International Correspondence Lawyers & Financial Experts

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*1 In Finland, the Limited Company (osakeyhtiö, "Oy") is the only economically relevant form of company. There is no separate smaller form of company such as the German GmbH or the French Sarl. In Finland, the Limited Company is the form of choice for big quoted enterprises as well as for small and medium-sized undertakings. Finnish law makes a distinction between private and public companies limited by shares. The mark "Oy" stands for private companies limited by shares and "Oyj" for the public ones. The Private Limited Company is the most common form of limited company in Finland and its economic function is the equivalent of GmbH in Germany and Ltd. in England. The Public Limited Company is the form of choice for companies considering a listing in the stock exchange.

*2 A limited company may be founded by means of an entirely written procedure. The National Board of Patents and Registration of Finland provides all the forms needed for the foundation of a company.

The central task in the foundation of a company is the drafting of the articles of association in accordance with the needs of the company. The law leaves the founders of the company leeway for customised provisions. The mandatory content of the articles consists only of the company’s business name, its place of business and its purpose. Therefore, the articles may be very short in extreme cases, and all detailed questions can be left to the default provisions of the Limited Companies Act. However, in most cases the specific purpose of the company, its relation to the shareholders and their relation to each other will necessitate detailed individual provisions, e.g. with regard to voting rights, distribution of profits, pre-emption rights, or formalities in respect of shareholders’ meetings.

The company must keep a share register noting the division of the shares between the shareholders.

*3 The central managing organ of the company is the board (“hallitus”), consisting of one or more members. If fewer than three members of the board are nominated, one substitute member must also be appointed. Unless the company has been granted an exceptional allowance, at least one member of the board must be a resident of the European Economic Area.

In addition to the board, the company may appoint a managing director (“toimitusjohtaja”). In practice, the vast majority of Finnish companies have a managing director. If a managing director has been appointed, she runs the usual business of the company. The authority of the managing director is limited to the usual course of business, insofar as the articles of association do not provide otherwise.

In practice, the board often does not work on a continuous basis in the company. It is, however, the organ actually responsible for the management of the company. It has responsibility for supervising the managing director and giving the managing director instructions as to how to fulfil his or her duties. The prominence of the board also has consequences as to liability.

The appointment of a supervisory board (“hallintoneuvosto”) is optional for all limited companies. If the articles of association provide for a supervisory board, it may entrust the latter with the appointment of the board and/or tasks falling within the scope of competences of the board. However, the supervisory board cannot legally represent the company.

If none of the board members is resident in Finland, a representative with residence in Finland must be appointed.

*4.1 Personal tax for earned income in Finland consists of two components: One is a progressive state tax and the other a non-progressive municipal tax that varies from one municipality to the other according to the taxpayer’s place of residence. The average municipal tax is about 18.5%. The state tax is determined according to the following table (fiscal year 2008):

The tax rate for capital income is 28%. No municipal tax is levied on capital income.

*4.2 Dividends paid by a Finnish company to a parent company are generally tax free. When dividends paid to a natural person, 70% of the dividends are considered taxable earned income. Any corporate tax paid by the company is not taken into account in the taxation of dividends.

A source tax of 28% is levied on dividends paid by a Finnish company to a foreign shareholder. This does not concern dividends paid to a shareholder that is a corporation resident in the European Union holding at least 20% of the shares in the Finnish company. In other cases, the source tax is also influenced by the various tax treaties between Finland and the country of residence of the shareholder, usually reducing the rate to 15%.

*4.3 The standard rate of Finnish Value-added tax (VAT) is 22%. In addition, two reduced rates are in use: 17%, which is applied for example on food, and 8%, which is applied for example on passenger transportation services. Tax is computed on the total charge for goods or services, excluding the amount of tax.

Liability to VAT does not arise if a company's yearly turnover is below EUR 8,500. Such enterprise may still voluntarily register as VAT liable so as to make use of the possibilities of VAT deduction. If a foreign enterprise has a permanent establishment in Finland, it will be entered in the VAT register in the same manner as the Finnish taxpayers. If the foreign enterprise does not have a permanent establishment in Finland and has not applied for taxable status for selling in Finland, usually the buyer is VAT-liable for the goods and services sold in Finland by the foreign enterprise.