The provisions will clarify the concept of a tax exempt investment fund and set specific prerequisites for the tax-exemption of investment funds. Changes will become applicable as of the year 2020 and they are related to the recently implemented reform of the Finnish investment fund legislation.

According to Finnish law, an investment fund is tax exempt. There are currently no specific provisions on taxation of foreign investment funds in Finland but also foreign contractual based funds have been able to benefit from the above tax exemption by virtue of EU law. 

Under the new provisions, also a foreign contractual based investment fund will be exempt from tax in Finland if it is open-ended, has at least 30 unitholders and has been incorporated in accordance with the respective fund legislation applicable in its country of registration. If a foreign fund is registered in a non-EEA country, an exemption also requires that automatic exchange of tax information is available between Finland and the fund’s country of registration.

If a special investment fund (erikoissijoitusrahasto) (i.e. a fund complying with the AIFM regulation or corresponding regulation in a non-EEA country) has less than 30 unitholders or is not open-ended, it is still exempt from tax if each of the following conditions is fulfilled:

1.  it distributes to its unitholders at least ¾ of its annual profits, excluding non-realized value increases;
2.  its capital is at least 2 million euros; and
3.  its unitholders are professional investors as referred to in the Finnish AIFM Act or comparable wealthy private persons.

However, a special investment fund mainly investing in real estate and/or shares in real estate companies is tax exempt, if it distributes to its unitholders at least ¾ of its annual profits, excluding non-realized value increases.

The above exemptions also apply to sub-funds of a contractual based umbrella fund. They do not however apply to corporate form funds, but the current court and tax practice regarding corporate form funds and their comparability to Finnish limited liability companies should continue to apply.

Based on this practice, an exemption from withholding tax on Finnish source dividends may be available when the shares of the fund are listed, since a corresponding tax exemption is also available to Finnish listed companies.

Applying the exemption requires that the foreign fund provides the Finnish Tax Administration information about fulfilling the conditions of the tax-exemption. This is in practice done by filing a tax-at-source card or an advance ruling application or via a retrospective withholding tax reclaim. 

On 19 June 2019, the Finnish Supreme Administrative Court referred to the CJEU a question whether a UCITS-compliant foreign corporate form fund is comparable to Finnish investment funds, when it comes to taxation of a profit distribution received by a Finnish individual investor. Thus, the ruling of the CJEU is expected to clarify taxation of corporate form funds in Finland. 

KPMG Finland is happy to assist with tax-at-source card applications, withholding tax reclaims and advance ruling applications of foreign investment funds and provide additional information on the new rules.

Antti Leppänen

+358 20 760 3247

etunimi.sukunimi@kpmg.fi

Kristiina Äimä

+358 20 760 3698

etunimi.sukunimi@kpmg.fi

Laura Toivonen

+358 20 760 3501

etunimi.sukunimi@kpmg.fi