Resident and nonresident tax liability of corporate entities

This is an unofficial translation. The official instruction is drafted in Finnish and Swedish languages: VH/2026/00.01.00/2025.

This detailed guide discusses tax residency and tax nonresidency in connection with corporate income taxation. Focus is placed on the taxpayer status of foreign corporate entities and on the concept of the place of effective management.

An update to the guide’s section 5.2.3 was made 3 September 2025 to reflect the entry into force of an exceptional provision for the 2024–2025 tax years applicable to certain investment funds. Other updates include several passages and phrases that have been edited with the aim to improve clarity.

The guidance only covers the issue of taxpayer status from the perspective of corporate entities. For information and guidance on the status of individuals, see Resident and non-resident tax liability and domicile according to tax treaty – natural persons.

1 Introduction

Under § 9, subsection 1 of the Income Tax Act (tuloverolaki), taxpayers’ obligation to pay taxes may be either a general liability to tax (for resident taxpayers) or a limited liability to tax (for nonresident taxpayers). Corporate entities’ tax residency statuses have an impact on how Finland can levy taxes on the income that each entity receives.

In accordance with § 9, subsection 1, paragraph 1 of the Income Tax Act, the following are resident corporate entities: domestic corporate entities, and corporate entities founded or registered in other countries that have their place of effective management (POEM) in Finland. If the status of a corporate entity is “resident” i.e. having a general liability to tax, that entity must pay tax to Finland on income received from Finland and elsewhere. In other words, a resident taxpayer has tax liability to Finland on the resident’s worldwide income.

In accordance with § 9, subsection 1, paragraph 2 of the Income Tax Act, other foreign corporate entities than those enumerated in the provision’s of paragraph 1 are nonresident entities. This means those corporate entities that do not have their place of effective management in Finland. If the corporate entity’s status is “nonresident” i.e. having a limited liability to tax, it must pay tax to Finland on the income it receives from sources in Finland. § 10 of the Income Tax Act contains a list of the types of income that are regarded as sourced to Finland.

In accordance with § 9, subsection 3 of the Income Tax Act, if nonresident entities operate their trade or business through a permanent establishment (PE) in Finland, they must pay tax in Finland on all the income attributable to that permanent establishment. Therefore, the income attributable to a permanent establishment belonging to a nonresident corporate entity may include items of income sourced to countries other than Finland.

Finland has signed tax treaties with more than 70 countries. Under those of the treaties that concern income taxes, the countries have agreed on the sharing of the rights of taxation, and on the elimination of double taxation, when a person resident in one contracting state receives income from the other contracting state. The tax treaties that Finland has signed may restrict Finland’s taxing rights that would otherwise be applicable under Finland’s national legislation. However, the treaty provisions do not cause a change to the tax residency status determined in accordance with § 9, subsection 1 of the Income Tax Act. Nevertheless, it is possible that a corporate entity has fiscal residence in two or more than two countries. When a taxpayer is a resident of two different countries at the same time, it is often called “dual residency”. The treaties contain agreements between the contracting states as to how the problem should be resolved. Finland’s tax treaties are mainly based on the Model Tax Convention of the Organisation for Economic Co-operation and Development, OECD. For a list of the tax treaties that Finland has signed, visit our tax.fi website.

2 The “corporate entity” concept

Under § 3 of the Income Tax Act, “corporate entity” refers to:

The State of Finland and an institution belonging to the State;
Wellbeing services counties and joint county authorities for wellbeing services;
Municipalities and joint municipal authorities;
Church parishes and other religious communities;
Limited liability companies, cooperative societies, savings banks, investment funds, special investment funds, universities, mutual insurance companies, community grain-bank organisations, ideological or economic associations, and foundations and institutions;
Foreign estates of deceased persons, and
Other legal persons comparable to above, or other sets of assets that have been dedicated for a special purpose.

As provided in § 8a of the Act on income taxation, the Act’s provisions that concern Finnish limited liability companies are applied, by extension, to European Companies (SE). Likewise, the provisions on Finnish cooperative societies apply on European cooperative societies (SCE). From this, it follows that both SE’s and SCE’s are regarded as corporate entities in Finland.

A body incorporated in accordance with foreign legislation is regarded as a corporate entity for purposes of Finnish tax assessment when that body is deemed to be comparable with any of the corporate entities listed in § 3, paragraphs 1 to 7 of the Income Tax Act. When determining whether a particular legal person – or a set of assets – registered or established in another country would be comparable with corporate entities listed in § 3 of the Income Tax Act, the primary focus is on whether the foreign entity’s position from a civil-law perspective is similar to that of a Finnish entity.

For example, foreign companies generally deemed equal to Finnish limited liability companies, such as Swedish aktiebolag (AB) and the Estonian osaühing (Oü), are regarded as corporate entities. In contrast, foreign legal persons comparable to Finnish business partnerships referred to in § 4, subsection 1, paragraph 1 of the Income Tax Act, are not deemed to be corporate entities. Examples of business partnerships in Finland include limited partnership (kommandiittiyhtiö), and general partnership (avoin yhtiö).

In most cases, foreign investment funds are comparable to the Finnish limited liability company, investment fund, or business partnership. If a foreign fund is comparable to the Finnish limited liability company, investment fund or alternative investment fund, as referred to in § 3, paragraph 4 of the Income Tax Act, that foreign fund is regarded as a corporate entity for tax purposes in Finland. If, on the other hand, the fund is comparable to a partnership referred to in § 4 of the Income Tax Act, it is not deemed to be a corporate entity.

The characteristics of a foreign-registered entity from a legal point of view are typically defined by the legislation in force in the country concerned. Because there are many differences in national provisions of law among the countries of the world, some countries have legal entity forms available that are completely unknown under Finnish law. The legal entity form called ‘trust’ is a good example. However, if a trust is found comparable to any of the corporate entities listed in § 3, paragraphs 1 to 7 of the Income Tax Act, that trust will be a corporate entity for tax purposes in Finland. The question of whether a foreign trust is comparable to Finnish corporate entities must always be assessed on a case-by-case basis.

3 The nonresidency status of corporate entities

3.1 Nonresidency, as defined by the provisions of the Income Tax Act

In accordance with § 9, subsection 1, paragraph 2, of the Income Tax Act, nonresident corporate entities are those that were incorporated in other countries and have their place of effective management elsewhere, not in Finland, so they cannot be treated as Finnish resident entities.

No domestic corporate entity can be a nonresident. What is meant by “domestic corporate entity” is an entity incorporated or registered in accordance with Finnish legislation, as provided in § 9, subsection 7 of the Income Tax Act.

3.2 Income received from sources in Finland

Under the provisions of § 9, subsection 1, paragraph 2 of the Income Tax Act nonresident corporate entities are only liable to pay taxes on their income received from sources in Finland. A list of income items sourced to Finland is in § 10 of the Act. Examples include revenues from real property located in Finland, profits from a business enterprise run in Finland, dividends received from a Finnish limited liability company, and receipts of profit-shares from a Finnish investment fund. The list in § 10 is not an exhaustive list; still, it has been regarded as exhaustive with respect to the types of income listed.

However, under § 9, subsection 2 of the Income Tax Act, a nonresident is not liable to pay tax on interest received from a source within Finland if the underlying debt is part of accounts receivable (relating to commercial operations between Finland and other countries), a balance of a bank account or other account in a financial institution, a State obligation, a bond, debenture, other debt instrument issued to the public — or if the underlying debt has been received from a foreign country in such a way that it cannot be regarded as an investment in the equity of the borrower corporation. By virtue of this provision of the Act, nonresident taxpayers do not normally pay income tax to Finland on interest income received from Finland.

The tax treaties signed by Finland may contain provisions that restrict Finland’s taxing rights with respect to the income received from Finland by a nonresident corporate entity.

For more information, see the Tax Administration’s detailed guidance Income taxation of nonresident foreign corporate entities − Income from business and other items of income sourced to Finland.

3.3 The income that a permanent establishment receives

If a nonresident foreign entity has a permanent establishment (PE) in Finland for the conduct of its business, the foreign entity must pay income tax on all the income attributed to this PE, notwithstanding the provisions of § 9.1.2 and § 9.2 of the Income Tax Act (see § 9, subsection 3 of the Income Tax Act). As a result, the nonresident foreign entity must pay tax on all the income attributable to the PE, regardless of whether the source of that income is in Finland or any other country.

Pursuant to § 13a of the Income Tax Act, “permanent establishment” is a place where a specific place of business is located for the continuous pursuit of a business, or where special arrangements have been made, such as a place where a business's management, branch, office, factory, workshop or shop or some other fixed place for the sale or purchase of merchandise is located.

Under § 13a of the Income Tax Act, a mine or any other deposit, quarry, peat bog, gravel deposit or other comparable place of extraction or, in the case of sales via business activities on property divided up or intended for subdivision, such property, and in the case of building contracts such a place, where the related contracting is practised to a considerable extent, and in the exercise of a scheduled traffic service, the maintenance place of the business, or some other, specific, permanent place of business serving traffic is also regarded as a permanent establishment.

The tax treaties signed by Finland contain a separate definition of permanent establishment. All Finland’s tax treaties allocate the taxing rights over income attributable to a PE to the contracting state of a PE’s location. If a tax treaty exists between Finland and the entity’s country of incorporation or registration, and the entity has a PE in Finland, the tax treaty does not prevent Finland from taxing the income of the PE.

3.4 The tax-assessment process in the case of a nonresident corporate entity

If a nonresident corporate entity has a PE in Finland for engaging in business activities, the entity must pay tax on all income attributable to the PE. The assessment of taxes is carried out in accordance with the provisions of the Act on Assessment Procedure (laki verotusmenettelystä). Accordingly, the entity is required to submit a tax return on PE’s taxable income.

The arm’s length principle must be adhered to when attributing profits to a PE. For more detailed information on how income should be attributed to a PE, see the detailed guidance General guidelines for the attribution of income to permanent establishment.

If a nonresident corporate entity receives income from real estate or from a housing-company apartment in Finland, and Finland has the right to tax such income under the relevant tax-treaty provisions, the entity must submit a tax return reporting the income and the related expenses. The same applies to income that a nonresident taxpayer receives from transfer of a real estate unit referred to in § 10, paragraph 10 of the Income Tax Act, or from indirect transfer of a real estate unit or an apartment in a housing company referred to in § 10, paragraph 10a of the Act. In these cases, taxes will be assessed in accordance with the Act on Assessment Procedure. If the income and expenses relating to real estate or a housing-company apartment are attributable to the foreign entity’s PE in Finland, they should be reported in the PE’s tax return.

If a nonresident corporate entity receives income consisting of dividends, interest or royalties, taxation is carried out in the form of taxation at source, unless the dividends, interest or royalties are attributable to the entity’s PE in Finland. The payer of dividends, interest and royalties must withhold tax at source, which is a final tax, the amount of which is determined by the provisions of domestic law or alternatively by tax-treaty provisions. For more information, see Payments of dividends, interest and royalties to nonresidents.

4 The general liability to tax, i.e. residency of corporate entities

4.1 General liability to tax, or residence, as defined by the provisions of the Income Tax Act

The following are resident corporate entities: domestic corporate entities, and corporate entities set up or registered in other countries that have their place of effective management in Finland (§ 9, subsection 1, paragraph 1 of the Income Tax Act).

“Domestic corporate entity” is an entity incorporated or registered in accordance with Finnish legislation (§ 9, subsection 7 of the Income Tax Act). Corporate entities that are incorporated under Finnish law, for example limited liability companies that are founded in accordance with the Companies Act (osakeyhtiölaki), are therefore always resident taxpayers. European Companies (SE) and European cooperative societies (SCE) are resident taxpayer entities in Finland if their registered office is in Finland.

Foreign corporate entities can be resident taxpayers only if the entity’s place of effective management is in Finland. A corporate entity’s place of effective management is the place where the corporate entity's Board of Directors or other decision-making body makes top-level decisions on daily management. However, when the location of a company’s POEM is determined, other circumstances relevant to the company’s organisation and business are also taken into account. (§ 9, subsection 8 of the Income Tax Act.)

4.2 The tax-assessment process for a resident corporate entity

Resident taxpayer entities are liable to tax on both income sourced to Finland and income sourced to other countries (§ 9.1.1 of the Income Tax Act). In other words, the resident entity must pay tax on all its income, regardless of whether the source is in Finland or any other country.

The tax assessment of a resident corporate entity is carried out in accordance with the Act on Assessment Procedure. Resident entities must submit a tax return reporting all their income. The taxpayer may deduct, against the taxable revenues for the tax year, any deductible expenses that support said revenues. Under § 9, subsection 9 of the Income Tax Act, the provisions of Finnish income tax legislation that apply to Finnish corporate entities or domestic corporate entities shall also apply to foreign entities referred to in § 9, subsection 1, paragraph 1 and § 9, subsection 8 of the Income Tax Act.

The tax assessment of a foreign corporate entity regarded as a Finnish resident is conducted according to identical tax rules – emanating from Finnish income tax legislation – as in the case of domestic entities. This means that the same rules that control sources of income, taxability of income, and deductibility of expenses are applied. Likewise, the same rules on registration in the Prepayment Register and other registers maintained by the Tax Administration are applied to domestic corporate entities and to foreign corporate entities that are resident taxpayers. Read more on registration in the Finnish Tax Administration’s guidance Starting up business in Finland.

Some corporate entities enjoy a full exemption from income taxes in accordance with § 20 of the Income Tax Act. Under § 20a of the Act, and subject to certain restrictions, exemptions are also granted to investment funds within the meaning of the Act on Common Funds (sijoitusrahastolaki), special funds within the meaning of the Act on Alternative Fund Managers (laki vaihtoehtorahastojen hoitajista), and to comparable foreign funds. Entities within the meaning of §§ 21, 21 a, 21 b, 21 c and 22 of the Income Tax Act are partially exempted from income taxes. If a foreign corporate entity is treated as a resident taxpayer in Finland by virtue of its POEM, it may be necessary to assess whether the foreign corporate entity is comparable to a Finnish entity that enjoys full or partial exemption from income taxes.

More information on the requirements for tax exemption for domestic and foreign funds is available in the Finnish Tax Administration’s guidance On the taxation of investment funds and the provisions of section 20a of the Income Tax Act. For more information on the tax treatment of nonprofit organisations, see “Tax guide for non-profit organisations” – Verotusohje yleishyödyllisille yhteisöille (in Finnish and Swedish).

4.3 Payments made by a foreign corporate entity treated as being a Finnish resident

According to § 9, subsection 9 of the Income Tax Act, the provisions of Finnish income tax legislation that apply to Finnish or domestic corporate entities also apply to foreign corporate entities that are resident taxpayers. Under § 10 of the Act, the source country of dividend or royalty income is Finland if the payer is a Finnish corporate entity. If the income consists of received interest, and the debtor paying the interest is a Finnish corporate entity, the source country of the income is Finland. Therefore, when foreign corporate entities having their POEM in Finland are paying out dividends, interests and royalties to a nonresident beneficiary, these items of income are from a Finnish source under the provisions of § 9, subsection 9 and § 10 of the Income Tax Act.

In addition, other payments made by a foreign corporate entity regarded as a Finnish tax resident are considered Finnish-sourced income for the recipient if they would be deemed as income received from Finland when paid by a domestic entity. For example, if a foreign investment fund considered a resident taxpayer pays out profit-shares, the receipts of income are treated as coming from a Finnish source, based on § 10, paragraph 9 of the Income Tax Act. In accordance with the transition rule (laki tuloverolain muuttamisesta, 1188/2020) that controls the application of § 9, subsection 8 of the Act, and in accordance with § 9a of the Act, the provisions are not applied in tax years 2021—2025 on investment funds established or registered in a country belonging to the European Economic Area.

If a foreign corporate entity is a resident taxpayer in Finland, it is treated the same as a domestic corporate entity when the Income Tax Act is applied. For this reason, the distribution of dividends by the foreign corporate entity to Finnish-resident individuals is subjected to the provisions of § 33a and § 33b of the Act. When calculations for corporate net worth and for the mathematical value of a share are made, the provisions of the Finnish Act on the Valuation of Assets in Taxation (laki varojen arvostamisesta verotuksessa) is applied.

If the foreign corporate entity that is a resident taxpayer distributes dividends, it is treated as a domestic entity within the meaning of § 6a, subsection 1 of the Act on the Taxation of Business Income (laki elinkeinotulon verottamisesta). If the beneficiary of dividends is another resident corporate entity or a Finnish-located PE of a nonresident corporate entity, the provisions of § 6a of the Act on the Taxation of Business Income will be applied in the taxation of the dividend income. Taxation on dividend income is discussed in more detail in the Tax Administration’s guidance “Taxes on receipts of dividends” — Osinkotulojen verotus. (in Finnish and Swedish).

If a foreign corporate entity that is a resident taxpayer pays out dividends, interest or royalties and the recipient is a nonresident individual taxpayer or a nonresident corporate entity, the payer entity must withhold tax at source upon payment. The amount to be withheld is controlled by the provisions of the Act on the Taxation of Nonresidents' Income (laki rajoitetusti verovelvollisen tulon verottamisesta), and additionally, by the provisions of the applicable tax treaty, as the case may be. One of the factors that affects the way tax is withheld and how much should be withheld on the dividends, royalties or interest is whether Finland is the corporate entity’s country of residence also for treaty purposes (for more information, see section 7 of this guide). Additionally, restrictions on how much should be withheld at source may be imposed by the Interest and Royalties Directive (2003/49/EC) or the Parent-Subsidiary Directive (2011/96/EU). For more information, see Payments of dividends, interest and royalties to nonresidents.

When a payment made by a resident entity is regarded, in the recipient’s taxation, as income sourced to Finland, the provisions of the tax treaty between Finland and the recipient’s country of residence shall apply.

4.4 Being an employer

Under § 10, paragraph 4 of the Income Tax Act, income sourced to Finland includes wage income (other than the wage referred to in paragraph 3) if the work, task or service is solely or mainly carried out in Finland in the name of an employer or principal based in Finland. The term "employer based in Finland” includes foreign corporate entities that are resident taxpayers by virtue of their POEM. Accordingly, when a nonresident individual has worked for a resident corporate entity, and the work was done in Finland, or mainly in Finland, the wages received by the employee are sourced to Finland.

Moreover, foreign corporate entities that are resident taxpayers in Finland can generally be treated as Finnish employers when Article 15 of tax treaties is applied.

Since the foreign corporate entity that is a resident taxpayer is deemed to be a domestic, Finnish employer, the information-reporting requirement set out by § 15a of the Act on Assessment Procedure does not concern the entity. Instead, by virtue of being a “Finnish” employer, the entity has the same information-reporting requirements as other Finnish employers have.

4.5 Setting up accounting in a Finnish-resident corporate entity

In accordance with chapter 1, § 1b, subsection 1 of the Accounting Act (kirjanpitolaki), foreign legal persons that have their place of effective management in Finland are required to keep accounting records for the business or trade they operate. In accordance with subsection 2, accounting under Finnish law must be set up not only by foreign legal persons but also death estates, investment funds and special investment funds, trusts and comparable legal entities and other foreign sets of assets that have been dedicated for a special purpose.

These financial statements must be delivered to the Tax Administration as an enclosed document with the income tax return. In accordance with chapter 1, § 1b, subsection 6 of the Accounting Act, the party is also under obligation, if the Tax Administration has requested it, to deliver any further information that the Tax Administration may need in order to carry out its tasks as required by law. Whenever an item of information is not available in Finnish or Swedish, the Tax Administration can request translation and the information must then be translated into Finnish or Swedish before delivery.

The reference in chapter 3 of the Accounting Act to “financial statements” means annual financial statements that have been prepared as provided in the Directive 2013/34/EU on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings. This means that it is sufficient if the foreign company’s financial statements comply with the legal provisions in force in a country of the European Economic Area. In the same way, if the company’s financial statements comply with the International financial reporting standards (IFRS), they are “financial statements” within the meaning of the Accounting Act. In addition to the above, the following are deemed as “financial statements” within the meaning of the Accounting Act: financial statements drawn up as is customary in the United Kingdom, financial statements that comply with the Generally accepted accounting principles of the United States of America (US GAAP), and financial statements drawn up as is customary in Japan (Japan GAAP). (Government Proposal no 221/2021, page 10.)

If a foreign legal person having its POEM in Finland has prepared its financial statements in accordance with any of the norms listed above, the legal person is not required to prepare an additional set of financial statements to accommodate Finnish rules.

In accordance with chapter 1, § 1b, subsection 3 of the Accounting Act, “financial statements within the meaning of the Accounting Act” can also mean a foreign set of financial statements not based on any of the norms listed above, but still giving a true and fair view, therefore meeting the requirements of the norms. To support the conclusion on giving a true and fair view, it is possible for a foreign legal person or for a foreign public authority to turn to the Accounting Standards Board and ask for a statement of opinion on the matter.

If a legal person from a country outside of the European Economic Area has not drawn up financial statements, or if its set of financial statements fails to meet the requirements as provided in chapter 1, § 1b, subsection 3 of the Accounting Act, the legal person must prepare a specific set of financial statements, for the trade or business it has operated in Finland, adhering to the rules found in chapter 3 of the Accounting Act.

5 Place of effective management, POEM

5.1 Assessing the location of POEM

5.1.1 To make decisions relating to the corporate entity’s top-level management

Under the provisions of § 9, subsection 8 of the Income Tax Act, a corporate entity’s place of effective management is considered to be in Finland if its Board of Directors or other body making top-level decisions on day-to-day management is located in Finland. However, when assessing the location of POEM, other circumstances relevant to the company’s organisation and business operations are also taken into account.

The basic principle is that all corporate entities must have a place of effective management somewhere. To determine where, it means that the entire perspective of facts and circumstances must be looked into. Minutes from meetings of the board or other decision-making bodies of the entity, along with other relevant documentation, may be taken into account when evaluating the location of POEM.

By nature, the place of effective management must be an adequately stable location. Accordingly, even if the management actions were to concern the entire top-level direction of the company but this has only occurred temporarily, it would not give rise to the location of the place of effective management having been situated in Finland. As a result, if top-level decisions on daily management are made in Finland on a temporary basis – because of the restrictions on international travel due to the coronavirus pandemic, for example – this would not give rise to POEM being in Finland.

5.1.2 Impact of the corporate statutes and the legal norms of the country of incorporation

Management structures are bound to have varying characteristics, depending on the country where the foreign corporate entity was set up and registered, and depending on its legal-entity type. The provisions of local legal norms and the corporate entity’s own statutes generally indicate who is in charge of managing the company. As a result, the legislation of the country where the entity was established and incorporated, and the entity's corporate statutes, need to be taken into account when assessing the location of POEM. For some companies, the Articles or statutes do not specify who makes the decisions at the highest level of daily management, nor where such decisions are made. In these circumstances, it is necessary to rely on the provisions of local corporate law.

Generally, any corporate entity’s administrative and operational management falls under the Board of Directors’ responsibilities. Consequently, this responsibility and powers are used by the Board or other body during board meetings. However, there are countries where domestic law provides that, for example, corporate shareholders have responsibility for how management is run.

5.1.3 Location of the top decision-making body

When assessing the location of a corporate entity's POEM, key importance is attached - under § 9, subsection 8 of the Income Tax Act - to the location where the Board of Directors (or other top-level body) makes decisions. However, if the board meetings where top-level decisions are made rely on video conferencing or other online technology, POEM assessment must focus on the geographical location where the participants have joined the meeting. If the management structure is spread out over several countries, so that board members, the head office, and the executive managers work in a number of different states, primary significance is given to the place where the company’s board meetings are held. To take account of the countries of residence of the individual members of the Board of Directors (or other organ of governance) is not relevant (pages 48 and 49 of the Government Proposal no 136/2020, hereinafter “Government Proposal”).

Accordingly, if the entity’s board meetings are held in Finland or if the entity’s board members join the meetings over a remote connection from locations in Finland, this is generally treated as a strong indicator that the top-level management’s decision-making takes place here. Under the circumstances, the entity’s POEM would be deemed to be situated in Finland. However, it would still be required that the Board of Directors (or other organ of governance) has the powers, which it exclusively or primarily uses during the meetings, and these powers would have to be related to the corporate entity’s central issues on which decisions must be made by the management, when all the facts and circumstances of the entity’s operation are considered (pages 47 and 48 of the Government Proposal).

Illustration 1:

The Swedish-registered X AB is a company operating in the construction industry in Sweden and in Finland. The entire stock of X AB is held by shareholder “A” an individual, resident of Finland. In addition to “A”, also “B”, his wife, is a board member. In addition, “A” is in charge of X AB’s daily management, also from the family home. X AB’s place of effective management is in Finland.

If the circumstances point to a conclusion that the Board of Directors’ meetings are held at a certain location only as a formality, and the actual location where decisions are made is elsewhere, relating to the entity’s top-level daily management – the actual location, not the formal location, will take precedence (page 48 of the Government Proposal).

In the same way, the location where meetings are held is irrelevant if the board members only follow the instructions they get from a third party. Accordingly, the decisive factor is not who prepares, presents or executes the matter at hand, but rather who makes the final decision. When taking account of the entire perspective of the company’s circumstances, attention must be given not only to the regular meetings but also to the events that occur in between. (page 48 of the Government Proposal.)

Illustration 2:

The company called C Oü is registered in Estonia, and the sole owner of its corporate stock is “X”, an individual resident of Finland. The Board of Directors consists of two individual members “M” and “N” who are Estonian residents and who customarily hold the board meetings in Estonia. When the way C Oü makes its corporate decisions is looked into, it turns out that during board meetings, both “M” and “N” act exactly as “X” instructs them. It becomes evident that “X” sends e-mailed instructions from Finland to “M” and “N” to give them orders on what to do at the meetings. In addition, “X” has responsibility for C Oü’s daily management. Because the individual who decides on daily business management is “X”, the conclusion is that C Oü’s place of effective management is in Finland.

In many countries, it is typical that corporate entities have an administrative council that exercises control, on shareholders’ behalf, over the Board of Directors. The Board, in turn, is responsible for the management of the business. The role of the above “council” (or other organ) is not important, nor is the place where the council makes its decisions, when assessing the location of POEM (page 49 of the Government Proposal).

5.1.4 Other circumstances having a bearing on corporate organisation and the conduct of business

Under the provisions of § 9, subsection 8 of the Income Tax Act, “other” circumstances must also be accounted for when assessing the location of POEM. Examples of the “other” circumstances cited in the Government Proposal are head office’s location or the location where corporate executive managers work. In general, the head office is a physical site, i.e. the building where the central administration, etc. is located (page 47 of the Government Proposal). Likewise, a corporate entity’s executive managers are the Managing Director or other similar directors, and their direct subordinates, whose work is closely related to top corporate management. (page 24 of the Government Proposal.)

For example, if the meetings are held in several different countries or if those who join them over a remote connection do so from several different countries, the place where the head office is situated, and the place where the executive managers work must be taken into account when assessing the location of POEM. Key importance is attached to the geographical location of the corporate entity’s organisational and economic centre (page 48 of the Government Proposal).

Illustration 3:

X AS is a company established in Norway, having a Norwegian trade registration. The company has its head office in Norway. The Managing Director works there, together with other executives. The Board of Directors consists of 6 members. For its meetings, it is customary that the Board rotates between Norway, Sweden and Finland. The Board of Directors makes decisions and agreements having to do with X AS’s top-level management of operations. Based on where the head office is and based on where the executive management works, X AS’s POEM is in Norway.

Merely the entity’s accounting or auditing function being carried out in Finland cannot give rise to the POEM being in Finland. In the same way, having a bank account in a certain country, or the handling of various routine tasks, cash management, pay-clerk functions, etc., does not give rise to the POEM being in the country where these tasks are handled (page 49 of the Government Proposal). For example, if the corporate function simply consists of deliveries of official documents to public authorities, it does not give rise to the POEM being located in Finland.

Even if the corporate entity’s annual general meetings (or similar meetings) were always held in a certain country, it would not mean that the place of effective management is located there. This way, when assessing the location of POEM, no decisive role is given to whether the annual general meeting and the shareholding-based presence and voting take place at a certain location. Nevertheless, if the shareholder actually makes the top-level decisions in the corporate entity, the place where the decisions are made can be taken into account when assessing the location of POEM (page 49 of the Government Proposal).

Illustration 4:

Mrs “A”, a Finnish resident individual, is the sole owner of C GmbH’s corporate stock. This company is registered in Germany. Besides Mrs “A”, there are four other members of the Board of Directors in C GmbH. These board members are from Germany. The place where board meetings are held is Germany. Accordingly, Mrs “A” travels to Germany whenever a board meeting is held. When C GmbH has a board meeting, the Board of Directors makes decisions and agreements having to do with high-level management of operations. The head office of C GmbH is also located in Germany. The company’s Managing Director and other executive directors work in the head office. Mrs “A” makes the shareholders’ decisions, normally deliberated by the company’s annual general meeting, at her home in Finland. The place of effective management of C GmbH is Germany.

5.2 Special circumstances relating to the place of effective management

5.2.1 Member companies of a multinational enterprise group (MNE)

A foreign entity subject to the determination of POEM may be part of an MNE group. The MNE group’s parent company can be in Finland or elsewhere. It may be difficult to tell whether the parent company’s activities are simply the typical activity of a shareholder – or whether the parent company manages and controls its subsidiary. This is because parent companies are generally expected to oversee subsidiary operations to some extent, for example through reporting.

When assessing the location of POEM, the focus is on each specific corporate entity, and on the management of that entity’s business. Account is also taken of whether the pursued activity serves the entire MNE group or whether the activity only serves the particular foreign subsidiary. Corporate decisions that relate to group strategy and decisions falling under the category of corporate governance and corporate administration are not important when determining POEM. For example, group executives are often appointed as board members in various subsidiaries of a listed MNE group, merely with a view to ensure that the local directors in subsidiaries follow the centralised group policy, not deviating from “code of conduct” or other accepted processes of the MNE group. This kind of board membership in the group’s subsidiary companies is not among the decision-making action that has an impact when assessing the location of POEM. (pages 47 to 48 of the Government Proposal.)

5.2.2 Holding companies and investment firms

A holding company is an entity that does not itself engage in business activities but primarily serves the needs of its owners by managing ownership interests. The nature of the “holding operation” may be passive, and this means that business decision-making is not a frequent occurrence. There is no need for many day-to-day decisions concerning the operation, which is different from that of the companies that conduct an active, ongoing business. However, the holding company’s POEM is deemed to be in Finland if the decisions that are important for the holding company’s operations are made in Finland. If the entire activity of a holding company is to hold corporate stocks, the POEM assessment would take account of the necessary decision-making that relates to the management of that activity. In these circumstances, key considerations while determining POEM include the places of:

Decision-making on the financing of activities related to the ownership of shares
Decision-making on how rights and privileges of shareholding are enjoyed
Decision-making on investing when the holding company is the investor
Decision-making on the holding company’s profit distribution or other use of assets (pages 50 to 51 of the Government Proposal)

The above principles should be applied, as appropriate, also when determining where the POEM of an investment company is located (page 51 of the Government Proposal).

The POEM of a foreign holding company or investment company cannot be based on ownership alone. However, if the owner of a holding company or an investment company actually makes decisions that concern the company’s operation and functions, importance must be attached to the location where the owner does so, i.e. exercises the powers based on shareholding (page 50 of the Government Proposal). It does not prevent the POEM from being located in Finland if the owner exercising the powers travels to other countries from time to time (Finance Committee report no 33/2020).

If a holding company is part of a consolidated enterprise group, and the decision-making regarding that holding company is of strategic, group-level nature or related to corporate governance, no importance should be attached to that kind of decision-making when assessing the location of POEM, as discussed in the Government Proposal’s “reasoning” section (Finance Committee report no 33/2020).

Illustration 5:

The Luxembourg-registered X SARL is an investment company, wholly owned by “Z”, a resident individual of Finland. The board members are “Z” himself and “Y”, his son. The place where board meetings are held is either “Z’s” or “Y’s” home in Finland. No office space in Luxembourg and no persons appointed as operative managers exist there.

X SARL’s operative activity consists of ownership of certain stocks, securities, and real estate. The activity is of a passive nature, so X SARL makes only a small number of sales/purchases of stocks, securities, real estate per year. During the entire 2021, X SARL only sold one unit of real estate. It did not pursue any other activity. Finland is always the place where “Z” and “Y” agree or decide on what stocks, securities and real estate to sell and buy. The conclusion: X SARL's place of effective management is in Finland.

Illustration 6:

Mrs. A, a Finnish resident, owns the entire corporate stock of X Oü, an Estonian-registered corporate entity active in the investment business. She is the only ordinary member of X Oü’s Board of Directors. She makes all the decisions on investment operations in X Oü at her home in Finland. The conclusion: X Oü’s place of effective management is in Finland.

5.2.3 Foreign funds

In principle, the rules on the place of effective management are applied on foreign investment funds if they are corporate entities. However, based on the transition rule associated with the amendments to the Income Tax Act (1188/2022), and on § 9a of the Act (entered into force on 1 January 2023), § 9.1.1 and § 9.8 of the Income Tax Act are not applied in tax years 2021–2025 to entities that fall under the following categories: undertakings of collective investment as defined in chapter 1, § 2.17 of the Act on Common Funds and alternative investment funds founded or registered in another EEA state and referred to in chapter 2, § 1 of the Act on Alternative Investment Fund Managers (laki vaihtoehtorahastojen hoitajista).

In accordance with chapter 1, § 2.17 of the Act on Common Funds, an undertaking of collective investment is a company that has received a permit elsewhere in the EEA than in Finland, which under the domestic law of its home member state fulfills the requirements of the EU Council Directive on undertakings for collective investment in transferable securities (2009/65/EC, UCITS Directive). In accordance with chapter 2, § 1 of the Act on Alternative Investment Fund Managers, an alternative fund is a corporate entity or another form of collective investment where funds are raised from a number of investors and invested in accordance with a defined investment policy for the investors’ benefit; and the fund does not need an authorisation within the meaning of Article 5 of the UCITS Directive.

In the same way as for other corporate entities, the place of effective management for a fund is the place where its Board of Directors (or other organ) makes decisions on day-to-day management. In addition, account must be taken of the fund’s organisation and other circumstances relating to its business activity. (§ 9, subsection 8 of the Income Tax Act.) Accordingly, also in the case of funds, the location of POEM must be assessed on a case-by-case basis.

There are many different possibilities to organize an investment fund’s administration and management. Tasks related to the management of the fund, for example portfolio management, can be outsourced to an external party, such as an asset management company. Various types of consultancy service firms may also be used to support the operations of the fund. This may lead to a situation where the fund’s operative functions are distributed among various states. For example, under UCITS Directive and the Directive on Alternative Investment Fund Managers (2011/61/EC, AIFM Directive), it is possible that a fund established in another member state is managed and administered from Finland.

Decisions related to the operation of funds are diverse and can be made by various parties within the fund structure. Decisions relating to investment operations include the selection of investment strategy, changes of the strategy, actual decision-making on purchases and sales and their preparatory measures that must be carried out before the fund conducts the purchase or the sale. Administrative activities include decisions such as selecting the providers of various services to the investment fund. When we focus on the question where the fund’s top decision-making is taking place, we must take account of the provisions of national legislation in the country where the investment fund was set up and the fund’s Articles of Association, i.e. its own statutes, found in the Charter, Shareholders’ Agreement or other documents (pages 25 to 26 of the Government Proposal).

Decisions concerning the fund’s investment strategy are typically made by the most senior management even though the fund’s operative activity had been outsourced or otherwise contracted out to external service providers as permitted by the provisions of the UCITS Directive or the AIFM Directive. Therefore, the portfolio management that complies with the investment strategy and rules cannot be treated as top-level management activity even if decisions concerning the purchase and sale, and the preparation of the same are made on a daily basis. (page 26 of the Government Proposal.)

The general principle is that the POEM rules of § 9, subsection 8 of the Income Tax Act are rarely applied on foreign investment funds. However, if the decision on top-level daily management of a foreign fund, for example decisions on investment strategy, are made in Finland, the fund’s POEM may be in Finland. (see pages 24 to 26 of the Government Proposal.)

Even if the fund is a resident taxpayer in Finland, it may have a full exemption status from income taxes if it fulfills the requirements listed in § 20a of the Income Tax Act. More information on the requirements for tax exemption for investment funds is available in the Finnish Tax Administration’s instructions On the taxation of investment funds and the provisions of § 20a of the Act on income taxation.

5.2.4 Trusts

Legal persons having the legal form “trust” can be set up under the rules of national law in the United States, the UK, and several other countries. Trusts can be characterised as economic structures created between 3 parties: the settlor, the trustee and the beneficiary. There is an arrangement, to which the trustee has consented, between the settlor and the beneficiary: the property and assets controlled by the trust are transferred to the trustee, so that the latter has the ownership and other rights over them. Trusts as a form of legal entity is not provided for in the legislation of Finland.

However, if a trust set up in a foreign country is deemed as comparable to a Finnish corporate entity within the meaning of § 3 of the Income Tax Act, the trust can become a resident taxpayer entity if its POEM is in Finland, i.e. its decisions on top-level daily management are made in Finland. The points most relevant when determining the POEM of a trust are: – who can decide how the trust invests its money – who decides how the trust uses the money, property or assets – who decides on any distributions of assets – where the place where the above decisions are made is. (page 50 of the Government Proposal.)

5.2.5 Operations of maritime shipping companies

Usual corporate income taxes can be replaced by a tonnage-tax regime as provided in the Tonnage Tax Act (tonnistoverolaki). In accordance with § 1 of the Act, a resident limited liability company operating maritime transport on international routes has the option to pay tonnage tax, based on the displacement tonnage of its maritime vessels as an alternative to paying income taxes on the profits from the maritime transport.

The tax rules on the place of effective management are also applied on foreign corporate entities that engage in shipping. A foreign shipping company is treated as a resident entity in Finland under § 9.1.1. of the Income Tax Act if its POEM is in Finland.

In accordance with § 2 of the Finnish Tonnage Tax Act, the application of the Act requires that Finland is the country where the shipping company is managed. If a foreign shipping company is a Finnish resident entity, by virtue of its POEM, it has the option to select the tonnage tax regime on the condition that the other requirements for it are fulfilled as laid down in the Tonnage Tax Act.

For more information, see the Tax Administration’s guidance on tonnage tax – Tonnistoverotus (in Finnish and Swedish, link to Finnish).

5.3 Drawing the line between the POEM and the management office that gives rise to a permanent establishment

Foreign corporate entities may be treated as having a permanent establishment in Finland if they have a place of management in Finland (§ 13a of the Income Tax Act). In addition to the Finnish legal act, also the Model Tax Convention of the OECD (Article 5) provides that a permanent establishment can be formed on the basis of the place of management.

It should be noted that the place of management giving rise to a PE and the place of effective management are two different concepts. While there may be a number of PEs in many countries – as the corporate entity has many places of management, each one of them creating a permanent establishment – there can only be one place of effective management. The basic principle is that all corporate entities must have a place of effective management somewhere. As a general rule, the company’s place of effective management is where its most senior directors such as board members make the top-level decisions, but the place of management giving rise to a PE may be a location also for other executive managers to make decisions (page 15 of the Government Proposal).

If it is evident that a foreign corporate entity has a place of management in Finland, we must first find out whether it is the place where the corporate entity’s top-level decisions concerning daily management are made, i.e. the POEM. If the answer to the question is that the entity’s POEM is in Finland, the corporate entity is a resident taxpayer. If a foreign corporate entity’s country of residence is Finland, also for purposes of the tax treaty, there is no need to assess whether a place of management exists that can give rise to a PE. If a foreign entity is a resident but, however, not a resident for purposes of the treaty, the foreign entity may still become treated as having a PE here.

If the foreign corporate entity has a place of management in Finland but it is not the place of effective management, it is possible that the place of management gives rise to a permanent establishment in Finland. In this case, the foreign corporate entity is a nonresident in Finland.

Illustration 7:

The Swedish X AB, a limited liability company, conducts business in Sweden and in Finland. X AB has a Country Manager in Finland. Her job involves making active, independent decisions on how X AB carries out its business activity in Finland. For the entire X AB company, the top-level decision-making on daily management issues is handled by X AB’s Board of Directors during its meetings held in Sweden. Sweden is also the country where X AB’s head office is located.

X AB is not regarded as having its POEM in Finland because no top decision-making on daily management goes on here. Nevertheless, because of the employment duties of the Country Manager, X AB has a place of management in Finland that makes X AB treated as having a permanent establishment here. X AB is a nonresident taxpayer in Finland, and it must pay Finnish tax on all the income attributed to its PE. Additionally, it may also be that a PE is formed for X AB in Finland because of the business it conducts in Finland, which is other than the managerial duties the Country Manager handles.

The amended provisions of § 9 of the Income Tax Act went into effect as the Act no 1188/2020 was adopted, outlining changes to the Income Tax Act. Foreign corporate entities had always been treated as nonresident taxpayers in Finland before the legal changes. This meant that a foreign corporate entity could not be treated as a resident taxpayer although its POEM would have been located here. In such a case only a permanent establishment would have been formed. It is possible that a place of management that previously gave rise to a PE for the foreign corporate entity is now, as referred to in § 9, subsection 8 of the Act, a place of effective management, fulfilling the relevant requirements. This would change the tax status of the foreign corporate entity from nonresident to resident taxpayer, starting from the 2021 tax year.

6 Notes on special circumstances relating to the tax assessment of resident entities

6.1 Start date of the company’s residency status

Under § 9, subsection 8 of the Income Tax Act, the date when a foreign corporate entity starts being treated as a resident taxpayer is either the date it was incorporated, or the date when its place of effective management was formed in this country. The point in time when corporate entities are incorporated is the time when the entity submits a notice of registration, on its initiative, for the part regarding its POEM, in order to be entered in the Tax Administration’s registers (page 51 of the Government Proposal).

The point in time when a POEM is formed for a corporate entity is defined as the time when, based on an appraisal of all the facts and circumstances, the POEM in Finland is deemed to exist. Foreign entities will be treated as Finnish resident entities as of the date when the POEM was formed, if the entity has not submitted, on its initiative, a notice of registration to the Tax Administration regarding its POEM. However, the earliest tax year when a foreign corporate entity can have Finnish tax residency is the 2021 tax year.

Starting from the time when Finnish residency begins, any PE (within the meaning of § 13a of the Income Tax Act) and the foreign entity are subjected to assessment of taxes as if they were one single taxpayer entity. The PE’s economic results are thus part of the foreign corporate entity’s profits and losses, within the meaning of § 1, subsection 1 of the Act on the Taxation of Business Income, starting at the point of time when the entity’s Finnish residency begins. (§ 51g of the Act on the Taxation of Business Income.) From this, it follows that if the change from nonresidency to residency occurs mid-year, the entity’s profits or loss subject to Finnish income taxation will be formed as a combined sum total of the PE’s profits – during the first part of the tax year – and the entity’s own profits – during the latter part of the tax year.

Foreign corporate entities that are interested in finding out whether they will, in the upcoming future, be treated as a resident taxpayer entity, may submit an application for an advance ruling. For instructions on how to apply for an advance ruling, see the Tax Administration's “Applying for an advance ruling and the decision issued on the matter” – Ennakkoratkaisuhakemuksen tekeminen ja siihen annettava päätös guide (in Finnish and Swedish).

6.2 Valuation of corporate assets at the start of the residency status

6.2.1 Valuation of assets when residency is moved from another country to Finland

Foreign corporate entities may have been resident taxpayers in another country before they become resident taxpayers in Finland. When a foreign entity becomes a resident taxpayer in Finland, its domicile is treated as having been moved to Finland. In these circumstances, the corporate entity’s assets and property must be evaluated in some way, i.e. their total value must be determined. The way the valuation is carried out has an impact on the entity’s rights to deduct depreciations in its taxation. In the same way, valuation has an impact on how capital gains will be calculated if the corporate entity is to sell any of its assets.

The rules that govern valuation at the beginning of Finnish residency are not identical for the foreign corporate entities that come to Finland from other EU member states, compared with the rules in force for those coming from non-EU countries. Another factor affecting valuation is whether the country from where the corporate entity comes from has included the probable selling price of the assets in the corporate entity’s taxable income.

The Finnish rules on valuation, applicable when a corporate entity’s domicile is transferred to Finland from another EU member state, are found in § 51f, subsection 1 of the Act on the Taxation of Business Income. Under these rules, the assets’ acquisition cost is the value affirmed in the member state of departure, within the meaning of § 51e, subsection 3, if the valuation carried out in the exit state has matched the value referred to in the § 51f, subsection 3.

Under § 51e, subsection 3 of the Act on the Taxation of Business Income, the “exit value” of the assets is the amount for which an asset can be exchanged or mutual obligations can be settled in a direct transaction between willing buyers and sellers that are not related as referred to in § 18b, subsection 2, paragraphs 3 to 5 of the Act on the Taxation of Business Income.

Under § 51f, subsection 2, if a corporate entity, which is a previous resident of a non-EU country, becomes a Finnish resident within the meaning of § 9.1.1. and § 9, subsection 8 of the Income Tax Act, the acquisition cost of its assets transferred to Finland will be the residual undepreciated value remaining in the state from which the transfer was made. If that state has treated the assets’ exit value, referred to in § 51e, subsection 3, as taxable income in that state, that amount is treated as the assets’ and property’s acquisition cost upon arrival. However, the provisions on valuation found in § 51f, subsection 2 of the Act on the Taxation of Business Income are not applied on the assets and property attributable to a permanent establishment (under § 13a of the Income Tax Act) that had been located in Finland before the foreign corporate entity became a Finnish resident.

If, prior to becoming a resident taxpayer in Finland, the corporate entity had a PE in Finland (under § 13a of the Income Tax Act), any of the PE’s undepreciated acquisition costs and other expenses not yet deducted will be deducted in the foreign corporate entity’s taxation in the same way as they would have been deducted in the PE’s taxation (§ 51g of the Act on the Taxation of Business Income).

For more information on asset valuation in cross-border circumstances, see “Exit tax” – Maastapoistumisverotus, the Tax Administration’s guide (in Finnish and Swedish).

6.2.2 Valuation of assets if the corporate entity is a Finnish resident since it was founded

It may be that a foreign corporate entity is treated as a resident taxpayer, including residence also for tax-treaty purposes, ever since the foreign corporate entity was set up according to the provisions of the laws of its country of incorporation and registration. In such a case, the corporate entity has no history of having been a resident taxpayer elsewhere than in Finland. This means that no other country has determined any acquisition cost or exit value, etc. for the entity’s assets and property.

In these circumstances, the valuation of assets and property is carried out in the same way as for Finnish corporate entities when they start up business. In other words, the assets’ and property’s acquisition costs will be determined as provided in the Act on the Taxation of Business Income, in the Income Tax Act, or according to the Act on Tax on Agricultural Income (maatilatalouden tuloverolaki).

6.3 Allowable losses from previous years

6.3.1 Losses from previous years, allowed by the other state for carryover

It may be that a foreign corporate entity was a resident taxpayer in another country before becoming a resident taxpayer in Finland, for example, in some other state where it had been treated as having the place of effective management, or in its state of incorporation and registration. In these circumstances, the foreign corporate entity may have been liable to pay tax on its worldwide income elsewhere before becoming a resident taxpayer in Finland. It is also possible that allowable losses have been recorded for the foreign entity in the other state.

Those losses, which arose in the other state before the time when the foreign corporate entity became a resident taxpayer in Finland, are not tax-deductible in Finland in accordance with the “V” Section of the Income Tax Act (page 29 of the Government Proposal). The above is based on the case-law from the European Court of Justice; case-law has been formed that takes a negative stand regarding deductibility of any previous years’ allowable losses when the country of tax residence has moved from one member state to another. Ruling no C-405/18, Aures Holding, of the European Court of Justice lays down that no allowable losses originating in the earlier member state of residence need to be taken into account in the member state where the corporate entity is now resident. The reason for this view is that the member state, where the company’s POEM is now located, cannot have an obligation to deductions for economic losses that had occurred before, because the tax-reporting periods when they occurred were outside of the destination state’s taxing rights.

Illustration 8:

The German A GmbH was considered a nonresident corporate entity in Finland in tax years 2015–2020. During these years, A GmbH had no permanent establishment in Finland, nor did it have any Finnish-sourced income. As a result, for the 2015–2020 period, A GmbH was not taxed in Finland. Instead, A GmbH was a resident taxpayer entity in Germany, where allowable losses amounting to €200,000 in total were recorded for the years 2015 to 2020.

For the 2021 tax year and onwards, A GmbH is treated as a resident entity in Finland because its POEM is now in Finland. As of 2021, A GmbH must pay tax to Finland on its worldwide income.

The business profits of A GmbH, subject to tax in Finland, amount to €300,000 for the 2021 tax year. However, in its Finnish tax assessment for 2021, A GmbH cannot deduct the allowable losses recorded in Germany for 2015–2020 from its taxable business profits.

6.3.2 Losses attributable to a permanent establishment

It may be that a foreign corporate entity has had a PE in Finland before the time the entity becomes a resident in Finland. During those earlier years, the entity has been treated as a nonresident taxpayer in Finland, and it has had to pay tax on all the income attributed to its PE. In addition, allowable losses may have been recorded for the PE in Finnish taxation.

If a foreign corporate entity had a permanent establishment in Finland before it became a resident, and allowable losses have been recorded for the permanent establishment, these losses are allowed for carryforward in the manner laid down in the Income Tax Act so that the resident corporate entity can deduct them. The losses cannot be deducted unless the foreign corporate entity has given a statement proving that the Finnish-located PE’s losses have not been deducted in taxation in its previous country of residence. (§ 123c of the Income Tax Act.)

If the method for elimination of a PE’s double taxation in the entity’s previous country of residence was the credit method, the Finnish-located permanent establishment’s earlier losses were deducted in that country, because those losses were seen as a part of the head office's economic result. Therefore, in principle, Finland can grant deductions for the PE’s past losses only if the exemption method was applied, not the credit method.

If the previous country of residence has applied the exemption method, the revenue and expenditure of the permanent establishment have not been included in the tax assessment as forming a part of the head office's revenue and expenditure. In that case, the entity’s previous residence country has not imposed any tax on the Finnish-located permanent establishment’s income, and if the permanent establishment suffered losses, none of the losses were deducted from the entity’s profits. The exemption method is rarely the primary method for eliminating double taxation in Finland’s tax treaties with other countries. However, it may be that the foreign entity’s previous country of residence employed the exemption method in accordance with the country’s national tax rules.

Illustration 9:

The foreign corporate entity called X was deemed as a nonresident corporate entity in Finland for tax years 2015–2020. During those tax years, X was treated as having a permanent establishment in Finland. Consequently, taxes were imposed in Finland on the income attributed to the permanent establishment. An allowable loss was recorded relating to the 2015–2020 tax years, amounting to €200,000.

In 2015–2020, X was a resident entity in the country where it was founded. The country has employed the exemption method in order to relieve double taxation of the income attributable to permanent establishments. As a result, no allowable losses of the Finnish PE have been deducted against the taxable income of the head office. Moreover, the losses attributable to the PE have not been taken into account in the taxation of the head office in any other way.

For tax year 2021 and onwards, X is treated as a resident entity in Finland because its POEM is in Finland. As of 2021, X must pay tax to Finland on its worldwide income.

For the 2021 tax year, X’s business profits stand at €300,000. The allowable losses relating to the 2015–2020 tax years amounting to €200,000 can now be deducted in X’s taxation. This means that for 2021, X’s business income subject to tax equals €100,000 as the allowed losses have been deducted.

If the requirements set out by § 123c of the Income Tax Act are fulfilled and the resident entity has the right to deduct the previous years’ losses of its permanent establishment, the deductions are granted according to the same rules as when domestic corporate entities deduct their losses. Among the domestic rules that apply are the restrictions, linked to changes of stock ownership in the corporate entity, which may prevent deduction. Additionally, the provisions of § 119 and § 120 of the Income Tax Act apply, so that the past losses relating to different sources of income can be carried forward for deduction during the 10 years that follow the year when the losses were made. More information about changes of stock ownership and their impact on the deductibility of past losses is available in the Tax Administration guidance “Allowable loss and change of ownership” — Vahvistettu tappio ja omistajanvaihdos (in Finnish and Swedish).

6.4 Group contributions

By virtue of the provisions of the act governing group contributions in taxation (laki konserniavustuksesta verotuksessa, Group Contributions Act), one group company’s loss can be deducted against another group company’s profits. Subject to fulfillment of the requirements laid down by the Group Contributions Act, member companies of a consolidated group may select which company will be paying tax on the income. Accordingly, the group company that grants a contribution can deduct it as an expense, and then, in turn, the other group company that receives the contribution must include it in the total of its taxable income.

As provided in § 2, subsection 2 of the Group Contributions Act, the rules concerning Finnish limited liability companies and cooperative societies, found in subsection 1, also apply to a foreign corporate entity that is a Finnish resident within the meaning of § 9.1.1 of the Income Tax Act and deemed comparable to the Finnish limited liability company or cooperative referred to in § 3, paragraph 4 of the Income Tax Act. If a foreign corporate entity treated as resident taxpayer is comparable to the Finnish limited liability company or cooperative, it can grant group contributions or receive them if the other preconditions laid down by the Group Contributions Act are satisfied.

This additionally requires that a relationship exists between the payer and beneficiary that coincides with the definition of § 3 of the Group Contributions Act. This relationship is formed if a domestic limited liability company or cooperative (the parent) owns at least 90% of another domestic limited liability company’s or cooperative’s (subsidiary) stock. In addition, a limited liability company or cooperative society that is indirectly held by the parent is seen as a subsidiary if the parent, together with one or more of its subsidiaries, owns at least nine tenths of the stock.

Under § 7, subsection 1, paragraph 1 of the Group Contributions Act, the relationship defined in § 3 of the Act must have been in effect throughout the tax year. Under § 7, subsection 2 of the Group Contributions Act for a foreign corporate entity treated as being a resident, the relationship is deemed as only having been effective during the period of the foreign entity’s Finnish residency status.

It may be that a foreign corporate entity has had a PE in Finland before the time the entity becomes a resident in Finland. However, under § 7, subsection 2 of the Group Contributions Act, the existence of a PE in Finland is not relevant when assessing the duration of the relationship referred to in § 7, subsection 1 of the Act.

Under § 5 of the Group Contributions Act, taxpayers granting a group contribution have the right to deduct it as an expense only if corresponding income and expense entries have been made in the accounting records of both the entity granting and the entity receiving the group contribution. The above rule requiring consistent accounting entries also applies on foreign corporate entities regarded as Finnish residents if they grant or receive group contributions. To determine whether the requirements concerning entry in the books of account, affecting profit-and-loss account, are satisfied, the same approach should be applied as is the case with domestic Finnish corporations (page 32 of the Government Proposal). If the company granting the contribution is unable to make an expense entry that affects its profit-and-loss account, for example due to applicable financial reporting standards, the group contribution is not tax-deductible.

For more information, see the Tax Administration’s guide on group contributions – Konserniavustus (available in Finnish and Swedish).

6.5 Applying the provisions of the Act on the Taxation of Shareholders in Controlled Foreign Companies

Under the Finnish Act on the Taxation of Shareholders in Controlled Foreign Companies (laki ulkomaisten väliyhteisöjen osakkaiden verotuksesta), the shareholders or other beneficiaries in Finland that receive income from a controlled foreign company (CFC), must pay Finnish taxes on that income if certain conditions are fulfilled. If the CFC is one that matches the definition laid down in the Act on the Taxation of Shareholders in Controlled Foreign Companies, income tax can be imposed on the CFC’s shareholder or beneficiary.

However, if a foreign corporate entity is regarded, under § 9, subsection 1 of the Income Tax Act, a resident entity in Finland, it cannot be held as a CFC. In this case, the entity itself is liable to tax on its worldwide income, so its income cannot be subject to tax in the hands of shareholders or other beneficiaries as in the case of a CFC.

By extension, if a foreign corporate entity is a resident in Finland and it owns a CFC, it may have to pay Finnish tax on the income it receives from the CFC. In other words, if a resident corporate entity is a shareholder or beneficiary in a foreign company that is a CFC within the meaning of the Act on the Taxation of Shareholders in Controlled Foreign Companies, the income from the latter can be taxed in Finland, as referred to in the Act on the Taxation of Shareholders in Controlled Foreign Companies.

For more information, see the Tax Administration’s detailed guidance on the tax treatment of controlled foreign companies – Väliyhteisötulon verotus Suomessa (in Finnish and Swedish).

6.6 Relief of international double taxation

When a foreign corporate entity treated as a resident taxpayer in Finland receives income from abroad, that foreign-sourced income may be subject to tax not only in Finland but also in another country. This is the case, for example, where the country of source has taxing rights over the income under its national legislation and the applicable tax treaty. When one item of income is subject to tax in both the country of residence and the country of source, double taxation arises. As a general rule, the tax paid in the country of source is credited in the country of residence.

If a foreign corporate entity’s country of residence for tax-treaty purposes is Finland under Article 4 of the tax treaty between Finland and the country where the entity was founded and registered, and the entity has received income from the country where it was founded and registered, that country will be treated as the country of source for the income.

The tax treaties signed by Finland include provisions on the elimination of double taxation. Accordingly, the method for eliminating double taxation is either the credit or the exemption method, depending on the applicable treaty. The Act on the Elimination of International Double Taxation (laki kansainvälisen kaksinkertaisen verotuksen poistamisesta) contains more detailed provisions on how double taxation is to be relieved. In situations where a tax treaty is in force, the Act is applied to the extent that the tax treaty allows the applicability. If no tax treaty between the country of source and Finland exists, only the provisions of the Act on the Elimination of International Double Taxation are to be applied.

For more information on how double taxation of income received by corporate taxpayers is relieved, see “Relief for international double taxation, corporate taxpayers” — Kansainvälisen kaksinkertaisen verotuksen poistaminen yhteisöjen verotuksessa (in Finnish and Swedish).

6.7 End date of the residency status

If the circumstances based on which the place of effective management was deemed to be located in Finland no longer exist, the place of effective management can no longer be in Finland. Starting on the date when management changed, the corporate entity can no longer be treated as a resident (page 28 of the Government Proposal).

If, after its resident status ends, the entity still remains treated as having a permanent establishment in Finland, as referred to in § 13a of the Income Tax Act, the entity will be liable to pay tax on the income attributable to the permanent establishment. Then the permanent establishment can deduct the allowable losses recorded for the entity during the tax years when it had the residency status.

Under § 51e, subsection 1, paragraph 3 of the Act on the Taxation of Business Income, if the country of tax residence of a foreign corporate entity treated as a resident in Finland is changed to another country in accordance with Finnish legislation or in accordance with a tax treaty, the exit value of the transferred assets, net of their undepreciated acquisition cost, is considered to be taxable income for the corporate entity, with the exception of assets that are still actually related to the entity’s permanent establishment in Finland. For more information, see the Tax Administration’s “Exit taxes” – Maastapoistumisverotus guide (in Finnish and Swedish).

7 Impact of tax treaties on how taxing rights are divided between contracting states

7.1 Country of residence determined under treaty provisions in effect

The taxing rights that Finland has are based on national legislation, and the rights cannot be amplified by provisions of a tax treaty. Treaty provisions can only have the effect of restricting the taxing rights of a contracting state. A tax treaty may restrict Finland’s right to tax income received by a Finnish-resident entity, for example where the entity’s country of residence “for treaty purposes” is considered to be the other contracting state rather than Finland.

When applying the provisions of a tax treaty, it must be determined which one of the contracting states is the entity’s country of residence – and which one is the country of source. Tax treaties contain lists of different categories of income, with definitions as to whether the source country – or only the residence country – has the taxing rights. After the corporate entity's country of residence has been determined, it will also settle the question of which one of the contracting states should eliminate double taxation. If the country of source, under provisions of the relevant tax treaty, has the rights to impose tax, the general rule is that the taxpayer’s country of residence must take action to relieve double taxation on the income.

Article 4 of the OECD Model Tax Convention lays down the provisions that control the way the country of residence is determined for treaty purposes. Under Article 4, paragraph 1 of the OECD Model, the term “resident of a Contracting State” means any person who, under the law of that State, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. However, the term does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein.

This means that when treaty provisions are applied, the first assumption is that corporate entities are residents of the country where they are liable to pay tax on their worldwide income under national legislation of that state. For example, corporate entities that are resident taxpayers in Finland under § 9.1.1 of the Income Tax Act are also treated as Finnish residents, within the meaning of Article 4, paragraph 1 of the Model Tax Convention.

If an entity is a resident taxpayer in only one of the two contracting states, that state is treated as being the country of residence for treaty purposes. However, it may be that an entity is a resident taxpayer in both contracting states, liable to pay tax on worldwide income, under the respective national legislations. For example, one of the contracting states is the country where the entity was incorporated, and the other contracting state is the location of the entity’s place of effective management. This means that the question must be resolved of which one of the two states is the entity’s country of residence when applying the tax treaty.

Illustration 10:

The Swedish company X AB is a resident entity in Finland, because under the provisions of the Income Tax Act, its place of effective management is in Finland. Based on Swedish national legislation, X AB is also treated as a resident entity in Sweden because the company was founded and registered in accordance with Swedish law.

Under Article 4, paragraph 1 of the Nordic Tax Treaty, when the authorities apply the treaty’s provisions, “resident of a Contracting State” means any person who, under the law of that State, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature.

Based on Treaty Article 4, paragraph 1, X AB is seen as a resident entity of both Sweden and Finland. As a result, X AB has “dual residency”.

7.2 The impact of dual residency on determining the country of residence

If the contracting states have not agreed upon how the taxing rights are divided between them in the case of dual residency, or if no tax treaty exists, the worldwide income of corporate entities having dual residence is taxed in both countries. In general, tax treaties include a specific provision on how to resolve the question of an entity’s country of residence when the entity is treated as resident in both contracting states under their national legislation. Article 4, paragraph 3 of the OECD Model Tax Convention contains rules on how to resolve dual-residency situations when they involve entities rather than individuals.

According to Article 4, paragraph 3 of the 2017 Model Tax Convention, where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall endeavour to determine by mutual agreement the Contracting State of which such person shall be deemed to be a resident for the purposes of the convention. Before the change was made to the 2017 version of the Model Tax Convention, Article 4, paragraph 3 laid down that where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident only of the State in which its place of effective management is situated.

Generally, the tax treaties that Finland has signed with other countries provide that the dual-residency question should be resolved by location of the place of effective management, or alternatively, that the contracting states settle the question by mutual agreement between competent authorities. In addition to the above, certain treaties contain a provision indicating that a corporate entity is resident in the contracting state where the entity was set up. The competent authorities’ resolution on the country of residence for treaty purposes is not constrained by definitions in national legislation of the contracting states.

Illustration 11:

Above in illustration no 10, the Swedish X AB is seen as a resident entity of both Sweden and Finland based on Article 4, paragraph 1 of the Nordic Tax Treaty. According to Article 4, paragraph 3 of the Treaty, where by reason of the provisions of paragraph 1, a person other than an individual is a resident of several Contracting States, that person is only resident in the Contracting State where its POEM is located. Because X AB’s place of effective management is in Finland, the conclusion is that X AB is a Finnish resident entity for treaty purposes.

If the contracting states interpret treaty provisions in different ways and this has caused taxation not in line with the treaty, or if treaty provisions set out mutual agreement between the contracting states’ competent authorities as the way to resolve dual-residency conflicts, a mutual agreement procedure can be initiated for that purpose if the taxpayer submits an application for the procedure. For more information on the mutual agreement procedure (MAP), see International tax dispute resolution procedure.

Illustration 12:

The Estonian Y Oü is treated as a resident entity in Finland because its place of effective management is in Finland. Under the national legislation of Estonia, Y Oü is also regarded as a resident there.

Under Article 4, paragraph 1 of the Finland–Estonia Tax Treaty, for the purposes of the treaty, the term “resident of a Contracting State” means any person who, under the law of that State, is liable to taxation therein by reason of his domicile, residence, place of management, place of incorporation, or any other criterion of a similar nature.

Based on Treaty Article 4, paragraph 1, Y Oü is seen as a resident entity of both Finland and Estonia. Y Oü has “dual residency”.

According to Article 4, paragraph 3 of the Treaty, where by reason of the provisions of paragraph 1, a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall settle the question by mutual agreement and determine how the treaty should be applied to such person. Where the mutual agreement is not in existence, the person is not held as a resident of the other Contracting State in neither one of the States.

If the view of Y Oü is that its dual residency has resulted in taxation not in accordance with the provisions of the tax treaty, Y Oü may submit an application for a mutual agreement procedure to be initiated within three years from the date when Y Oü became aware of the action resulting in taxation not in accordance with the provisions of the treaty. The competent authorities in Finland and Estonia can resolve the question of which one of the Contracting States should be Y Oü’s country of residence when the treaty is applied.

It may be that a foreign corporate entity is not deemed to be a resident of Finland for the purposes of a tax treaty, although under national legislation the entity is a resident taxpayer in Finland by virtue of its POEM. In this case, the foreign corporate entity is a resident taxpayer in Finland but Finland can generally only impose tax on the entity’s income when the income is received from Finnish sources or if the entity has a PE in Finland.

Page last updated 12/11/2025

Resident and nonresident tax liability of corporate entities Detailed guidance

1 Introduction

2 The “corporate entity” concept

3 The nonresidency status of corporate entities

3.1 Nonresidency, as defined by the provisions of the Income Tax Act

3.2 Income received from sources in Finland

3.3 The income that a permanent establishment receives

3.4 ­The tax-assessment process in the case of a nonresident corporate entity

4 The general liability to tax, i.e. residency of corporate entities

4.1 General liability to tax, or residence, as defined by the provisions of the Income Tax Act

4.2 The tax-assessment process for a resident corporate entity

4.3 Payments made by a foreign corporate entity treated as being a Finnish resident

4.4 Being an employer

4.5 Setting up accounting in a Finnish-resident corporate entity

5 Place of effective management, POEM

5.1 Assessing the location of POEM

5.1.1 To make decisions relating to the corporate entity’s top-level management

5.1.2 Impact of the corporate statutes and the legal norms of the country of incorporation

5.1.3 Location of the top decision-making body

5.1.4 Other circumstances having a bearing on corporate organisation and the conduct of business

5.2 Special circumstances relating to the place of effective management

5.2.1 Member companies of a multinational enterprise group (MNE)

5.2.2 Holding companies and investment firms

5.2.3 Foreign funds

5.2.4 Trusts

5.2.5 Operations of maritime shipping companies

5.3 Drawing the line between the POEM and the management office that gives rise to a permanent establishment

6 Notes on special circumstances relating to the tax assessment of resident entities

6.1 Start date of the company’s residency status

6.2 Valuation of corporate assets at the start of the residency status

6.2.1 Valuation of assets when residency is moved from another country to Finland

6.2.2 Valuation of assets if the corporate entity is a Finnish resident since it was founded

6.3 Allowable losses from previous years

6.3.1 Losses from previous years, allowed by the other state for carryover

6.3.2 Losses attributable to a permanent establishment

6.4 Group contributions

6.5 Applying the provisions of the Act on the Taxation of Shareholders in Controlled Foreign Companies

6.6 Relief of international double taxation

6.7 End date of the residency status

7 Impact of tax treaties on how taxing rights are divided between contracting states

7.1 Country of residence determined under treaty provisions in effect

7.2 The impact of dual residency on determining the country of residence

3.4 The tax-assessment process in the case of a nonresident corporate entity