(May 28, 2013) On May 13, 2013, Decree A 341/2013, which puts into force the Law on Investment Relief for Fiscal Years 2013-2015 (hereinafter Law on Investment Relief), was published in Finland’s official gazette. The Decree also provides for the publication of an amendment to section 16 of the Law on Tax Procedure (Amendment Act No. 994/2012). All the Decree’s provisions entered into force on May 15. (Laura Pakarinen, Temporary Tax Incentive for Individuals Investing in Small Growth Companies Introduced, International Bureau of Fiscal Documentation (IBFD) online subscription database (May 21, 2013); Government Decree 341/2013 (issued on May 8, 2013) [in Finnish], FINLEX.)
The new Law on Investment Relief (Laki sijoitustoiminnan veronhuojennuksesta verovuosina 2013-2015, No. 993 of 2012 (Dec. 28, 2012), FINLEX) applies to investments made May 15, 2013, through December 31, 2015. Some highlights of the Law are:
- special tax relief in the form of a 50% deduction from the capital income made from the investment, made in a qualifying company, for natural persons resident and subject to unlimited tax liability in Finland, with a maximum annual deduction of €75,000 (about US$96,644) allowed per company, subject to a total annual maximum of €150,000, but with no deduction given if the deductible amount is less than €5,000;
- the requirement that the qualifying company be a Finnish company limited by shares or a corresponding entity resident in another European Economic Area Member State (the countries of the European Union, of which Finland is a member, plus Iceland, Liechtenstein, and Norway) that is liable to tax and has a permanent establishment in Finland and is not publicly traded;
- the requirement that the investment correspond to less than 50% of the qualifying company’s share capital after the investment is made; and
- the limit of a maximum of €2,500,000 (about US$3.2 million) of investments per calendar year receivable by the company in which the investment was made, with no deductions granted to the investors if the investments exceed that amount. (Pakarinen, supra.)
Furthermore, the Law specifies requirements applicable to the company qualifying for investment. It must:
- have less than 50 employees, a turnover or balance sheet total of at most €10,000,000, and otherwise comply with the European Commission Recommendation on small and medium-sized enterprises (Commission Recommendation of 6 May 2003 Concerning the Definition of Micro, Small and Medium-Sized Enterprises, 2003/361/EC, 2003 O.J. (L 124) 36);
- have been registered in the company register or a corresponding foreign register for a maximum of six years when the investment is made;
- be engaged primarily in business activities other than banking, insurance, real estate, and investment in or trading with stocks (also, investment in shipbuilding or coal and steel production companies will not qualify for the tax relief); and
- be unrelated to the investor, “i.e. the investor does not own or has not owned, during the preceding three calendar years before the tax year in which the investment is made, any shares in the target company either by himself or by a person in his sphere of interest or via a company owned wholly or partially by such a person.” (Pakarinen, supra.)
The incentive for investment in small businesses had previously been mentioned in <?Finland's 2013 budget, but it took time for the Law on Investment Relief to be enacted because the incentive first had to be approved by the European Commission, under the European Union's rules on state aid. (Id.; Laura Pakarinen, Finland: Ministry of Finance Publishes Its Budget Proposal for 2013 – Details, International Bureau of Fiscal Documentation online subscription database (Aug. 9, 2012); State Aid Control: Legislation, European Commission website (last updated Apr. 16, 2012).)