Should a M&A advisor be informed about the Tax landscape in Finland? Tax aspects are of high importance when buying a business. Your advisor needs to be up to date with the tax framework that applies to M&A transactions in Finland. Here we mention some aspects that you need to consider when acquiring a company and setting up your tax structure in Finland. Tax-efficient acquisition structuring is important to prevent possible tax claims after the acquisition date. Effective planning and structuring can help you avoid complicated legal and regulatory issues in cross-border acquisitions. We provide relevant tax knowledge ourselves in M&A transactions or work with tax specialists that bring the required taxation knowledge.
Goodwill cannot be anymore depreciated for tax purposes in a transaction where the shares of a company are acquired . This is an important item for any buyer of a company in Finland. No tax benefits can be obtained from a depreciation of the goodwill acquired after an acquisition.
The buyer pays 1.6% transfer tax in Finland in a stock deal. This means that the buyer will be liable to a tax of 1.6 per cent on any shares in Finnish limited liability companies (such as subsidiaries and shares in real estate companies). A buyer does not have to pay this tax in case it acquires a company via an asset deal. There is a transfer tax of 4 per cent of the purchase price payable on real estate and buildings included in the assets.
The capital gains tax for the individual seller in a stock deal is 30%, however it is lower if the shares have been owned more than 10 years. This can be an important reason for a seller to prefer an asset or stock transaction when selling a Finnish business. For a corporate seller the possible capital gain is taxed at normal corporate rate of 20% and can be tax free if certain conditions are fulfilled.
Corporate tax rate has been lowered to 20% in order to attract foreign investment in Finland. This is not specifically related to M&A transactions.
As said before there is a 1.6 per cent transfer tax payable upon the purchase of shares in Finnish companies. Transactions where both the seller and the buyer are foreign entities are exempt from Finnish transfer tax (unless the target is a real estate company). The payment of the transfer tax is due within two months following the execution of the purchase agreement.
In relation to VAT, most business transfers are tax exempt if the assets concerned will be used in VAT deductible business also after the transfer.
In an acquisition of the legal entity (share deal) a buyer takes normally over all tax risks and liabilities, except that buyer may require that the seller takes some well-defined tax risks over a short period of time after the acquisition . In an asset deal the buyer can depreciate the purchase price for part of the assets (machines, equipment or other assets). The depreciation is based on pooling of the depreciable assets and declining balance method. The maximum annual depreciation is 25%.
Feel free to contact us if you have any questions about tax aspects when buying a business in Finland. Visit the profile of M&A advisor Pakka Salo (who has made this contribution) to find out what he can do for you.