This guide is for informational purposes only. Reach out to your tax advisor for any consulting or advice.
Taxation of profit distributions
A capital gain or capital loss is realised when the shares are redeemed.
Calculation of the capital gain or loss
The amount of capital gains or losses is calculated by subtracting the purchase price of the shares and the expenses made in making a profit, such as subscription or redemption fees from the selling price of the shares.
The amount of gain or loss can also be calculated using the deemed acquisition cost method (hankintameno-olettama), which means:
if the fund share was owned for under 10 years, the deemed acquisition cost is 20% of the selling price; and
if the share was owned for at least 10 years, the deemed acquisition cost is 40% of the selling price.
When using the deemed acquisition cost method, other expenses can’t be deducted.
Capital gains and capital income are taxable at the current 30% rate. If the amount of capital gains or capital income of the investor exceeds 30,000 EUR annually, the exceeding amount is taxed at the current rate of 34%.
Capital losses on the fund sale shares are deducted from capital gains during the realisation year. If there are no capital gains, or if the income is lower than the capital losses that need to be deducted, the deduction will be done from the capital income of the investor. If there’s no capital income during the realisation year, the loss is carried over to the following 5 years.
Application of the FIFO principle
FIFO (First In – First Out) principle is applied to the sale of the fund shares. Under FIFO, fund shares purchased first will be disposed of first. The purchase prices of the sold shares will be deducted from the sales prices in the same order as the shares were acquired.
The tax on the profit share of a foreign investment fund is credited in Finland
When invested in a foreign fund, the country of the fund may levy taxes on the profit paid for the profit shares of the fund. This is usually due to the profit share being equated with dividend income in the country in question. In such cases, the tax is credited against the paid Finnish taxes. The investor needs to claim for this credit.
Reporting via tax return
The investor is liable to report the income or loss and the holdings to the Finnish Tax Administration on the annual tax return.
The taxation depends on if the fund shares are part of the business assets of the sole trader. If they’re not a part of the business assets, the income related to the shares is taxed for other private individuals.