01/09/22

EUROPE: Finland plans exit tax on individuals' assets.

As published on step.org/industry-news, Thursday 1 September, 2022.

The Finnish government is consulting on a proposed exit tax on the movable assets of any individual who has been tax-resident for at least four of the previous ten years.

The tax will be charged on capital gains arising at the time the owner was resident in Finland and will apply to individuals who either change their tax treaty-residence or become non-tax-resident under domestic law. Foreign citizens as well as Finnish nationals will have to pay the tax, which will be assessed at the usual 30 – 34 per cent capital gains tax (CGT) rate, even if the taxpayer does not dispose of the asset until after they have left.

Most movable assets held either directly or indirectly will be taxed, such as shares, options, futures, insurance policies, pensions and virtual currencies. However, the tax rules will apply only where the individual holds taxable assets worth at least EUR500,000 and where the deemed capital gain on exit is at least EUR100,000.

The deemed gain will be treated as income of the tax year during which the individual's tax residency ends. However, taxpayers can request that payment is deferred until the disposal of the asset and the capital gain will then be treated as income of the tax year the disposal actually occurred. An asset will be entirely exempted from the tax if it is not assigned before the eighth tax year following that of the individual's Finnish tax residence ending.

The proposal is expected to meet opposition, says law firm Dittmar and Indrenius, which notes that it from the technical tax perspective the draft ‘seems to give rise to potential juridical and/or economic double taxation in a number of ways’.

The Finnish finance ministry is consulting with experts and other interested parties on the proposal. If enacted, the tax will come into force early in 2023.