose). The fair market value of the assets distributed as dividends on the date on which the dividends were available for withdrawal must be reported as the amount of dividends. In addition, any cash dividends distributed simultaneously with dividend in kind must be reported on the annual information return. If the payer of dividends has paid transfer tax on the dividend recipient’s behalf, the amount of transfer tax must also be reported as dividend income on the annual information return.

The annual information return on paid dividends must be submitted by the end of January in the year following the year during which the dividends were available for withdrawal.

Dividends paid to a resident taxpayer referred to in section 9, subsection 1, paragraph 1 of the act on income tax must be reported on form 7812e ‘Annual information return on paid dividends’. Dividends paid to a non-resident taxpayer referred to in section 9, subsection 1, paragraph 2 of the act on income tax must be reported on form 7809e ‘Annual information return on payments to non-residents’. The annual information return must be submitted online if it concerns five or more recipients of dividends.