Impact of private international law on Finnish taxes

This is an unofficial translation. The official instruction is drafted in Finnish (Kansainvälisen yksityisoikeuden vaikutus verotukseen, record number VH/1342/00.01.00/2025) and Swedish (Den internationella privaträttens inverkan på beskattningen, record number VH/1342/00.01.00/2025) languages.

This guidance mainly discusses the impact of private international law on Finland’s taxing rights. Therefore, the focus is on how the application of foreign law and the conflict of laws in a civil law system affect Finnish taxation. In addition, the guidance discusses some of the impacts of Finnish private-law legislation when the target assets are subject to international taxation.

The Finnish Tax Administration has issued several guidance materials on the impact of Finnish tax laws and tax treaties on Finland’s right to levy taxes in different situations. These cases are discussed, for example, in the guidelines included in the following summaries:

International taxation: compilation of detailed guidance materials on taxes (available in Finnish and Swedish)

Family law and taxation: compilation of detailed guidance materials on taxes (available in Finnish and Swedish)

This guidance does not comprehensively reiterate the issues discussed in the other guidelines, but it is intended to be used alongside the other materials.

1 Private international law provisions relevant for taxation

1.1 Significance of private and tax law provisions

In cross-border situations, the choice of applicable legislation is an important question in terms of both private and tax law. Private international law provisions determine which country’s legislation shall be applied in different circumstances. In turn, international tax law provisions determine which country has the right to levy taxes on different income flows, assets and other items subject to taxation, as well as the scope of this taxing right.

To issue a tax ruling, the tax authorities must know which provisions they shall apply to the case, in terms of both private international law and international tax law. Both of these are assessed independently based on the relevant legislation and international agreements and treaties. In private law, this assessment does not always give priority to the legislation of the country that holds the taxing rights in the matter. To the extent that the private law of a specific country is deemed applicable, information on the content of the legislation in question is required for tax assessment purposes.

1.2 Finnish private law

In this guidance, Finnish private law refers to the regulation of legal relationships between private parties in Finland. Such provisions typically regulate how the rights and obligations of different concerned parties are determined in Finland. Typical examples include the Finnish marriage act (Avioliittolaki 234/1929), the code of real estate (Maakaari 540/1995), the limited liability companies act (Osakeyhtiölaki 624/2006) and the code of inheritance (Perintökaari 40/1965).

When individuals or property items have connections to several countries, it is necessary to determine which country's private law is applied in any given situation. The applicable law is determined on the basis of provisions stemming from private law.

In all countries, it is a key part of the regulation of private international law to determine in what situations and to what extent the legislation of the country in question shall be applied, and when and under what conditions it is justified to apply the legislation of another country. For example, Finnish legislation may include provisions that lay down specific preconditions for applying the private law of another country in Finland. A typical example of this is chapter 26 of the code of inheritance.

In private law, the conflict of laws may also be covered by international agreements, which are then integrated into Finnish legislation.

In some situations, natural persons and corporate entities have a say in determining which country’s legislation is applied to them. A typical example of such cases is the possibility of spouses to choose, under certain conditions, the law applicable to their marriage.

1.3 Foreign private law

For the purposes of this guidance, foreign private law refers to foreign provisions apart from tax legislation. Such provisions typically regulate how the rights and obligations of different concerned parties are determined outside Finland. In general, other countries also have provisions on matters such as marriage, registration and exchange of real estate ownership, corporate law issues, and inheritance law.

However, the scope of each law may be different than in Finland, and the regulatory technique may differ from the Finnish practice. For example, many countries have established comprehensive civil laws that cover a variety of matters which in Finland are addressed in separate laws. Moreover, in some countries’ common law-based legal systems even the significance of case law may differ from the Finnish model.

Even in foreign private law, it is essential to define the situations in which a country’s own provisions are applied and, in contrast, when the private law of another country (such as Finland) shall be applied in the country in question. This is determined by the legislation and legal system of the country in question and by the international agreements concluded by that country.

1.4 Regulation of taxation in Finland

The Finnish national tax legislation specifies the different taxes collected in Finland and the grounds thereof, what is covered by the tax in question, and what information is relevant for the calculation of the tax in question. For example, the provisions of the act on income tax determine what constitutes taxable income in Finland, how income is divided into earned and capital income, and what kind of deductions are made in tax calculations.

In addition, Finnish tax legislation defines how Finland’s taxing rights are determined in international settings under national legislation. This means establishing, for example, which income or inheritance sources related to foreign assets are subject to Finland’s taxing rights, and how Finland’s taxing rights are determined when the taxpayer is residing or staying in another country.

However, Finland’s national tax legislation does not necessarily contain similar provisions on taxing rights as are included in Finnish private law regarding the choice of the applicable law.

1.5 Regulation of foreign taxation

Foreign tax legislation defines the taxes collected in the country in question and the grounds for taxes.

Foreign tax legislation may impose taxes on items that are also taxed in Finland, such as wages, dividends and other income. Furthermore, foreign tax legislation may even impose taxes on payments and items that are not taxed in Finland. Similarly, items that are not subject to taxation in another country may be taxed in Finland. For example, there are no inheritance or gift taxes in Sweden, but sometimes the Swedish tax system results in capital gains that would not be generated when applying Finnish tax legislation.

Foreign tax legislation establishes how the taxing rights of the country in question are determined in cross-border situations. This means establishing, for example, which income or inheritance sources related to Finnish assets are subject to the taxing rights of the country in question, and how the taxing rights are determined when the taxpayer is residing or staying in the country in question and also, at least in part, in Finland.

In foreign tax legislation, the regulatory technique and the scope of different laws may differ from the Finnish system. The Finnish Tax Administration does not dictate what kinds of taxes are collected by other countries or how their legislation is interpreted. In matters involving interpretations of and procedures in foreign tax legislation, it is advisable to contact the tax authorities of the country in question.

1.6 Impact of tax treaties

Countries can establish tax treaties to specify how taxing rights are divided between them. These treaties usually aim to eliminate double taxation on income or items.

For example, a party to a tax treaty may waive the right to levy taxes on an item or income that would otherwise be subject to taxation under Finnish or foreign law. Tax treaties may also lay down certain tax rates that may be collected on a particular income source, such as giving a country the right to collect a 15-per cent tax on certain income. Moreover, tax treaties often include provisions stating that both countries shall take into account in their own tax assessment the amount of taxes paid on the same income or item to the other country.

Sometimes there may be more than two countries involved in the taxation of an item or income, such as when an individual is staying in two different countries and owns immovable property in a third country. Therefore, it may sometimes be necessary to take several different tax treaties into consideration.

The details of the tax treaties may vary, meaning that a country may have agreed on a different division of taxing rights with one country than with another. For this reason, it is always important to find out which tax treaties are applicable at any given time and what kinds of agreements are included.

2 Determining the applicable private-law provisions and their significance in tax assessment

2.1 Basis of the obligation to provide clarifications in taxation

As a rule, the Finnish tax assessment process is based on tax returns. Self-assessed taxes (such as value added tax and transfer tax) are taxes paid directly according to the tax return, whereas imposed taxes (such as income tax, inheritance tax or gift tax) involve a tax decision made on the basis of the tax return.

The obligation to provide clarifications has been covered extensively in the general principles applied to all tax assessments, which are mainly supplemented by the special provisions of each tax act. Provisions on the main principles regarding the scope and division of the duty to provide further information in tax matters are laid down in section 26, subsection 4 of the act on assessment procedure (Laki verotusmenettelystä 1558/1995) and section 8 of the act on assessment procedure for self-assessed taxes (Laki oma-aloitteisten verojen verotusmenettelystä 768/2016).

When the taxpayer has fulfilled their duty to provide clarifications, but further information is still needed to resolve the matter, the Tax Administration and the taxpayer must cooperate whenever possible to bring the matter to a close. Further information and facts are primarily expected from whichever party is in a better position to provide them.

As a rule, these principles also apply to international taxation. In addition, in cross-border situations, a specific duty to provide clarifications is imposed primarily on the taxpayer, if the other party involved in a legal action with the taxpayer does not reside in Finland or is not domiciled here, and the Finnish Tax Administration cannot obtain sufficient information about the action or the other party under an international agreement.

The Tax Administration's general rules on taxation procedure (Verotuksen yleiset menettelysäännökset, available in Finnish and Swedish) contain more detailed information on the division of responsibilities.

2.2 Impact of foreign private law on tax assessment

Tax assessments are often based on legal actions or other transactions that constitute civil law-based rights and obligations for different individuals. For example, the sale of assets is followed by income taxation, inheritance received is subject to inheritance taxation, and gift tax is collected on assets received as gifts.

As a rule, private law determines when these events that give rise to the liability to pay tax can, in fact, be considered to have taken place in a way that constitutes tax liability. For example, a valid sale of a real estate unit requires compliance with the formal provisions regarding transactions laid down in the legislation of the country where the united is located.

Moreover, private law has an impact on the rights and obligations that are essential for determining the amount of tax consequences. For example, inheritance taxation is based on the heir’s share of the inheritance, the amount of which is determined by the law applicable to the inheritance.

Sometimes Finland has the right to levy taxes on an asset (such as income or inheritance), but the private law of another country is still applied in the matter. Sometimes the content of foreign legislation affects the amount of tax or the time of filing or paying taxes. This can happen, for example, when a legal action must follow a certain procedure or when a law gives rise to specific rights.

Sometimes the private law of several countries can be applied to the same matter or legal action. For example, it is possible to apply the real estate law of the country of location in some respects, whereas other aspects of the same matter may be subject to the inheritance or marriage laws of another country.

As a rule, foreign private law can be used as a basis for taxation in the same way as similar Finnish legislation. As an example involving inheritance taxation, the assets of a deceased person may be distributed to inheritors in accordance with the legislation of a country other than Finland, if the inheritance law of that country takes prevalence over Finnish legislation.

Foreign private law may differ significantly from Finnish legislation. Consequently, it is not always possible to base tax rulings on the taxation procedure applied to similar issues under Finnish legislation, because equivalent situations do not arise when applying Finnish tax laws. In such cases, it is essential to assess how Finnish tax legislation can be applied in foreign private law matters when the national application of the provisions cannot be used as a reference point.

When submitting a tax return, the taxpayer may not be fully aware of the following:

which country’s private law is applied to the matter, what is included in the applicable provisions, and how the related matters should be reported and investigated;
which country has the right to levy taxes on the income or item, and how the related matters should be reported and investigated;
how Finnish tax laws are interpreted when applying the private law of a country other than Finland, and how the related matters should be reported and investigated.

The latter two issues are associated with the interpretation and application of tax legislation. In these cases, the Finnish Tax Administration is the competent public authority that makes the relevant decisions. The Tax Administration may also issue fee-based advance rulings. The procedure for getting a precedent is described in more detail in the Tax Administration’s guidance on applying for an advance ruling and the decision issued (Ennakkoratkaisuhakemuksen tekeminen ja siihen annettava päätös, available in Finnish and Swedish).

In contrast, the Finnish Tax Administration cannot, for example, resolve ambiguities or disputes related to the conflict of laws in private-law matters in a manner that is binding on both parties. As a rule, these decisions are made either by general courts or as the result of other applicable proceedings. Moreover, the Tax Administration cannot decide in a manner that would be binding on both parties how the provisions of Finnish or foreign private law should be interpreted. Therefore, it is not possible to, for example, apply for a precedent that will determine which country’s private law provisions shall be applied to a specific situation.

However, as private law provisions often affect taxation, information on the right legislation to apply and the contents thereof is needed for tax assessment purposes.

Sometimes ambiguities and disputes are resolved through agreements between the concerned parties. These agreements are treated in tax assessments in the same way as any other civil-law contracts. In practice, taxpayers must be prepared to clarify which private law provisions have been applied to the agreement, how the provisions have been interpreted, and why their interpretation of the provisions in question is justified. When such a justified report on the interpretation of legislation is submitted to the Tax Administration, the interpretation can be used as a basis for applying tax legislation.

However, if the Tax Administration does not receive a reliable account of the correct applicable law and its contents, it will assess the content of the agreement and its impact on taxation on a case-by-case basis. For example, if the taxpayer fails to clarify how the concluded agreement corresponds to the other country’s provisions on the distribution of matrimonial property and distribution of inheritance, the issue may not constitute a distribution of inheritance in all respects. In this case, it may be necessary to assess whether the agreement has generated taxable gifts or taxable income.

Even if the private law provisions of another country would take prevalence in the matter, the tax assessment can be carried out by applying only Finnish legislation if the content of the other country’s legal provisions is not clarified or otherwise known to the Finnish Tax Administration.

2.3 Determining the applicable legislation and its contents

As a rule, before any legal action is taken, it is imperative to determine which legislation shall be applied to the legal action in question. The same applies, for example, to the administration of estates and other issues related to the ownership and management of assets – one of the first steps is to establish which country’s provisions are applicable, to what extent they shall be applied, and what their content is.

If the private law of another country is applied to the legal action or other matter subject to tax assessment, but tax law requires that the matter in question must also be reported to the Finnish Tax Administration, then any legal action or matter that is taxed according to Finnish tax legislation shall, as a rule, be reported in the same way as similar legal action subject to Finnish private law would be reported.

As a rule, tax returns are filed after legal actions have been taken or several months after the end of the tax year. Therefore, when filing their tax returns, taxpayers usually know which country’s legislation shall be applied in the matter, why it is applied, and what its contents are. However, in certain cases, such as the administration of estates, the conflict of laws may give rise to uncertainty and quarrels even when the tax return should already be filed.

If the matter will most likely be resolved soon after the tax return filing period ends, it is advisable to find out if the deadline for filing the tax return can be extended. In inheritance taxation, for example, the period for filing the estate inventory or other tax return can usually be extended for a justified reason, because the deadline for completing the tax assessment does not expire soon after the tax return has been filed. In contrast, in other tax areas such as income taxation, the tax assessment is completed relatively quickly after the tax return is filed, which means that only limited extensions of the deadline for filing the tax return are possible.

If the choice of the applicable law remains unclear or disputed at the time of filing the tax return, the tax return shall be filed in accordance with the private law provisions that are applicable according to the taxpayer’s understanding. However, the taxpayer should clarify in the tax return or its appendices that the matter is disputed or unclear, list the measures that are taken to investigate the matter, and provide an estimate on when the matter will be resolved.

Sometimes ambiguities concerning the private law provisions applicable to imposed taxes (such as income tax and inheritance tax) may be resolved after the tax return is already filed, but before the tax assessment is completed. In such cases, the discovered details shall be submitted to the Tax Administration as complementary information to the tax return. As a rule, the data can be submitted to the Tax Administration in the same way as any other tax information discovered after the tax return has been filed.

Sometimes the correct applicable private law is determined only after a tax decision has been made. If the interpretation made when filing the tax return proves to be correct, it is usually not necessary to adjust the completed tax assessment. However, sometimes the assumption made when filing the tax return, as well as the tax assessment conducted on the basis of said assumption, proves to be incorrect. In such cases, it is important to notify the Tax Administration of the matter, so that the Tax Administration can assess the need to adjust the taxes. The information is provided through the same procedure, and the adjustments can be taken into account within the same time period as any other tax issues that have been discovered after the tax assessment has been completed.

As a rule, separate tax decisions are not made on self-assessed taxes (such as transfer tax), but the taxpayer shall pay the taxes established in the tax return on their own initiative. If a conflict of ambiguity related to the choice or content of the provisions applicable to such taxes is not resolved as was assumed when filing the tax return, the taxpayer shall submit amended or supplementary tax returns and refund applications in line with the procedure and deadlines applicable to the tax form in question.

Often the parties wish to resolve disputes or ambiguities through agreements. Therefore, it may be important for the taxpayers to know the tax consequences that may arise from the agreements. In such cases, it is also possible to apply for a precedent. The application shall include the applicant's own justified opinion of which country’s legislation should be applied in the matter and why, and how and why this legislation will be applied in the intended agreement.

3.1 Principles and agreements concerning the conflict of laws in private law

Problems related to the conflict of laws in private law are often encountered specifically in taxation issues related to family property law. Both the marriage act and the code of inheritance contain separate provisions on issues involving the conflict of laws. In addition, Finland has concluded international agreements on the rules and principles governing the conflict of laws in private law.

The choice of family law provisions can also be influenced, for example, by legal actions taken by the deceased or between the spouses. It is important to understand that such agreements do not apply to taxation and, therefore, they bear no weight in determining whether or not Finland has the right to levy taxes on specific payments or assets, for example.

3.2 Legislation applicable to the dissolution of matrimonial property regime

When a marriage ends due to divorce or the death of a spouse, it is important for tax assessment purposes to determine what kinds of rights the dissolution of the marriage gives to both spouses to the other spouse’s property and how these rights shall be enforced.

If one or both of the parties either have been living or are living abroad, the choice of the applicable law becomes relevant. There are two questions that must be addressed:

Which country's conflict-of-law provisions are applied to choose the applicable law?
Which country’s legislation is deemed applicable under the conflict-of-law provisions?

The Finnish conflict-of-law provisions concerning the division of matrimonial property are included in the marriage act. Moreover, Finland is also bound by the EU Matrimonial Property Regulation applied to marriages, the EU regulation on property consequences of registered partnerships, and the Nordic Marriage Convention (SopS 105/2008) (link in Finnish), which is applicable to both relationship types and also contains provisions on the conflict of laws.

The EU Matrimonial Property Regulation only applies to marriages that have either been concluded or where the parties have agreed on the choice of applicable law after the Regulation entered into force (29 January 2019). At present, most spouses are not subject to the Regulation, but to the conflict-of-law provisions of the Finnish marriage act.

Both the Finnish marriage act and the EU Regulation on Matrimonial Property state that as a rule, the law applicable to a marriage is the law of the country where the spouses had their first common habitual residence after marriage. However, there are exceptions to this rule. For example, the nationality of the spouses and their mutual agreements play a role when determining which law shall be applied to the marriage.

According to the EU Regulation on Matrimonial Property, prevalence is given to the legislation of the country where the spouses had their first common habitual residence. The secondary choice is to apply the legislation of the country of the spouses' common nationality. The third option is to apply the legislation of the country with which the spouses have the closest links. The spouses may also agree to apply the legislation of either spouse’s country of habitual residence or the legislation of the country in which one of the spouses holds nationality.

According to section 130, subsection 1 of the marriage act, the agreement designating the law applicable to the marriage shall be made in writing. In Finland, the agreement must also be registered (Registration of the act applicable to the matrimonial property regime | Digital and Population Data Services Agency | Digital and Population Data Services Agency (dvv.fi)).

However, there are also certain restrictions regarding the choice of applicable law. “The law of the state where one spouse or both spouses are domiciled or whose citizen a spouse is at the time of the agreement may be designated as the applicable law. If the domicile of one or both spouses has moved to another state during the marriage, also the law of the state where both spouses last were domiciled may be designated as the applicable law” (section 130, subsection 2 of the marriage act).

The same law dictated by the conflict-of-law rules is primarily applied to all the spouses' property, regardless of the location of said property. As a rule, conflict-of-law provisions cannot be used to apply different laws to different property items. Consequently, both spouses’ entire property covered by marital rights shall be subject to the provisions of a single law. However, it may be possible that the laws of different countries are applied to inheritance issues and the dissolution of matrimonial property regime.

3.3 Dissolution of matrimonial property regime under foreign law

If an individual is married at the time of their death and their domicile is outside Finland, the possible matrimonial property regime is not necessarily dissolved through a procedure similar to the Finnish distribution of matrimonial property. The procedure of dissolving the matrimonial property regime depends on which country’s conflict-of-law rules are applied and how a matrimonial property regime is dissolved under the selected law.

The applicable law may also be determined by an agreement signed between the parties (legal reference). If the parties have made a valid reference to a specific law, this law shall be applied to the dissolution of the matrimonial property regime.

3.4 Establishing the law applicable to succession

3.4.1 Impact of the EU Succession Regulation on conflict of laws

The EU Succession Regulation establishes rules that govern the choice of applicable inheritance law in a manner that is binding on the contracting states. According to Article 21, paragraph 1 of the EU Succession Regulation, heirs and their share of the inheritance are, as a rule, determined by the law of the country in which the deceased had habitual residence at the time of death. Therefore, when inheritance taxes are levied on the property of a person who lived in Finland at the time of their death, the heirs and the share of the inheritance are determined in accordance with the Finnish code of inheritance.

The EU Succession Regulation is applied in all EU countries, with the exception of Ireland and Denmark. If a person was living in an area covered by the EU Succession Regulation at the time of their death, the applicable law is primarily the law of the country in which the deceased had their final habitual residence (Article 21, paragraph 1 of the EU Succession Regulation).

The place of habitual residence is not defined in the EU Succession Regulation, but recital 23 of the Regulation states as follows: “in order to determine the habitual residence, the authority dealing with the succession should make an overall assessment of the circumstances of the life of the deceased during the years preceding his death and at the time of his death, taking account of all relevant factual elements, in particular the duration and regularity of the deceased’s presence in the State concerned and the conditions and reasons for that presence. The habitual residence thus determined should reveal a close and stable connection with the State concerned taking into account the specific aims of this Regulation.”

The law determined under the Succession Regulation is applied, regardless of whether it is in force in a Member State or a non-EU country (so-called universal application as provided for in Article 20 of the EU Succession Regulation).

If it becomes clear, by way of exception, from all the circumstances of the case that, at the time of death, the deceased was significantly more closely connected with a country other than their country of residence, the law applicable to the succession shall be the law of that other country (Article 21, paragraph 2 of the EU Succession Regulation).

3.4.2 Application of foreign property legislation

Even if Finnish legislation would be applied to the succession, certain property items may be governed by the law of the country in which the property is located.

“Where the law of the State in which certain immovable property, certain enterprises or other special categories of assets are located contains special rules which, for economic, family or social considerations, impose restrictions concerning or affecting the succession in respect of those assets, those special rules shall apply to the succession in so far as, under the law of that State, they are applicable irrespective of the law applicable to the succession” (Article 20 of the EU Succession Regulation).

Example 1: Deceased A was born in country X in 1960, and they had resided in Finland from 1999 until their death in 2009. A’s estate included 1/3 of a farm located in country X. As A had no children, the Finnish code of inheritance dictates that A’s only heir was their surviving spouse.

However, the inheritance law in force in country X states that the farm is inherited by the deceased person's relatives who have a rightful claim to the inheritance. Such relatives included A’s siblings living in country X.

No inheritance tax is imposed on the widowed spouse for the share of the farm, as the widow did not receive their share as inheritance.

3.4.3 Nordic Convention on Inheritance

Despite the entry into force of the EU Succession Regulation, the Nordic Convention on Inheritance (SopS 60/2015) is still in force, as Article 75 of the Regulation enables the application of such inheritance agreements. The convention is applied by Finland, Denmark, Iceland and Norway. The convention is applied if an individual was a national of one of the contracting states at the time of their death and had a habitual residence in a contracting state.

If the deceased was living in in Denmark, Iceland or Norway at the time of their death, the heirs and shares of inheritance are determined for inheritance taxation purposes primarily by the law of the country where the deceased had their final habitual residence.

If it becomes clear, by way of exception, from all the circumstances of the case that, at the time of death, the deceased was significantly more closely connected with a contracting state other than their country of residence, the heirs and shares of inheritance shall be determined according to the law of that country.

If the deceased was, at the time of their death, living in a country not covered by the EU Succession Regulation or the Nordic Convention on Inheritance, the law applicable to the inheritance may be determined on different grounds than those stated above. For example, the law of the state whose nationality the deceased possesses or the law of their last habitual residence or domicile may be deemed applicable.

3.4.4 Designating the law applicable to succession by a will or other disposition of property upon death

The deceased person may also have designated in advance which country's legislation is to be applied to the inheritance by means of a valid will and testament or other disposition of property upon death. “The choice shall be made expressly in a declaration in the form of a disposition of property upon death or shall be demonstrated by the terms of such a disposition” (Article 22, paragraph 2 of the EU Succession Regulation).

However, there are certain restrictions on the choice of applicable law. The applicable law may be the law of the country whose nationality the deceased person possessed at the time of making the choice or at the time of death (Article 22, paragraph 1 of the EU Succession Regulation).

However, as a rule, inheritance is governed by the law of only one country, meaning that the disposition cannot dictate, for example, that the laws of different countries should be applied to different property items Consequently, a succession is governed by the law of only one state.

If the disposition governing the choice of law has been issued in a valid manner before 17 August 2015, the applicable law is determined in accordance with the issued disposition (Article 83, paragraph 2 of the EU Succession Regulation).

3.4.5 Surviving spouse’s possession right to a residential property in Finland

Even if the distribution of the estate would be governed by the law of another country, the surviving spouse still holds the possession right to the residential property included in the estate as laid down in chapter 3, section 1a of the code of inheritance if

the residence is located in Finland, and
if it is deemed reasonable to grant the right of possession to the surviving spouse (section 134 of the marriage act).

When assessing the reasonableness, the assets of the surviving spouse and the property that the spouse will acquire in the distribution or by way of inheritance or a will shall be considered.

If the aforementioned conditions are not met, the surviving spouse's right of possession shall be determined by the law of the other country which is applicable to the distribution of matrimonial property.

If the deceased person has lived in an area covered by the EU Succession Regulation, chapter 26, section 12, subsection 1 of the Finnish code of inheritance dictates that the surviving spouse has the same right to retain possession of the common home as provided for in chapter 3, section 1a of the same act with regard to the distribution of matrimonial property, even when the inheritance is otherwise governed by the law of another state. The provision safeguarding the right of possession in the inheritance process can be applied on the basis of Article 30 of the EU Succession Regulation.

3.5 Provisions applicable to life insurance policies

A life insurance policy is governed by the law of the state in which the policyholder has their permanent habitual residence at the time of concluding the contract (section 9 of the act on the law applicable to certain insurance contracts of international character, available in Finnish and Swedish).

In addition, the following conditions shall be met:

the domicile of both the insurance company and the policyholder shall be located in an EEA state, and
the insurance contract has been concluded at the insurance company's place of business located in an EEA state, and
the policyholder’s permanent habitual residence is in an EEA state.

It may also be established in the life insurance contract that the law of the policyholder’s country of nationality is applied to the insurance (section 10 of the act on the law applicable to certain insurance contracts of international character).

The Council of the European Union’s regulation on the law applicable to contractual obligations (593/2008), or the so-called Rome I Regulation, was adopted on 17 June 2008. The regulation constitutes a directly applicable law which may be supplemented by national provisions insofar as those do not conflict with the regulation. According to Article 2 of the regulation, “any law specified by this Regulation shall be applied whether or not it is the law of a Member State” (universal application). According to Article 7, paragraph 3 of the regulation, if no applicable law has been chosen by the parties, the life insurance contract shall be governed by the law of the Member State in which the risk is situated at the time of conclusion of the contract. For life insurance policies taken out by natural persons, this means that the law of the policyholder's country of residence is applied to the insurance.

The law applied to the life insurance policy dictates, for example, who has the right to insurance indemnity if the beneficiary refuses compensation.

3.6 Law applicable to donations and gift-like sales

The law applicable to a promise of a gift, fulfilling a promise of a gift, and gift-like sales shall be the law of the country in which the owner of the property lived at the time of making the asset transfer (Article 4, paragraph 2 of the Rome I Regulation).

If the object of the transfer constitutes immovable property, the transfer and its form shall be governed by the law of the country where the property is situated (Article 4, paragraph 1, subparagraph c of the Rome 1 Regulation). If the property transfer is not binding under the law of said country due to noncompliance with formal provisions, the property transfer shall not be regarded as a gift in gift taxation (cf. chapter 2, section 1 and chapter 4, section 2 of the code of real estate).

4 Taxation of death estates in cross-border situations

4.1 Taxation of estates under Finnish national regulations

An estate consists of the deceased person’s total assets and debts. The estate is not subject to inheritance taxes, but inheritance tax is imposed on each inheritor individually based on their share of the estate.

According to section 17, subsection 2 of the act on income tax (1535/1992), an estate is taxed as a separate taxpayer. However, an estate engaged in business activities shall be taxed separately only for three years after the deceased person's death and, after that, as a partnership. The separate tax liability of the estate ends when the estate is ultimately divided.

The taxation as an estate usually ends with the distribution of inheritance. The deceased person’s will and testament may stipulate that some or all of the property items shall be given to certain individuals. Such special wills shall be fulfilled before any other inheritance is distributed. The property covered by the special will shall no longer be taxed in the estate’s tax assessment once the will is fulfilled by transferring the property to the recipient. If there is just one shareholder, the estate will be passed to this heir without the need for a distribution.

If the conditions for fulfilling a special will or the existence of only one heir are found uncontested in, for example, the estate inventory, it shall be deemed that the property has been passed to the beneficiary of the special will or the sole heir at the time of the deceased person’s death. In contrast, if the conditions for fulfilling the special will or the existence of only one heir are disputed, the taxation of the estate will only end when the dispute is resolved.

The shareholders of the estate are the surviving spouse (under the marital right until the distribution of matrimonial property), heirs, and universal beneficiaries (beneficiaries of a general-legacy will). In contrast, a beneficiary of a special will is not a shareholder of the estate. If the estate has only one shareholder, all property belonging to the estate goes to them at the time of the deceased person’s death. For this reason, no estate is formed in these situations, but the sole shareholder shall be taxed based on the income gained from the estate starting from the time of the deceased person’s death.

According to section 17 of the act on income tax, a shareholder’s share of the income gained from an estate is not regarded as the shareholder’s income. According to section 6, subsection 1, paragraph 4 of the act on the taxation of business income (Laki elinkeinotulon verottamisesta 360/1968, available in Finnish and Swedish), a share of income from an estate taxed as a separate taxpayer or a partnership shareholder’s share of profits assigned to them in addition to their profit share which is deemed as taxable income, are not considered to constitute taxable income. Furthermore, the income received by a foreign estate's shareholder living in Finland as a portion of the income earned by the estate is not treated as taxable income insofar as the estate is liable to pay taxes on said income in Finland.

According to section 17, subsection 1 of the act on income tax, parties to the death estate of a person who died during the tax year must see that both the deceased person’s and the estate’s income taxes are paid. The estate is subject to the provisions of the act on income tax that would have applied to the deceased person if they were alive.

For example, profits from the transfer of property belonging to an undistributed estate constitute income earned by the estate. For this reason, the shareholders of the estate shall not report the capital gains or losses of the estate in their personal tax assessment. The shareholder of the estate shall pay taxes on and must declare income generated by the property assigned to them in the distribution of inheritance. Such income includes, for example, dividends from property received in the distribution of inheritance, profits from wood sales, and capital gains (see, for example, Supreme Administrative Court’s ruling KHO 1992-B-521).

Under section 53, subsection 1, paragraph 3 of the act on tax collection (Veronkantolaki 11/2018), the shareholders of the estate are liable for the taxes levied on the taxpayer under this act as for their own taxes. According to subsection 2 of the same section, the estate is liable to pay the taxes of the deceased person with the funds belonging to the estate. If the estate has been divided, the shareholder is liable to pay the deceased person’s taxes equivalent to their own share of the estate.

It is the shareholders’ duty to manage the estate’s taxes until the estate has been divided. More information on the payment of the death estate’s taxes is available on the website Handling the taxes of a death estate.

4.2 Impact of international regulation on Finland’s taxing rights

The country of residence determines whether an individual is a resident or non-resident taxpayer in Finnish income taxation. In addition, the country of residence plays a key role in the application of tax treaties. Moreover, the country of residence is essential for the establishment and scope of inheritance and gift tax obligations. Taxes must be paid to Finland on the entire value of the yield, if at least one of the parties was living in Finland.

In order to prevent double taxation in situations involving double residency, meaning that the individual is residing in Finland according to Finnish tax legislation whereas the law of the other country determines that the individual is a resident of that country, certain tax treaties contain provisions on determining the country of residence of the deceased person. More information on double residency can be found in the Tax Administration’s guidance materials Tax residency, nonresidency and residency in accordance with a tax treaty – natural persons and Inheritance and gift taxation in cross-border situations (available in Finnish and Swedish).

There are special provisions on the income taxation of the foreign death estate, which are discussed later in chapter 4.4.

The liability to pay inheritance and gift taxes is always determined in accordance with the Finnish tax legislation and the inheritance and gift tax treaties concluded by Finland. However, in inheritance and gift taxation, the heirs and their share of the estate may be determined in accordance with either Finnish law or the law of the other state. In this context, the legislation of another state refers to foreign provisions governing the right to receive property as a taxable acquisition and the scope of the acquisition.

If the deceased person resided in Finland at the time of their death, the law applicable to the succession is determined according to the EU Succession Regulation. If the deceased person resided outside Finland at the time of their death, the law applicable to the succession may be determined according to the EU Succession Regulation, the Nordic Convention on Inheritance, or the conflict-of-law provisions of an individual state.

If the law of another country is deemed applicable, the taxpayer must, if necessary, provide the Finnish Tax Administration with an account of the contents of the foreign applicable law. If the Finnish Tax Administration is not aware of the content of the foreign applicable law and a report on its contents is not available, Finnish tax legislation may be applied to the tax assessment in both income taxation and inheritance and gift taxation.

4.3 A foreign death estate or inheritors as taxpayers in income taxation

The national laws of different countries include different provisions on what happens to a person’s property after their death. For example, the property can be transferred directly to inheritors, or it can form an estate.

If the property of a person living abroad generates income after their death, and the inheritor resides in Finland or the income is received in Finland, it must be determined whether it is the foreign estate or the inheritors that are liable to pay taxes on the income. In such a situation, the inheritors must provide the Finnish Tax Administration with an account of the following:

Who are the inheritors?
How is the property passed on according to the private law applicable to the inheritance (usually the law of the deceased person’s country of residence)? Is a death estate formed? If no estate is formed, will the property be transferred directly to the inheritors?
If an estate is formed, who shall pay taxes on the income received by the estate according to the law of the deceased person's country of residence? Is the estate considered a separate tax entity?

If the property of a person living abroad generates income after their death, the party liable to pay taxes on this income (foreign estate or inheritors) is primarily decided by examining whether or not a death estate is formed under the private law provisions applicable to the inheritance. If the law of the deceased person’s country of residence dictates that an estate is formed, the estate shall be considered a taxpayer in Finnish taxation until the distribution of inheritance. As a rule, it is irrelevant whether or not the foreign estate is considered a separate tax entity in the deceased person’s country of residence.

If the Finnish Tax Administration does not receive a clarification of the aforementioned matters, the case will be resolved using the available information. Usually, it can be assumed that a foreign estate is formed, and it is liable to pay taxes on income received until the inheritors submit a report on the distribution of inheritance.

Example 2: A and B, who are living in Finland, have inherited their brother who lived in another country. The estate inventory has been made in another country in accordance with its laws. The inherited property includes a holiday home in Finland, which is currently rented out.

In order to determine the right taxpayer (estate or shareholders), the Finnish Tax Administration has asked A and B to provide a clarification of how the ownership of the holiday home is determined after the owner’s death. A and B present a report stating that the other country does not recognise the concept of an estate, but property is automatically transferred to the joint ownership of the heirs at the time of the owner’s death.

Consequently, taxes on rental income are collected from A and B, who are living in Finland, in accordance with their respective shares of ownership. If A and B decide to sell the holiday home, they will also be liable to pay taxes on any resulting capital gain.

Example 3: C, who is living in Finland, has inherited D, who was living in another country, together with his siblings residing in that same foreign country. The inherited property includes, among other things, a real estate unit located in Finland.

In the other country, the deceased person’s property is owned by the estate until the property is divided in the distribution of inheritance. However, the other country does not consider the estate to be a separate tax entity.

C presents a report stating that the property is owned by the estate in the other country and that the distribution of inheritance has not been executed. C is not liable to pay taxes on any income received by the estate before the distribution of inheritance.

If D’s estate receives income from the real estate unit located in Finland or capital gain from the sales of the real estate unit, the estate shall pay taxes on this income. The shareholders of the estate (C and his siblings) are jointly responsible for the estate’s taxes payable in Finland.

4.4 Foreign estate in income taxation

4.4.1 Definition of a foreign estate

The estate of a deceased person is considered domestic if the person was a Finnish resident under the act on income tax at the time of their death. However, the estate of foreign diplomats working in Finland or individuals employed by certain international organisations is not considered domestic (section 12 and section 17, subsection 4 of the act on income tax). A domestic estate is considered a resident taxpayer in Finland (section 9, subsection 1, paragraph 1 of the act on income tax).

The estate is foreign if the deceased person was a non-resident taxpayer at the time of their death or the estate is that of a foreign diplomat referred to in section 12 of the act on income tax (section 17, subsection 4 of the act on income tax). A foreign estate is considered a non-resident taxpayer (section 9, subsection 1, paragraph 2 of the act on income tax).

For more information on tax residency, see the Finnish Tax Administration’s guidance Tax residency, nonresidency and residency in accordance with a tax treaty – natural persons.

For more information on tax residency in cross-border situations, such as the tax residency of EU civil servants and personnel, see the Tax Administration’s guidance Taxation of income from international organisations, the EU and diplomatic missions.

4.4.2 Winding up a foreign estate

In Finnish taxation, a foreign estate ceases to exist when the estate’s assets are distributed. Starting from the distribution of inheritance, the correct party liable to pay taxes is the shareholder of the estate who received the assets or the beneficiary of a special will. The estate’s shareholders must submit a photocopy of the deed of estate distribution or some other proof that the estate has been distributed to the Finnish Tax Administration.

If the Finnish Tax Administration has been notified that there is only one shareholder in the foreign estate and the estate’s assets have been transferred to that shareholder, the tax assessment of the estate can be terminated, and the estate will cease to exist in Finnish taxation.

The legislation of the deceased person’s country of residence may affect the distribution of inheritance. The estate’s shareholders must inform the Finnish Tax Administration when the estate’s assets have been distributed or submit an account if the assets have been transferred to the possession of another taxpayer in accordance with the law of the deceased person’s country of residence.

4.4.3 Taxation of a foreign estate as a corporate entity

According to the act on income tax, a foreign estate is considered a corporate entity for tax assessment purposes (section 3, subsection 1, paragraph 6 of the Ac on Income Tax). In the year of death, the foreign estate is taxed in the same way as the deceased person would have been taxed if they had lived. Starting from the year following the year of death, the foreign estate is taxed as a corporate entity.

Example 4: A was living abroad at the time of her death, and she was a non-resident taxpayer in Finland. A died on 1 June 2023. A’s tax assessment is filed for the entire tax year 2023 in the same way as if A had lived. From 1 January 2024, A’s estate is taxed as a corporate entity.

Taxation as a corporate entity means that the provisions governing the taxation of corporate entities apply to a foreign estate. These provisions determine, for example, the tax rate, penalty fees and prepayments.

Foreign estates were excluded from the elimination of the division of income sources of corporate entities. Consequently, a foreign estate may still have three sources of income (personal source of income, agricultural source of income and business source of income). The act on the taxation of business income is only applied to a foreign estate insofar as the estate is engaged in business activities referred to in section 1, subsection 1 of said act. For more information on the elimination of the division of income sources, see the Tax Administration’s guidance on the elimination of the division of income sources for certain corporate entities (available in Finnish and Swedish).

When a foreign estate is taxed as a corporate entity, the estate does not receive a pre-completed tax return. If a foreign estate has received taxable income in Finland, it must report the income on its own initiative using the tax return form 6. The tax return must be filed by the end of April in the year following the tax year in question. For example, the tax return for the tax year 2024 must be submitted no later than 30 April 2025. The tax year of a foreign estate, meaning the accounting period, is always the calendar year.

More detailed information on reporting income taxable in Finland to the Finnish Tax Administration can be found in the guidance Foreign estate of a deceased person.

4.4.4 Tax liability of a foreign estate in Finland

As a non-resident taxpayer, a foreign estate is liable to pay taxes only on income received from Finland (section 9, subsection 1, paragraph 2 of the act on income tax). A list of examples of Finnish-sourced income can be found in section 10 of the act on income tax. The list is only a list of examples, and other types of income than those mentioned in the list can also be considered income earned from Finland.

Tax treaties signed by Finland with other countries may limit Finland’s taxing rights laid down in Finnish national legislation if the individual’s country of residence pursuant to the tax treaty is not Finland. In such a case, the country of residence pursuant to the tax treaty usually has the right to tax the individual’s income worldwide, while Finland can only tax income the individual has received from Finland and only within the limits set by the tax treaty.

According to tax treaties, foreign estates are usually considered to be residents of another country than Finland. The Finnish-sourced income of a foreign estate typically consists of rental income and capital gains from shares in a housing company or from real estate units located in Finland.

The Finnish-sourced interest income and capital gains on stocks received by a non-resident taxpayer are usually considered tax-exempt under Finnish national legislation. Finland usually has taxing rights only to dividend income and real estate income received from Finland. For more information on withholding tax-at-source on dividend income, see the Tax Administration’s guidance Withholding tax at source on dividends, interest and royalties, and the payor’s obligations.

4.4.5 Sale of immovable property or apartment in a housing company

Finnish national legislation provides that Finland has the taxing rights on capital gains on real estate units located in Finland, on the profits gained from the sale of a building, structure or other facility located on another owner's land as referred to in section 6 of the act on income tax, and on profits gained from the transfer of the right of possession, right of use, or usufruct on said facility or a land area (section 10, subsection 1, paragraph 10 of the act on income tax).

According to national legislation, Finland also has the right to tax income from the sale of indirectly owned immovable property and apartments in housing companies in certain situations (section 10, paragraph 10a of the act on income tax). According to the provision, profit from the transfer of shares, holdings or rights relating to a totality of assets managed to the benefit of a corporate entity, partnership or another person is taxable in Finland if, on the date of transfer or within a period of 365 days prior to the transfer, the total assets of the corporate entity, partnership or totality of assets form more than 50 per cent of the property referred to in paragraph 10 and directly or indirectly located within Finnish territory, and if the property is not shares or other holdings of a publicly listed company or other similar unit as referred to in section 33 a, subsection 2.

The matter is discussed in more detail in the Finnish Tax Administration’s guidance Income taxation of nonresident foreign corporate entities.

Capital gains from the sale of assets are calculated by deducting the acquisition cost remaining after depreciation, plus the expenses incurred in earning the capital gains, from the selling price (section 46 of the act on income tax). When calculating the amount of capital gain or loss on an immovable property belonging to a foreign estate, the verified value of the property is regarded as the acquisition cost in inheritance taxation (section 47 of the act on income tax). A foreign estate may request an adjustment to the taxation of capital gains if the inheritance taxes are only levied after the income taxation has been completed.

The Supreme Administrative Court has issued a precedent (KHO 2021:120) stating how the acquisition cost of inherited property should be determined in situations where neither the foreign country nor Finland has assessed taxes. More information on the matter can be found in the Finnish Tax Administration’s guidance Capital gains and losses from the sale of assets in cross-border situations — natural persons.

A so-called presumed acquisition cost can be used in the calculation of the capital gains by taxpayers other than corporate entities, general partnerships and limited partnerships (sections 46 and 49 of the act on income tax). Since a foreign estate is taxed as a corporate entity, the estate cannot use the presumed acquisition cost to calculate the capital gains.

An undistributed foreign estate may have acquired property with funds belonging to the estate after the deceased person’s death. Such property has been obtained against consideration, and the acquisition cost of the property is the consideration paid in connection with the acquisition, and the time of the acquisition is the time of purchase.

The acquisition costs of a property also include the renovation costs of said property during the ownership of the estate (section 47 of the act on income tax). If the renovations were completed before the time of death, the resulting increase in value is taken into account in the inheritance tax value. According to the wording of section 47, subsection 1 of the act on income tax, inheritance tax cannot be included in the acquisition cost of an asset. Moreover, expenses related to the estate inventory, distribution of inheritance and distribution of matrimonial property are also not deductible in the taxation of capital gains, as such expenses are considered non-deductible living expenses in taxation.

The taxable value used in inheritance taxation is compared to the actual acquisition cost. For this reason, the inheritance tax value and also any expenses incurred from acquiring profits (sales expenses) are deducted from the selling price. The costs arising from making profit are considered expenses related to the transfer of property and preparations thereof, and they are the responsibility of the seller. For more information on deductible sales expenses, see the Tax Administration’s guidance on capital gains and losses from property in the income taxation of natural persons (available in Finnish and Swedish).

4.4.6 Other general taxable income

The tax residency of a foreign estate is discussed above in chapter 4.4.5. A non-exhaustive list of Finnish-sourced income received by foreign estates as non-resident taxpayers under section 10 of the act on income tax can be found below. This is not a comprehensive list of all income received from Finland. According to Finnish tax legislation, expenses arising from the acquisition of income can be deducted from the income.

Rental income

A foreign estate is liable to pay taxes on income received from a Finnish real estate unit or from an apartment governed with shares in a Finnish housing company or other limited liability company or membership in a housing cooperative or other cooperative (section 10, subsection 1, paragraph 1 of the act on income tax).

As a rule, rental income falls under the personal source of income. An exception to this is the rental income (business source of income) associated with business activities referred to in section 1, subsection 1 of the act on the taxation of business income.

Income from wood sales and other income from forestry

A foreign estate is liable to pay taxes on Finnish-sourced income from wood sales and other income from forestry (section 10, subsection 1, paragraphs 1 and 2 of the act on income tax). Income from wood sales and other income from forestry are included in the personal source of income.

Agricultural income

A foreign estate is liable to pay taxes on income from agricultural activities carried out in Finland (section 10, paragraph 2 of the act on income tax). Income from agricultural operations is a part of the agricultural source of income.

Rental income from a farm or its part (such as arable land) was included in the agricultural source of income until 31 December 2024. From 2025 onwards, such rental income belongs to the personal source of income (section 5, subsection 1, paragraph 9 and section 21 of the agricultural income tax act).

Share of partnership income

A foreign estate is liable to pay taxes on its share of the income of a Finnish partnership (section 10, subsection 1, paragraph 6 of the act on income tax). Such partnerships include taxation partnerships (agricultural partnership, forest partnership or real estate partnership) and business partnerships.

According to a precedent issued by the Supreme Administrative Court (KHO 2002:34), the income of a business partnership to be taxed as a partner’s income shall be assessed in the partner’s tax assessment on the basis of the partnership’s activities. For example, if a Finnish partnership engages in business activities in Finland, the share of income of a foreign estate is treated as income from business activities.

The share of income received by a foreign estate acting as a partner in the partnership shall be reported on the tax return, similarly to any other source of income. According to Finnish tax legislation, expenses arising from the acquisition of income can be deducted from the income on the tax return. Shares of income can be left unreported on the tax return if the taxable income share is not known upon filling the tax return. However, the tax return must be adjusted and the share of income reported when the amount of the income share becomes clear.

Estate as a business operator

A foreign estate is liable to pay taxes on income from business activities or profession carried out in Finland (section 10, subsection 1, paragraph 2 of the act on income tax). The act on the taxation of business income is only applied to foreign estates insofar as they engage in business activities referred to in section 1, subsection 1 of said act.

5 Trusts for managing family assets

5.1 Structure, parties and activities of a trust

According to Anglo-Saxon law, a trust is an arrangement in which the settlor establishes the trust by transferring their wealth to the trustee. The trustee’s task is to manage the assets in line with the best interests of the trust’s beneficiary.

The assets transferred to the trust are no longer the property of the settlor, and the settlor has no right to reclaim the transferred assets, unless the trust rules specifically state that the trust is reversible. The assets included in the trust are formally owned by the trustee. The assets controlled by the trust will eventually be transferred to the beneficiary in the manner specified in the trust rules, and it can be said that the beneficiary has a material right of ownership to the assets in the trust.

The parties to a trust (settlor, trustee and beneficiary) are not necessarily different persons. The same individual may hold more than one positions in a trust. For example, the settlor may also be the beneficiary of the trust.

Trust arrangements may also include a special feature where, in addition to the above-mentioned parties, the trust also includes a protector and a separate committee. The protector is tasked with monitoring the best interests of the beneficiary, and the protector may have the right to dismiss or replace the trustee. It is possible under the trust’s rules that a separate committee appoints the protector and has the right to dismiss or replace the protector. Moreover, the protector may have the right to seek advice from the committee.

The existence of a protector and the composition of the committee may be relevant, for example, when determining who exercises effective control over the assets in the trust. Similarly, they may be relevant when determining when the beneficiary may gain access to the assets in the trust in the manner required by the gift tax obligations.

The rules of the trust are defined in the trust deed. The trust’s rules usually contain provisions on the rights and obligations of the concerned parties. For example, the trust’s rules specify the conditions under which the beneficiary of the trust has the right to receive assets from the trust and the extent to which the trustee can exercise their discretion in distributing the assets.

Trusts can be divided into discretionary trusts and fixed trusts based on the level of control the trustee has over distributing assets to the beneficiaries. In a discretionary trust, the trustee decides how much assets are distributed and to which beneficiaries. In the case of a fixed trust, the settlor has specified in the trust’s rules how the beneficiary shall benefit from the trust’s assets. For example, the rules of a fixed trust may stipulate that a certain portion of the proceeds of the trust or of the trust’s capital shall be paid annually to the beneficiary of the trust.

The rules of the trust also define the duration of the trust. In theory, a trust can be valid indefinitely if, for example, the trust deed stipulates that the descendants of the beneficiary become beneficiaries after the initial beneficiary’s death.

In addition to the trust’s rules, the laws of the country or territory in which the trust is established may contain provisions on the rights and obligations of the concerned parties. Moreover, the settlor may have, either in connection with or after the establishment of the trust, given the trustee various non-binding letters of wishes, which may also be relevant when assessing the status of the trust parties and the legal effects of the trust.

When assessing the legal effects of a trust, the actual actions of the parties may also be relevant. If, for example, the distribution of assets or the management of property controlled by the trust has been carried out in a different way than what is stated in the trust’s rules, these de facto activities may be given relevance when assessing the parties’ position in the trust and the tax consequences of the trust.

Similarly, if the trust’s rules allow, for example, that the settlor is made the beneficiary at a later stage or that the assets in the trust are used in favour of the settlor, this may be deemed relevant when assessing the tax consequences of the trust scheme and especially when determining who shall pay taxes on the income from the assets included in the trust.

A trust is usually not a separate legal person but a legal arrangement with contractual and in rem elements. Depending on the law of the country in which the trust is established, the trust may be deemed a separate tax entity in its country of incorporation, or the party liable to pay taxes on income from the assets in the trust may be one of the parties to the trust arrangement, such as the trustee, beneficiary or settlor of the trust.

5.2 Trusts from the perspective of Finnish tax legislation

Trusts are not recognised in Finnish tax legislation, and there are no provisions specifically on trusts. When assessing the taxation of a trust, the goals of the trust arrangement and the parties’ rights and obligations must be examined on a case-by-case basis. The tax effects of the trust arrangement are determined on the basis of this overall analysis. The assessment of the tax consequences of a trust arrangement requires expressly case-specific consideration, given that there may be considerable differences between individual trust arrangements depending on the provisions laid down on the rights and obligations of the parties in the trust deed.

The Supreme Administrative Court has published three precedents on trusts. Of these, the Supreme Administrative Court’s rulings KHO 2013:51 and KHO 2017:149 concerned the start of the beneficiary’s liability to pay gift tax in a discretionary trust. In these precedents, the Supreme Administrative Court considered that the beneficiary’s obligation to pay gift tax only started when they actually received assets from the trust.

The ruling KHO 2017:149 included a special feature, as the trust also had a protector and a committee in addition to a trustee. According to the trust deed, the committee comprised the beneficiary and their surviving parents. The committee had the power to replace the protector who, in turn, could change the trustee. The Supreme Administrative Court found that if the settlor – the father – dies, leaving the beneficiary and their mother or, if the mother has also died, the beneficiary alone as members of the committee, the beneficiary will have such significant de facto control over the trust’s assets at the death of the father that the start of the liability to pay gift tax shall not be postponed until the time when the beneficiary actual receives assets from the trust.

The third precedent KHO 2024:100 concerned a situation in which trust settlors living in Finland intended to transfer shares of a limited liability company to a trust established under the legislation of Guernsey by means of a document called a “settlement”. The purpose of the trust was to organise the management of family assets in the long term. The beneficiaries of the trust were the descendants of the settlors. Under the legislation of Guernsey, the trust was not a separate legal person and held no legal capacity. Under the legislation of Guernsey, the assets transferred to the trust were placed under the ownership of the trustee.

In the precedent KHO 2024:100, the Supreme Administrative Court ruled that, taking into account the permanence of the trust and the trustee’s right of ownership and control over the trust, the trust corresponded to a body of assets dedicated for a special purpose as referred to in section 3, paragraph 7 of the act on income tax. The transfer of the right of ownership of the shares to the trust was not regarded as a gift to the beneficiaries of the trust, but as a legal transaction between the settlor and the trust. As the transfer of assets to the trust was not made in the form of a gift, the transfer of the right of ownership of the shares to the trust had to be regarded as a legal act falling within the scope of the act on income tax, which was mainly comparable to an investment of the assets.

Taking into account the main purpose of establishing the trust, which was organising the management of family assets over a long period of time, and the resulting benefits gained by the settlor and their family, the transfer of the right of ownership of the shares could not be regarded as a transfer fully without consideration. Based on these facts, the Supreme Administrative Court regarded the transfer of the right of ownership of the shares to the trust as a transfer within the meaning of section 45, subsection 1 of the act on income tax, in which the shares were valued at their fair market value.

When a trust arrangement has a connection to Finland – such as when the trust receives income from Finland or an individual living in Finland is the settlor or beneficiary or holds control over the trust – the Finnish Tax Administration needs information on the rights and obligations of the concerned parties of the trust and the law applicable to the trust in the state in which the trust is located (the country of registration) in order to carry out the tax assessment or to issue an advance ruling . When determining the tax consequences of a trust arrangement, the Tax Administration needs information including the following:

the trust deed;
the trust's rules;
letters of wishes and other similar expressions of intent given at the time the trust was established or later;
any separate contracts in which a person involved in the trust is a partner and which pertain to the assets belonging to the trust. Such a contract is formed, for example, if the settlor of the trust has transferred shares of a limited liability company to the trust and, in connection with the transfer, signed an agreement with the trustee regarding an element such as the management of shares, the exercising of voting rights, or the right to redistribute the shares;
a clarification on the matter if assets belonging to the trust are managed by a company owned by the trustee. A clarification is also required if the settlor or beneficiary holds control in such a company based on, for example, a right to appoint the company’s board of directors or managers or some other similar matter;
an account of the trust legislation of the country in which the trust is located and, if available, a link to the online statutes of said country;
a clarification of whether or not the trust is a separate legal person or a separate tax entity under the law of the country in which it is located, or, if the trust is not considered a separate tax entity, who is liable to pay taxes in the location country on the income generated by the assets in the trust.

The aforementioned information must be submitted to the Finnish Tax Administration when an advance ruling is sought on the tax consequences of a trust arrangement. The information must also be submitted as an appendix to the estate inventory deed or to the gift tax return when the trust arrangement is related to an estate acquisition, legacy acquisition or a gift acquisition. Furthermore, the information must be submitted as an appendix to the income tax return or claim for adjustment when the trust scheme has consequences in income taxation or when an adjustment is sought for the tax assessment of the income received from the trust. The information must also be attached to the application for a tax-at-source card when a trust considered a separate tax entity receives Finnish-sourced income that falls within the scope of tax-at-source.

5.3 Discretionary trust

A discretionary trust is a trust in which the trustee holds full discretionary power and control over the distribution of funds to the beneficiary. The beneficiary may ask the trustee to distribute funds to them, but the beneficiary has no unilateral right to receive funds from the trust. The rules of a discretionary trust contain provisions on situations in which the trustee can, while exercising their discretion, distribute assets from the trust.

In the case of a discretionary trust in which the beneficiary has no effective control over the assets, the trustee is regarded as the owner of the assets, and the liability to pay gift tax only starts when the beneficiary actually receives funds from the trust (Supreme Administrative Court’s rulings KHO 2013:51 and KHO 2017:149). In the beneficiary’s gift tax assessment, the tax category is determined based on the familial relationship between the settlor and the beneficiary.

Assets transferred to a trust are not usually intended to benefit the trustee. However, if assets are exceptionally transferred to the trustee, it must be assessed separately based on the terms of the deed of gift and the provisions of the trust deed whether the trustee becomes an owner of the trust to such extent that gift tax may be levied on the trustee. If the gift tax is imposed on the trustee, the gift tax category is determined based on the familial relationship between the settlor and the trustee.

In the case of a discretionary trust, it may be considered separately whether one of the parties to the trust arrangement holds such a position in the trust on the basis of, for example, control or beneficiary status that the income generated by the trust assets can be taxed as the income of a controlled foreign company (CFC) under the act on the taxation of shareholders in controlled foreign companies (CFCs).

In terms of discretionary trusts, an individual who only holds the position of a beneficiary usually cannot be regarded as a shareholder in a CFC. However, if the beneficiary has the right to demand that the trust be terminated and to acquire the assets in the trust, the conditions for applying the CFC act may also be met in the case of a beneficiary of the discretionary trust. Similarly, if the settlor still holds significant effective control over the trust, the CFC act may apply to the settlor.

For more information on the tax assessment of CFC income, see the Finnish Tax Administration’s guidance on the taxation of CFC income in Finland (available in Finnish and Swedish).

5.4 Trusts established through a will and payments taxable as estate acquisitions

If a trust is established through a will in such a way that the trust becomes active after the settlor’s death, the acquisition of funds from the trust can normally be considered a legacy acquisition. In the case of a legacy acquisition, the obligation to pay inheritance tax starts from the death of the deceased under section 5 of the act on inheritance and gift tax (Perintö- ja lahjaverolaki 378/1940).

If the trust’s rules stipulate that the trustee has full control over the distribution of assets to the beneficiary, or if the distribution is subject to other suspensive terms and conditions related to, for example, the age of the beneficiaries, it must be decided on a case-by-case basis whether or not the case involves suspensive terms and conditions referred to in section 7 of the act on inheritance and gift tax that would dictate that the liability to pay inheritance tax only begins when the beneficiary actually receives funds from the trust.

If the trustee is a beneficiary of the trust or a person close to them, the tax liability can usually be considered to start from the death of the settlor, as the trust assets are effectively controlled by the beneficiary or someone close to them. The inheritance tax category of assets received from a trust established through a will is determined on the basis of the familial relationship between the settlor and the beneficiary.

The trust’s rules may stipulate that the settlor acts as the trustee during their lifetime and has the right to terminate the trust until the time of their death, and when the settlor dies, the trust is dissolved and all assets are distributed to the beneficiaries. In this case, the beneficiaries can be considered to receive assets from the trust as an estate acquisition, as the transfer is conditional upon the death of the settlor.

5.5 Fixed trust

In a fixed trust, the settlor has specified in the trust deed how the beneficiary will benefit from the trust’s capital and the resulting income. The trustee has no control over the distribution of the trust’s assets to beneficiaries, as is the case in discretionary trusts. The rules of a fixed trust may stipulate, for example, that the income generated by the trust assets must be paid in full or in part to the beneficiaries every year.

In tax assessment practice, payments received from a fixed trust have been considered to be subject to income taxation. For example, if the rules of a fixed trust state that the income generated by the trust assets is to be paid annually to the beneficiary, payments received by a beneficiary residing in Finland shall be taxed as the beneficiary’s capital income.

The CFC act may also be applicable in cases where the beneficiary holds, due to their position as the beneficiary, control as referred to in section 2 of the CFC act, and the other conditions for applying the CFC act are met. In this case, the tax assessment of the beneficiary is carried out in accordance with the provisions of the CFC act.

5.6 Trust receives income from Finland

A trust arrangement may involve assets located in Finland, such as shares in a limited liability company or immovable property. In this case, the tax assessment must take a stand on who is liable to pay taxes in Finland on the income generated by the trust assets.

Typically, trust assets are placed under the trustee's name, as the trustee is the formal owner of the assets, even if the trustee does not benefit from the assets. If it is proposed in connection with the tax assessment that the assets are part of a trust arrangement, the trust may be regarded as a body of assets dedicated for a special purpose as referred to in section 3, paragraph 7 of the act on income tax, which is considered a separate tax entity for the purposes of tax assessment.

However, an exception to the above may arise if the trust’s rules give one of the parties, such as the settlor or the beneficiary, significant de facto control over the assets in the trust. In such a case, it is possible that the income generated by the trust assets are taxed as that party’s income.

It must be decided separately whether a tax treaty can be applied to the income generated by trust assets and, if so, whether the trust is entitled to tax treaty benefits. In this case, the relevant factors include whether or not the trust is a separate tax entity in the country in which it is located and who actually benefits from the income. For example, if the trust’s rules stipulate that any income generated by the trust is to be distributed annually to the beneficiary, it is possible that the beneficiary is deemed to be the sole party benefitting from the trust and, consequently, the tax treaty between Finland and the beneficiary’s country of residence becomes applicable. This would mean that, for example, any dividend income would be subject to the tax rate specified in the article on dividends in the tax treaty between Finland and the beneficiary’s country of residence.

5.7 Trust as a controlled foreign company

A trust can be a controlled foreign company (CFC) within the meaning of the CFC act. This has been noted in the preliminary work of the CFC act (HE 155/1994 and HE 218/2018). A case-by-case examination is required to determine whether or not the conditions for applying the CFC act are met. In trust arrangements, any interpretation issues related to the application of the CFC act most often involve determining whether or not one of the parties to the trust holds a position referred to in section 2, subsection 1, paragraph 1 of the CFC act on the basis of, for example, control or beneficiary status.

In discretionary trusts, the beneficiary usually does not hold a position that would enable the application of the CFC act to the beneficiary. However, if the trust’s rules stipulate that the beneficiary has the right to, at their request, obtain funds from the trust or terminate the trust, or if the income generated by the trust assets is payable to the beneficiary under the trust’s rules, the conditions for applying the CFC act may be met, in which case the CFC act would be applied to the beneficiary.

The conditions for applying the CFC act may also be met if the settlor continues to have significant effective control over the assets or activity of the trust under the trust’s rules, in which case the CFC act is applied to the settlor.

For more information on the tax assessment of CFC income, see the Finnish Tax Administration’s guidance on the taxation of CFC income in Finland (available in Finnish and Swedish).

5.8 Tax avoidance and ignoring a trust

If a trust arrangement is artificial and established solely to gain tax benefits, the arrangement may be disregarded in taxation under tax avoidance provisions in section 28 of the act on assessment procedure. For example, if the settlor is also the trustee or the sole beneficiary, the arrangement can be deemed to include features of self-financing. In this case, the trust arrangement may be ignored under section 28 of the act on assessment procedure, so that the assets transferred to the trust are still regarded as the settlor’s assets and the income generated by the assets shall be taxed as the settlor’s income. Consequently, the trust is also not considered a body of assets dedicated for a special purpose as referred to in section 3, paragraph 7 of the act on income tax, which is considered a separate tax entity in taxation.

The trust’s rules may contain a provision stipulating that the settlor has the right to cancel the trust and recover the assets transferred to it. Such a trust is called a revocable trust. In the tax assessment of revocable trusts, it can be considered that the assets transferred to the trust remain the property of the settlor. In this case, the settlor is deemed liable to pay taxes on the income generated by the assets transferred to the trust.

If the assets transferred to the trust include, for example, shares of a limited liability company and the settlor continues to hold significant effective control over the shares under the trust’s rules, it is possible that the trust will be ignored in this respect and the shares will be regarded as the property of the settlor during the tax assessment.

It is also possible that the assets in the trust are managed by a company that is formally owned by the trustee, but where the settlor or beneficiary exercises effective control. Such a case would also require an assessment of the need to apply tax avoidance provisions and to consider the settlor or beneficiary as the actual owner of the company.

For more information on applying the tax avoidance provisions, see the Finnish Tax Administration’s guidance on how to apply the provisions on tax avoidance (available in Finnish and Swedish).

Impact of private international law on Finnish taxes Detailed guidance

1 Private international law provisions relevant for taxation

1.1 Significance of private and tax law provisions

1.2 Finnish private law

1.3 Foreign private law

1.4 Regulation of taxation in Finland

1.5 Regulation of foreign taxation

1.6 Impact of tax treaties

2 Determining the applicable private-law provisions and their significance in tax assessment

2.1 Basis of the obligation to provide clarifications in taxation

2.2 Impact of foreign private law on tax assessment

2.3 Determining the applicable legislation and its contents

3 Typical issues related to the choice of private law in family property law

3.1 Principles and agreements concerning the conflict of laws in private law

3.2 Legislation applicable to the dissolution of matrimonial property regime

3.3 Dissolution of matrimonial property regime under foreign law

3.4 Establishing the law applicable to succession

3.4.1 Impact of the EU Succession Regulation on conflict of laws

3.4.2 Application of foreign property legislation

3.4.3 Nordic Convention on Inheritance

3.4.4 Designating the law applicable to succession by a will or other disposition of property upon death

3.4.5 Surviving spouse’s possession right to a residential property in Finland

3.5 Provisions applicable to life insurance policies

3.6 Law applicable to donations and gift-like sales

4 Taxation of death estates in cross-border situations

4.1 Taxation of estates under Finnish national regulations

4.2 Impact of international regulation on Finland’s taxing rights

4.3 A foreign death estate or inheritors as taxpayers in income taxation

4.4 Foreign estate in income taxation

4.4.1 Definition of a foreign estate

4.4.2 Winding up a foreign estate

4.4.3 Taxation of a foreign estate as a corporate entity

4.4.4 Tax liability of a foreign estate in Finland

4.4.5 Sale of immovable property or apartment in a housing company

4.4.6 Other general taxable income

5 Trusts for managing family assets

5.1 Structure, parties and activities of a trust

5.2 Trusts from the perspective of Finnish tax legislation

5.3 Discretionary trust

5.4 Trusts established through a will and payments taxable as estate acquisitions

5.5 Fixed trust

5.6 Trust receives income from Finland

5.7 Trust as a controlled foreign company

5.8 Tax avoidance and ignoring a trust