Dividends. Taxation of dividend income
A dividend is a share from received profit that a company pays out to its shareholders. A payer or bank makes tax withholding at income from dividends, investment funds shares and equity savings account and then forwards them to the Finnish Tax Administration. Dividend income is taxed in a different way depending on whether the company is listed on the stock market or not. The taxation of dividends received from abroad has its own special characteristics as well.
Dividends from a listed company are partly tax-exempted: tax-exempt income makes up 15%. The company paying the dividends withholds 25,5% of tax out of the total amount of the dividends and forwards this tax to the Finnish Tax Administration. Expenses incurred in making a profit are deducted from the taxable dividend income. There is personal liability threshold in amount of EUR 50.
Taxation of dividend income from an unlisted company is affected by mathematical value of a share, which is calculated by the Tax Administration based on the company’s balance sheet data:
- mathematical value of a share = (assets - liabilities) / number of shares
- The dividends received from an unlisted company is taxed as capital income and/or earned income:
The dividend is 8% of the mathematical value of the shares at maximum - capital income.
The dividend is over 8% of the mathematical value of the shares - earned income. - The party that pays the dividends withholds the tax:
up to EUR 150 000 - 7.5% of tax
over EUR 150 000 - 28% of tax from the part over that amount - A part of the dividend is tax-exempt. If the part of dividend treated as capital income is:
up to EUR 150 000 - 75% is tax-exempt income
over EUR 150,000 - 15% is tax-exempt income - All dividends from unlisted companies received in the same year are added together, and taxes is based on the total sum.
- Dividend treated as earned income: 25% is tax-exempt income. Earned income is taxed progressively.
Tax on foreign dividends depends on the country, from which the payment comes.
- Taxation of foreign dividends is carried out in the same way as dividends received from Finland, in case they are from:
European Union (EU) country,
European Economic Area (EEA) country,
A country, with which Finland has a tax agreement concerning dividends. - The dividends of the companies registered abroad are generally subject to a withholding tax-at-source of 15% (USA, Sweden and Canada), 26.4% (Germany), 25% (Norway) and 27% (Denmark) in the company's home country. Withholding taxes are generally taken into account against the domestic taxation, but, note, not in the case of shares purchased in the equity savings account. Excessive withholding taxes can be reclaimed from the company’s home country, but this remains the responsibility of the investor himself.
More information on taxation of dividend income can be found at Finnish Tax Administration website.