Another long-awaited improvement to Finland’s Income Tax Law is now a reality. A new provision on non-listed companies’ personnel offerings entered into force on 1 January 2021, meaning, in essence, that committing employees by means of share incentives just got a whole lot of easier.
When non-listed limited liability companies issue shares to employees, the subscription price may be lower than the shares' market value. However, if the subscription price is at least equal to the share's mathematical value, an individual employee who buys such shares will not be treated as having received a taxable benefit – a notable improvement to the preceding situation.
In its May 2020 proposal to amend the Income Tax Law, the Finnish Government noted that various countries have adopted incentives systems which are share-based. The tendency has been to focus these incentives on startup companies and tax the benefit only as the shares are sold. Sanna Marin's Government, however, saw no reason to limit the new incentive to apply to startups alone: all non-listed companies can utilize the new incentives system.
Kaija Laitinen, Senior Advisor, Global Insight, at Invest in Finland, credits the Government for making a shrewd move:
"The fact that the provision covers all non-listed companies, regardless of the phase of growth they're in, is great news indeed. Ownership engages employees in startups and SMEs alike," Laitinen says, adding that getting professionals to commit to companies is "extremely important" especially on those sectors that have a shortage of skilled labor.
Furthermore, in many countries incentives rules and regulations form a rather dense jungle which the local companies find pretty difficult to navigate – and when there is limited visibility, there are bound to be misunderstandings and disappointments. Laitinen believes that Finland has avoided this pitfall quite admirably:
"The new provision is very straight-forward and easy to understand, providing companies with an attractive incentives tool," she says.
And how does this all work in practice? According to fresh guidelines from Finnish Tax Administration, a non-listed limited liability company must report on their personnel offering by filing an annual information return. The information on personnel offerings for 2021 must be submitted by the end of January 2022.
The required information includes details on the company, the personnel offering and the employees who participated in the offering. The information is submitted electronically in the Ilmoitin.fi service or in the Tax Administration's e-service.
Companies can start filing information in November 2021.
Senior Advisor, Global Insight
kaija.laitinen (at) businessfinland.fi
+358 40 822 0613