Finland – Exit Tax Proposed for Individuals

Background

If enacted, the proposed exit tax (Arvonnousuvero in Finnish, literally translated as “tax on increased value”) would lead to a significant expansion of Finland’s right to tax the assets of wealthy individuals who move away from Finland. Most non-real estate types of income would be subject to the tax, including:

• company shares
• shares in national and foreign investment funds
• options
• futures
• capital redemption policies
• endowment insurance
• pension insurances
• virtual currencies

Exit taxes are already in use in many European countries. In the jurisprudence of the EU court, exit taxes have as a main rule not been viewed as being contrary to any of the EU treaties, provided that the payment of the tax can be postponed until the individual actually sells the assets subject to exit tax.² Among the Nordic countries, Denmark and Norway have exit taxes, while in Sweden an exit tax proposed in 2018 was eventually canceled due to criticism.

The purpose of the Finnish exit tax is to increase tax revenue and to close a loophole within Finnish tax law allowing individuals who own assets that have increased in value to move to a country that does not tax capital gains (or that has much lower tax rates for capital gains) and then sell the assets with minimal tax consequence. In Finland, capital gains are typically taxed at a tax rate between 30-34%, whereas, for example, Switzerland (which is explicitly used as an example in the government’s preliminary draft) does not tax capital gains at all. Exit taxes are already used in Finland in corporate taxation and certain stock share exchange situations, but a general exit tax for private individuals has not previously been in use in Finland.

Content of proposal

The exit tax would apply to individuals moving from Finland who before moving have had their tax treaty residence and been tax residents (based on national law) in Finland for at least 4 years of the previous 10 years. Additionally, for the exit tax to apply, the value of the individual’s assets must meet certain criteria. On the date before the individual moves from Finland, the assets subject to exit tax must at minimum:

• be valued at EUR 500,000, and
• have a EUR 100,000 hypothetical capital gain

The exit tax would be triggered by either the tax treaty residence changing or the individual becoming a non-tax resident in Finland. The tax basis is the assets’ total increased value (potential decreases in an asset’s value are also accounted for) from the time when the individual lived in Finland and the tax rate would be calculated using the standard capital gains tax rates (30-34%).

• Example: An individual buys company shares for EUR 400,000, which are later valued at EUR 600,000 when the individual moves away from Finland. In this case the potential exit tax on the company shares would be calculated as follows: (EUR 600,000 – EUR 400,000) * approx. 34% = EUR 68,000.

The income subject to exit tax would be considered as income in the tax year when the individual moves from Finland. However, the individual will have the right to postpone the payment of the tax until the assets in question are actually disposed of in a sale or gift. In case the assets are not in any way disposed of for 8 tax years following the year when the individual moved away from Finland, then exit tax would no longer be applicable (e.g., if an individual moves away from Finland in 2023, then the individual’s assets would no longer be subject to exit tax starting from tax year 2032).

Individuals subject to exit tax would have a yearly reporting obligation as long as assets they owned when moving from Finland remain in their possession. Individuals would have to report the increase or decrease in value of all the assets subject to exit tax. The reporting obligation would end either when all of the assets in question have been disposed of or when the 8-year period has passed.

Contacts