Withholding taxation, tax-at-source, and annual information returns in the financial sector
Financial institutions withhold and report taxes both in the role of a payor as well as on behalf of other payors.
For example, an account operator typically withholds and reports tax on dividend income on behalf of the payor. Tax is withheld on the basis of whether the beneficiary is classified as a resident or nonresident for tax purposes. Read more from our detailed guidance:
- Tax residency, nonresidency and residency in accordance with a tax treaty – natural persons
- Resident and nonresident tax liability of corporate entities
Nominee-registered shares and taxation of dividends - the payor withholds the tax-at-source
The payor must withhold tax-at-source on dividends that it pays out to nonresidents, whether shares are owned directly or through nominee-registered accounts.
When dividends are paid by a publicly listed company to nominee-registered shares, the primary tax liability and reporting responsibility are with the Authorised Intermediary that has taken responsibility for these dividends paid to nonresidents.
Read more about dividends paid to nominee-registered shares.
The payor must submit annual information returns
The payor must submit annual information returns to the Tax Administration on certain income, such as dividends paid to non-residents. Other actors in the financial sector may also have reporting responsibilities in certain situations: for example, an Authorised Intermediary must submit and annual information return on dividends it has forwarded.
Actors in the financial sector provide the following annual information returns:
- Purchase and sale itemization for Securities and Derivatives (VSAPUUSE)
- Insurance payments made to private and agricultural traders (VSVMAKSE)
- FATCA, CRS and DAC2
- Annual Information Return concerning Interest calling for Taxation at Source (VSKTVYSL)
- Annual Information Return On Issued Loan Principal, and On Receipts of Interest (VSLAINAE)
- Annual Information Return of those who charge Asset Management fees (VSOMHOIE)
- Annual information return on dividends, Summary section and Itemization section (VSOSYHTV and VSOSERIT)
- Annual Information Return concerning Refunds of capital (VSPAOPAL)
- Annual information return for payments made to nonresidents
- Annual information return on dividends paid to nonresident beneficiaries (VSROSERI)
- Annual information return on interest payments, made to nonresident beneficiaries (VSRKOERI)
- Annual information return on other payments made to nonresident beneficiaries (VSRMUERI)
- Authorised Intermediary’s annual information return (WRP101)
- Annual information return on dividends paid to nonresidents by a listed company (WRP102)
- Annual Information Return concerning Payments governed by Income Tax Act (VSTVERIE)
- Payments for voluntary pension insurance and restricted long-term saving (PS-saving) (VSELVAKE)
- Annual information return about equity savings accounts (VSOSAKET)
- Annual information return concerning transferred foreign dividends (VSULKOSE)
How to report annual information
Making corrections to submitted annual information returns
Annual information returns & Instructions
Applying for a refund of withholding tax on dividends
The rate of withholding depends on the provisions of the applicable bilateral tax treaty between Finland and the country of residence of the dividend beneficiary. If too much tax has been withheld at source, a nonresident dividend beneficiary is entitled to ask for a refund from the Finnish Tax Administration after the year of payment.
The dividend beneficiary can also apply for a tax-at-source card from the Finnish Tax Administration during the year of payment. The dividend beneficiary can present the card to the Finnish payor before the income is paid, allowing the payor to withhold the correct amount of tax-at-source when the payment is made. In cases where the payment has already been made, and too much tax was withheld upon payment, the holder of a tax-at-source card can apply for a quick refund from their account operator, but only during the payment year itself.
Read more about applying for a tax-at-source card or refund of tax-at-source.
Tax treatment of carried interest
Carried interest is a share of the profits granted as a reward for equity investment. In tax assessment, it may be treated as earned income or capital income depending on the case.
Please contact us by e-mail at suuryritysasiakkaat(a)vero.fi so that we can make a preliminary decision on your tax treatment. This allows us to settle any unclear points effectively and in real time.
Frequently asked questions on cash compensation paid in lieu of dividends (cash compensation)
- A cash compensation in lieu of dividends is not a dividend payment.
- If no dividends have been paid on the shares traded, neither to the seller nor to the buyer, it is not possible to adjust dividend payments between the parties later. In such a case, compensation paid to the buyer for non-received dividends is typically cash compensation.
- The cash compensation is not paid by the issuer but, as a rule, by the party that failed to fulfil its obligation.
- Only identity information of dividend beneficiaries is reported in the authorised intermediary’s annual information return (WRP101).
- Cash compensation paid to non-resident taxpayers is reported using payment type D3 (monetary compensation) in the annual information return on payments to non-residents (VSRMUERI).
- If the payer is a resident taxpayer in Finland, it is liable to withhold tax at source based on § 9(1) of the act on tax prepayments (Ennakkoperintälaki 1118/1996).
- As a rule, the payer is the party that makes the payment from its own funds.
- The obligation to withhold tax at source also requires that the cash compensation is paid because the payer is obliged to compensate the buyer for the dividends the buyer did not receive from Finland despite being entitled to them under the terms and conditions of trading.
- In practice, tax treaties often provide that only the country of residence of the party receiving cash compensation has the taxing right. In such a case, Finland does not have the right to tax the income, and no tax can be withheld.
- An annual information return must be filed on the cash compensation paid to the non-resident taxpayer if the payment is subject to tax at source.
- No, the non-resident custodian should not withhold tax at source from the cash compensation in this case, because the income is not received from Finland.
- In such a case, an annual information return need not be filed in Finland.
- When a cash compensation in lieu of dividends is paid, a receipt for a dividend payment cannot be provided for purposes of taxation in Finland. Instead, the receipt must indicate that the payment is cash compensation paid in lieu of dividends.
- The receipt must also indicate to which country the tax has been paid.
Tax Administration's decision on the general requirement to report information
Tax Administration has issued a decision on the general requirement to report information (Verohallinnon päätös yleisestä tiedonantovelvollisuudesta, VH/3818/00.01.00/2020). The official decision has been issued in Finnish and Swedish. Specific sections concerning foreign operators in the financial sector has been translated also in English.
- Verohallinnon päätös yleisestä tiedonantovelvollisuudesta, official decision
- Tax Administration’s decision on the general requirement to report information (pdf), unofficial translation of specific sections
Detailed guidance only in Finnish and in Swedish
- Ennakonpidätys osingosta ja Verohallinnolle annettavat ilmoitukset
- Ennakonpidätyksen toimittaminen
- Hallintarekisteröidyn kotimaisen osakeomistuksen verotusmenettelystä
- Osinkotulojen verotus
- Osingon sijaan maksettu rahakorvaus
- Arvopaperien luovutusten verotus
- Korkotulojen verotus
- Joukkovelkakirjalainojen verotuksesta tuloverolain mukaan
- Sijoitusrahastosta saatavien tulojen verotus
- Johdannaisten verotus
- Omaisuuden luovutusvoitot ja -tappiot luonnollisen henkilön tuloverotuksessa
- Osuuskunnan ja sen jäsenen verotuksesta
- Kapitalisaatiosopimuksen verotus
- Pitkäaikaissäästämissopimuksen ja vapaaehtoisen yksilöllisen eläkevakuutuksen verotus