Taxation of investment funds' shares
The core idea of an investment fund is in raising capital from individual investors and investing it in different objects, such as shares, to get a profit. The investment fund is divided into shares / units of equal value.
Taxation on income from fund shares is based on the capital gains tax rate. There are two types of fund shares:
Profit shares (Fund that pay out dividends)
Growth shares (Fund with reinvested dividends)
- Withholding tax on a profit share of an investment fund is 30 %.
- As for growth shares, tax have to be paid only when they are sold.
- It is possible to exchange profit shares for growth shares and vice versa without tax, but only within the same investment fund.
- When selling the investment fund shares, it is possible to determine the result, i.e., your profit or loss:
- by subtracting the fund shares purchase price and expenses incurred (brokerage fees, handling fees) from the selling price of the shares
- by deducting the fund shares' taxable value, that is confirmed by the Finnish Tax Administration, in case of receiving them by a gift or inheritance (+ expenses incurred). That is, in this case, the taxable value of the fund share received as an inheritance or a gift is used as the purchase price.
- by deducting a “deemed acquisition cost” from the selling price:
20% from the selling price for those who owned the fund share for less than 10 years
40% for those who owned the share longer than 10 years - Note: you cannot deduct the purchase price and incurred expenses from the fund shares selling price, if you use the deemed acquisition cost.
- Incurred losses can be deducted from your total capital income. If there is no capital income or it is lower than the sales losses, the deduction can be transferred to the following 5 years.
- The FIFO (First In – First Out) principle is often applied to the sale of fund shares. It means that the purchase prices of the sold shares in every transaction have to be deducted in the same order as the shares had been bought.
In some cases, it is possible to ask the fund management company to redeem the shares referred to in a specific share certificate or shares with a specific serial number. - The tax on the profit from a foreign investment funds paid in the country of source is credited against Finnish taxes.
More information on taxation of investment funds shares can be found at Finnish Tax Administration website.