Rules on transfer tax for housing-company shares
- Date of issue
- In force until further notice
The rules governing transfer tax were changed 1 March 2013 affecting the sales and other conveyances of shares in housing companies, mutual real estate companies and other similar companies. In this you will find the facts on the current rules. For more information, refer to the Finnish or Swedish pages of our website.
Dates of implementation
The legal amendment to the Act governing this tax called Varainsiirtoverolaki; Lagen om överlåtelseskatt has been in force since 1 January 2013. However, the first date when new computation rules are used is 1 March 2013; therefore the sales and other contracts on transfer of ownership dated on that date or later are taxed with the new rates. The date regarded as the date of transfer is the date when the contract is signed.
Transfer-tax rate was raised
Whereas the rate of transfer tax for shares in housing companies, mutual real estate companies and other similar companies was 1.6% previously, it is currently 2.0%. However, the 1.6-percent rate continues to be in force as the transfer tax on transactions with corporate stock of business companies.
The base now includes debt belonging to the company
The base of transfer tax consists of the selling price plus a portion of debt, reflecting the liabilities or debts of the company that owns the entire building (typically a housing company – asunto-osakeyhtiö in Finnish; bostadsaktiebolag in Swedish). The portion of debt means a share-specific portion that has been accounted for as a coverage requirement for the debts of the entire building. Shareholders of the housing company must cover such debts as provided in the Articles of Association of the company or as agreed in its Annual General Meeting.
Conveyances of newly finished residential units, contract signed before completion
When new apartments are sold when construction is still ongoing, the buyer must pay transfer tax not only on the purchase price but also on the appropriate portion of housing-company debt reflecting the situation when construction is finished. In practice, the base of transfer tax is the total debt-free value shown in the contract of sale. As required by law, the contract must include information on the debt-free value if it is different from the selling price. It is further required that advertising within the housing business must show consumers both the selling price net-of-debt, and also the price with debt.
In exceptional situations where it has been agreed that ownership is transferred before the building is completed, the exact tax base must include a portion that reflects the amount of company debt valid on the date of transfer of ownership.
Conveyances of newly finished residential units, contract signed after completion
When selling shares entitling their holder to possess either a newly finished or a used apartment, the base of transfer tax must include the debt portion specific for these shares, valid at contract date. When the housing company has taken loans during the period of construction they must be included in the computation even if the administration of the housing company has yet to formulate the rules on how its shareholders should repay the loans.
If the housing company has other loans than those discussed above (to finance renovation etc.) you must find out whether the administration of the housing company has issued a calculation and agreed on the share-specific portions of these loans, and whether the shareholders have been given instructions as to how to pay off their portions. This means that if the administration has made such an agreement, transfer tax must be paid on the debt portion. It also means that no importance should be attached to whether the agreed repayment date for a share-specific portion is a later date than the date of the contract of sale.
However, in situations where the administration of the housing company has not given any details on the share-specific portions or not given the shareholders any instructions as to how to pay off their portions, transfer tax does not have to be paid on the debt portion.
Example 1: The administration agrees to perform major plumbing repairs that must be financed with borrowed capital. However, the administration waits until the repairs are done and does not issue a calculation on the share-specific portions or instructions to shareholders as to how to pay off their portions of the money borrowed for the plumbing repairs of the entire building.
One of the apartments in this building is sold to a new owner. Under the circumstances, the transfer tax base does not include a portion of housing-company debt, because the administration has not issued a calculation on share-specific portions of it (or issued instructions for paying it off).
Example 2: The housing company decided in its Annual General Meeting of 1 April 2013 to perform major plumbing repairs and to take a bank loan to finance them. Then another General Meeting is convened on 30 October 2013 where the housing company agrees to collect a monthly charge for repaying the bank loan, start date 1 January 2014. The October meeting also sets out the exact share-specific portions and and agreement is reached that each shareholder will have time up to 1 January 2014 to pay them off.
- One of the apartments in this building is sold to a new owner on 2 May 2013. Under the circumstances, the transfer tax base does not include a portion of housing-company debt, because the administration has not issued a calculation on share-specific portions of it (or issued instructions for paying it off).
- Another apartment is sold to a new owner on 3 December 2013. Under the circumstances, the transfer tax base must include a portion of housing-company debt, because the administration has already issued a calculation on share-specific portions of it and instructions for paying them off. It must also be noted that no importance must be attached to the fact that the deadline date for the period when the shareholders still can pay off their debt is a later date than the contract date.
Example 3: Another housing company decided 1 April 2013 to have a major window renovation project and to finance it with a bank loan. The Articles of Association of this company has a provision saying that the only monthly charge to be collected is a general-maintenance charge and the shareholders do not have an opportunity to pay off their portions of any housing-company debt individually. The company has never let its shareholders pay off such portions.
Conclusion: If any of the apartments in this building is ever sold to a new owner the transfer tax on such transactions does not have to include a portion of housing-company debt in its base because the shareholders do not have the right to pay it off.
To clarify the amounts involved it is very important to have a certificate from the administration of the housing company (known as the superintendent's certificate), because the current loans and the share-specific portions of them are printed on it. This document should be available when a purchase is made.
The required information in this certificate is defined in Government Ordinance no 365/2010, and an updated list of the loans that shareholders are entitled to repay is included in the requirements. Therefore, for practical purposes the base of transfer tax is the selling price plus the portion of housing-company debt as written on the superintendent's certificate.
Questions of liability to pay transfer tax
The recent amendment of the Act governing transfer tax has not changed the rules on which party is responsible for payment. The amendment gives great importance to the information written on the superintendent's certificate in connection with sales of apartments in older buildings especially because the base of transfer tax is affected by what is written on the superintendent's certificate.
The party responsible for payment continues to be the buyer i.e. the beneficiary of the conveyance. If the administration of the housing company has recorded the transfer of ownership in its List of Shareholders but neglected to verify the payment of transfer tax, the housing company will carry responsibility for the payment of the correct amount of transfer tax.
If the sale was made with the assistance of an estate agent, he or she will carry responsibility for the payment of the correct amount of transfer tax, the only exception being newly built apartments.
If shares have changed hands and the administration of the housing company has entered the new owner in its List of Shareholders but a part of the required transfer tax is unpaid because of an incorrect debt amount having been written on the superintendent's certificate, the housing company has responsibility for the payment of the correct amount of transfer tax, jointly with the buyer and the estate agent.
Due dates for payment
The amendment of the Act governing transfer tax has introduced a new start date – the date of transfer of ownership – for the two-month period of payment, for all conveyances that fall into the scope of those referred to in Chapter 4 § 1 of Housing Transactions Act.
Reselling a newly finished apartment
Buyers of shares in housing companies may resell them, and this can happen at an early stage even before the building is complete and before the first transfer of ownership has taken place. Then the reseller is actually selling his or her rights, and the contract should be regarded as a transfer-of-rights contract (siirtosopimus in Finnish; överföringsavtal in Swedish).
The transfer tax on the first conveyance must be computed using the original contract amount as the base (and including any unpaid installments in it). The base does not include housing-company debt.
The transfer tax on the second conveyance, the transfer of rights, must be computed using the amount paid to the first buyer as the base, adding any unpaid installments to it, and also adding the share-specific portion of the debt of the housing company to it.
Example: The first buyer A signs a contract to buy a newly built apartment from a building company. Contract price is €100,000 and the shares are burdened by a €200,000-debt portion. The contract sets out its payment terms as €50,000 down and two further installments €25,000 + €25,000 to be paid later.
Then A makes a resale agreement with B, who agrees to pay him €60,000. The unpaid installments €25,000 + €25,000 are still unpaid.
Conclusions: The transfer tax base for A consists of the price he paid in the first place or €100,000 (taking account of the two unpaid installments €25,000 + €25,000).
The transfer tax base for B consists of the price he paid to A, €60,000 and the unpaid installments €25,000 + €25,000 and the debt portion €200,000 or €310,000 in total.
The first buyer A must pay his own transfer tax in two months after the date of the resale agreement.
The next buyer B must pay his own transfer tax in two months after the date of transfer of ownership.
When housing-company shares are exchanged, there are two separate transfers, and both transferees should pay the tax relating to the received acquisition. As required by the new rules, any housing-company debt must be included in the bases.
Example: Mrs. A hands over a set of housing-company shares valued at €100,000 and not burdened by any housing-company debt.
In exchange, Ms. B gives her a set of housing-company shares valued at €150,000 without their specific debt portion amounting to €50,000.
Conclusion: Mrs. A must pay transfer tax on a base consisting of €100,000 + €50,000. Her total base equals €150,000.
Ms. B must pay transfer tax on a base consisting of €100,000 (€150,000 minus €50,000).