International Inheritance Tax Situations
If real property or buildings in Finland have been inherited, Finnish inheritance tax will always be payable even if both the decedent's and the beneficiary's countries of residence were countries other than Finland.
If the decedent lived abroad on the date of death, the inheritors and the portions of inheritance are determined based on the laws of the country that was the decedent’s final domicile. The inheritance tax is however determined in accordance with the Finnish act on inheritance and gift tax, as well as bilateral tax treaties which Finland has signed.
Personal moveable property in Finland, if decedent and heir live overseas
Assets located in Finland that are personal, moveable property and not real property, will not be counted as assets subject to inheritance tax if both decedent and beneficiary are tax residents of other countries at the date of death.
Real property in Finland
You must pay Finnish inheritance tax on real property located in Finland, even if neither the decedent nor the beneficiary lives in Finland.
For purposes of this rule, 'real property' means not only land and buildings but also shares in a corporate body in which more than 50 % of the assets consists of Finnish real property (including housing companies, As Oy).
If the decedent lived in Finland at death, all his assets are included in the taxable estate value, even if some of the assets are located in other countries. Valuation rules by FMV (fair market values) are applicable.
Inheritance from another country
If an heir is a Finnish tax resident, they are expected to pay tax on inheritance received from abroad. The citizenship of the decedent or the heir does not affect the liability to pay inheritance tax.
Example: Agnes, the decedent, was a citizen of Poland and lived in Warsaw before she died. The only heir was Pavel, her son who lives in Finland, but whose citizenship is Polish. The estate that Agnes left behind consisted entirely of real property and personal effects located in Poland.
Conclusion: Pavel must pay Finnish inheritance tax on all assets he inherited because he was a tax resident of Finland on the date of death.
Although an heir living in Finland must normally pay tax on an inheritance received from abroad, exceptions can be made from this general rule based on a bilateral tax treaty. Treaties governing inheritance tax are in force with Denmark, Iceland, the Netherlands, France, Switzerland and USA.
Credit can be given on tax paid to foreign country
The granting of tax credit requires that
- The beneficiary lived in Finland at the date when the obligation to pay tax materialised;
- Inheritance tax has been paid to a foreign tax authority;
- Exactly the same assets are subject or will be subject to inheritance tax in Finland.
It is important that the foreign tax has been paid to a sovereign state (i.e. to a central or federal government). Foreign taxes do not entitle the taxpayer to credit in Finland if they were paid to a local province, a local state etc.
However, no importance is attached to the name of the foreign tax if the other requirements for granting credit are fulfilled. The foreign tax doesn't have to be called ‘inheritance tax’. It may, for instance, be called 'estate tax' or 'income tax'.
Example: Antti, the decedent, lived in Finland on his date of death. His assets were located in Finland with the exception of a leisure home in Spain. His daughter Sini living in Finland and his son Tomi living in Spain are Antti's only heirs.
Conclusion: Both Sini and Tomi must pay Finnish inheritance tax on their entire portions of the estate. A tax is also imposed in Spain for the leisure home. Sini is entitled to a tax credit for the Spanish tax, because she lived in Finland at the date of Antti's death. Tomi is not entitled to this tax credit.
No credit on tax paid to a foreign tax authority is however given if
- tax has been paid on real property located in Finland;
- tax has been paid on a receipt of shares in such a corporate entity whose assets to more than 50 per cent consist of real property located in Finland.