General Information

Republic of Finland is located in Northern Europe, between Sweden and Russia. It covers an area of 337,030 sq. km and has a population of 5,190,785 (July 2003 est.).

The capital city of Finland is Helsinki. Official languages of Finland are Finnish (93.4%) and Swedish (5.9%). Finland has a literacy factor of 100%.

From the 12th to the 19th centuries Finland was a province and then a grand duchy under Sweden and after 1809 an autonomous grand duchy of Russia. Finland won its complete independence only in 1917. After World War II the Finns made a remarkable transformation from a farm economy to a diversified modern industrial economy. Finland is a member of the European Union.

Finland is a federal republic of six provinces. Head of State is the President of Finland elected by direct popular vote for a six-year term. Heads of Government are the Prime Minister and Deputy Prime Minister appointed from the majority party by the president after parliamentary elections. Executive arm of the Government is the Council of State appointed by the President and responsible to the Parliament. Legislative power is vested in the unicameral Parliament (200 seats; members are elected by popular vote to serve four-year terms). Judicial power is represented by the Supreme Court (judges are appointed by the President).

Finland has a highly industrialized free-market economy, with per capita income now on par with Western Europe. Its key economic sector is manufacturing - principally the wood, metals, engineering, telecommunications, and electronics industries. Trade is important, with exports equalling almost one-third of GDP. Except for timber and several minerals, Finland depends on imports of raw materials, energy, and some components for manufactured goods. Finland is a member to the EU, UN, IMF, OECD, FATF, WTO. Currency of Finland is euro (EUR).

Legal system of Finland is civil law system based on Swedish law, the country has accepted compulsory ICJ jurisdiction, with reservations. Principal corporate legislation is the Companies Act (29.9.1978/734).

Incorporation in Finland

There are various types of companies operating in Finland. The most common ones are the Limited Liability Company, General Partnership, Limited Partnership and Cooperative. Limited Liability Company is the most widely used form for foreign investment and international business.

A limited liability company may be established by one or more natural or legal persons (founders), at least one of which must be permanently resident in the European Economic Area. Limited liability companies are divided into private and public. A private limited company must have a minimum share capital of EUR 8,000 and a public limited company - of EUR 80,000. Shares of a private limited company may not be admitted to the public. Liability for the debts of the company is limited to the value of the shares.

A general partnership must have at least two partners, either natural persons or bodies corporate, who are liable for the commitments of the partnership with their entire property.

A limited partnership requires one or more general partners as well as one or more silent partners. A general partner is liable for the debts of the partnership according to the same principals as the partners of a general partnership, and the silent partner? commitments are limited to the amount of his capital investment.

Cooperative may be established by no fewer than three founders, individuals or bodies corporate of any nationality. Founders become members of the cooperative. There are no minimum requirements concerning the capital of cooperatives, the type and scope of activities determine the required capital.

Procedure for incorporating a limited liability company

Limited Liability Company is governed by the Companies Act (29.9.1978/734). Companies come into existence upon registration in the Trade Register maintained by the National Board of Patents and Registration.

The first step in formation of a limited company is to apply to the Trade Register and check if the name is available. The company? name can? be too similar or identical to any already existing company? name, can? suggest banking and insurance businesses or businesses within the financial services industry. Drafting Memorandum and Articles of Association of the proposed company is the next step followed by subscription to the company? shares and a Constituting meeting at which the shareholders adopt the Memorandum and Articles of Association.

Then the share capital of the company must be paid up in full. For this purpose the company opens a banking account in Finland. The bank issues a relevant statement which is submitted to the Trade Register together with the company? constituting documents and basic declaration (containing information on the business and the trade it shall carry on).

Registration fee for incorporation of a limited liability company is EUR 330. All businesses registered with the Trade Register receive a Business Identity Code. Upon registration the company shall receive a register extract containing the details entered into the Trade Register free of charge. The Trade Register may provide the following information with respect to a certain company: its legal existence, articles of association, its representatives and directors and submission of annual accounts for registration. Register entries are accessible both to the public and to the authorities.

Upon registration with the Trade Register the company is expected to register with the Tax authorities and as a VAT payer.

Share capital and shareholders

Authorised share capital of a limited company must be equal or more than EURO 8,000. The whole amount of the share capital must be paid up prior to the company? registration. Shareholders in a limited company may be natural persons or legal entities of any nationality. Minimum number of shareholders is one. Shareholders?details do not appear in the Trade Register. One ordinary general meeting must be held in each accounting period, unless otherwise stipulated in the Articles of Association.

Company Directors

Limited Liability Company must have at least one ordinary director and one deputy director, if the number of ordinary directors is less than three. Half of the members of the board must permanently reside in the European Economic Area. If none of the board members is resident in Finland, the company must have a representative domiciled in Finland. Directors are appointed by the shareholders at the general shareholders?meeting. Director? and representative?details appear in the Trade Register.

Annual reports and payments

Each year companies registered in Finland must prepare and submit their annual financial reports. This requirement is obligatory irrespective of whether the company had any dealings or not. In such case, dormant accounts must be prepared. Bookkeeping of the company must be held in Finland and the company also must appoint a local auditor. Tax returns must be filed within 4 months from the end of their accounting period.

Taxation of Finnish companies

The Tax Administration is supervised by the National Board of Taxes, which is the central taxation authority directly under the Ministry of Finance. Beneath the National Board of Taxes there are the regional tax offices, which perform the taxation process.

The major direct taxes are the state income tax and wealth tax. Corporate tax rate is 29% of the taxable income. Pursuant to the Act on taxation of income in business transaction (24.6.1968/360), as amended, Companies resident in Finland are liable to corporate tax on their world-wide income. Non-resident companies are taxed on their income derived from Finland and on all income attributable to a permanent establishment in Finland. There is no definition for corporate residence in the tax legislation but if a company is registered in Finland it is also deemed to be a resident of Finland. As a rule, business income of residents and non-residents are taxed in the same way.

Taxable income is calculated on the net results (profit or loss) shown by the accounts. Deductible expenses include the expenses incurred in acquiring or maintaining business income, costs for the acquisition of inventories as the assets are sold, expenses incurred in acquiring fixed assets are deducted by depreciation. Losses may be carried forward and set off in the subsequent ten tax years.

In 2003 the minimum amount of assets subject to wealth tax was fixed at EUR 185,000. The rate of tax is EUR 80 for this amount and 0.9% for the amount exceeding EUR 185,000.

Dividends paid by a Finland company to its shareholders are subject to taxation at the rate of 29% (withholding tax). This rate may, however, be reduced subject to Double Taxation Treaties.

Taxes are assessed annually at the same time, within ten months of the completion of the tax year (accounting period or calendar year) of the taxpayer. Taxes are assessed by the tax office in the taxable person's place of residence. Once the assessment has been completed, taxpayers receive a tax notice, which shows the amount of the final tax.

Standard VAT rate in Finland is 22%, though a reduced rate of 17% (for foodstuffs and animal feed) and of 8% (passenger transport services, accommodation services admissions to theatres, concerts museums and other comparable cultural and entertainment performances medicines and books) are applicable for some categories of goods and services. The sale or goods or services may be exempted from VAT if the sales do not take place in Finland, the goods or services are not sold in the conduct of business or when special provision concerning corporate bodies for promoting the public goods apply. Value added tax shall be paid monthly by the 15th each month.

Information and documents needed for incorporation of a Finnish limited liability company:



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What is offshore?

The word "offshore" has no precise legal dictionary definition, it simply means "situated or operating in a foreign country or at some distance from the shore" and reflects the fact that most low tax jurisdictions are islands.


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