Company tax return in Finland – avoid the most common mistakes
Filing a company tax return in Finland requires a high level of accuracy, as the Finnish Tax Administration (Vero) applies strict interpretation in borderline cases. International companies operating in Finland – or planning to enter the Finnish market – should be aware that even small errors can lead to significant tax increases. By identifying the risk areas that often cause uncertainty, you can avoid the most common pitfalls and ensure compliance with Finnish corporate tax requirements.
In this article, Azets tax specialists outline the most typical challenges companies face when submitting a Finnish corporate tax return.
The most common challenges in the Finnish company tax return
If your Finnish tax return contains ambiguous or complex sections, it is highly advisable to seek support from a Finnish tax specialist during preparation or review. Where needed, more reliable guidance can be obtained directly from the Finnish Tax Administration, for example by requesting an advance ruling for unclear situations.
1. Deductibility of expenses
One of the most common mistakes in a Finnish company tax return involves determining whether an expense is deductible. Distinguishing between representation expenses and negotiation expenses is often unclear. The Finnish Tax Administration interprets representation expenses very strictly, and the burden of proof always lies with the taxpayer.
2. Tax‑exempt capital gains or liquidation gains from fixed asset shares
Shares classified as fixed assets may be disposed of tax free if specific conditions set in Finnish tax legislation are met. It is essential to assess in advance – case by case – whether the shares qualify as fixed assets and whether the tax‑exempt disposal conditions apply.
Misclassifying a subsidiary share disposal gain as tax exempt frequently leads to adjustments to taxable income and additional taxes.
3. Non‑deductible capital losses or liquidation losses from fixed asset shares
Classifying a subsidiary share capital loss as deductible can also lead to mistakes. For companies taxed under the Finnish Business Income Tax Act, determining deductibility requires assessing whether the disposed asset belonged to "other assets" or whether the loss is a non‑deductible fixed asset share loss.
4. Depreciation
Depreciation is a significant tax planning tool in Finnish corporate taxation. Errors in depreciation calculations are common, and their consequences may only become visible in subsequent years.
Under section 54 of the Business Income Tax Act, tax depreciation cannot exceed the amount recorded as an expense in accounting. A company may, however, choose not to claim depreciation at all in a given tax year if it wishes to report a higher taxable result.
Complexities also arise from handling the depreciation difference, “shelf depreciation”, and the sale of movable assets, which in Finnish taxation is recognised indirectly by adjusting the depreciation base.
5. Provisions and write‑downs
Provisions and write‑downs are among the most common areas where accounting and taxation in Finland differ. Accounting follows the prudence principle, whereas Finnish tax legislation typically requires the expense to be final or based on a specific provision.
Only certain provisions – such as warranty provisions – are deductible under Finnish tax rules, while accounting permits a broader range of estimated expenses.
6. Net interest expenses
Interest on business‑related debts can be deducted under certain conditions. Finland’s interest deduction limitation rules generally apply when net interest expenses exceed EUR 500,000 in a tax year.
If this threshold is exceeded, the amount surpassing 25% of the adjusted taxable result is non‑deductible. Interest paid to third parties is deductible up to EUR 3,000,000.
Interpretation Questions in Finland
Group relationship
A debt is considered to originate from a group‑related company if the creditor has a receivable from a third party and the receivable relates to external borrowing.
Definition of interest
For deduction limitation purposes, “interest” is interpreted broadly and includes other payments comparable to interest.
Exceptions
The rules do not apply to:
- independent companies or financial sector companies
- interest on loans related to public infrastructure projects
- situations involving the balance sheet comparison exemption, where net interest expenses are fully deductible.
Given the complexity of Finnish interest deduction rules, companies with more than EUR 500,000 in annual net interest expenses are strongly advised to consult a Finnish tax specialist.
7. Group contribution
Group contribution is a commonly used method for balancing taxable results between Finnish group companies. Each company remains an independent taxpayer under Finnish law.
A group contribution is deductible for the giver and taxable for the recipient in the same tax year, provided all statutory requirements are met. Accurate reporting is essential to avoid unexpected tax consequences.
8. Foreign tax credit and international situations
International companies must pay particular attention to cross‑border tax matters when operating in Finland. Transactions between a Finnish company and foreign related parties must be reported with the tax return.
Double taxation can be relieved through Finland’s foreign tax credit mechanism via a specific attachment form.
Failure to correctly claim the foreign tax credit, or misinterpreting tax treaty income categories (e.g., business income vs. royalties), may lead to additional taxes and penalties.
9. Combined r&d deduction
Companies engaging in research and development activities connected to their Finnish business may qualify for a combined R&D deduction. Eligibility is assessed case by case.
Activities must be creative, systematic, aimed at something significantly new, reproducible or transferable, and uncertain in outcome.
Clear documentation is crucial, as Finnish tax audits in 2023–2024 have shown the Tax Administration’s tendency to classify unsupported R&D claims as normal product development.
10. Mixing private and business expenses
For small entrepreneurs, private and business expenses may easily become mixed. The Finnish Tax Administration is particularly strict if private expenses are incorrectly recorded as business expenses. This may result in tax increases or taxation as hidden dividend distribution.
Get guidance on Finnish corporate taxation
Finnish corporate taxation is complex, and the Finnish Tax Administration maintains strict interpretation practices. Our specialists can help you avoid common risks and ensure compliance with Finland’s tax return requirements.