Finland To Extend Capital Gains Taxation To Indirect Holdings Of Finnish Real Estate

• Published date: 06 July 2023
• Subject Matter: Real Estate and Construction, Tax, Real Estate, Income Tax, Capital Gains Tax
• Law Firm: Waselius & Wist
• Author: Mr Niklas Thibblin

The Finnish Parliament has approved the government proposal concerning the taxation of non-residents' capital gains arising from the disposal of shares in either a Finnish or non-Finnish holding company that indirectly owns real estate in Finland. The new legislation is expected to enter into force on 1 March 2023 and will be applied to all disposals carried out after that date.

Up till now, capital gains arising from indirect disposals of Finnish real estate by a non-resident of Finland has not been taxed at all in Finland. However, the approved amendments to section 10 of the Finnish Income Tax Act and the removal of the reservation made to article 9 of the Multilateral Convention ("MLI") will change this.

In accordance with the government proposal, profits derived from the disposal of shares or similar rights in a holding company will be subject to tax in Finland if more than 50 per cent of the total assets of the company consist, directly or indirectly, of Finnish real estate. The application of the provision includes a time limit of 365 days based on the OECD Model Tax Convention. Accordingly, where at any point of time during the preceding 365-day period of the disposal more than 50 per cent of the assets of the transferred company consist of Finnish real estate, the indirect...