The income taxes assessed on limited liability companies and cooperative societies
The income tax rate of 20% applies to the profits of limited liability companies, cooperative societies and other corporate entities. Corporate entities are treated as independent taxpayers: the profit they receive is subject to income taxation and seen as corporate income, taxable to the limited liability company or cooperative society itself. As a result, corporate taxes are not carried through to any individual shareholder or individual member.
In the same way as limited liability companies, cooperative societies, too, are treated as independent, separate taxpayers on the condition that the Finnish Trade Register has finalised the cooperative’s registration before the end date of its accounting year. If the cooperative is not on the Trade Register, its tax treatment is the same as that of a business partnership.
- Cooperatives with no registration: Read more about the income taxes of business partnerships.
- Housing companies: Read more about taxes imposed on a limited liability company that owns and manages residential property.
What is the ground for companies’ income tax?
The income tax rate of 20% applies to the profits of limited liability companies and cooperatives.
The profit subject to income tax is calculated by income source. Two sources exist:
- The business source of income; and
- the agricultural source of income.
Taxable income i.e. the profit subject to tax means the year’s profit, net of any allowed losses originating in previous years. The taxable income items relating to all the different sources of income are first added together, and the resulting sum will then serve as the base for the year’s corporate income tax. Limited companies and cooperatives are no longer treated as having a “personal” source of income.
The company or cooperative must send prepayments in the course of the tax year in order to build an advance balance toward their income tax for that year. The size of the prepayments is based on latest assessment results. This usually means the company’s or cooperative’s income tax return from the previous year. If you are a new business owner holding shares in a limited company, the size of your prepayments for the first year is based on the estimate of your profits that you had given when you started up. If the prepayments received from a corporate entity during the entire year do not cover the entity’s income-tax total, it becomes necessary to pay “back taxes” later. On the other hand, if the corporate entity paid in too much in prepayments when the tax year was still ongoing, it will be paid a refund.
The Tax Administration’s assessment process and the “tax decision”
The income tax return that you submit and the information coming from third parties are the main sources of information that the Tax Administration relies on when assessing your company’s taxes. When the process is complete, the Tax Administration sends you its decision, which shows the year’s assessment results, the refund if any – or the amount of back tax that you still must pay.
What is a corporate entity’s tax year?
Taxes are assessed for one year at a time. If you have a non-calendar year as your accounting period, your tax year is the period(s) that has (have) ended during the calendar year. If more than one period has ended during one year, you must submit a separate income tax return for each one of those periods.
Illustration: The accounting year of a limited liability company begins 1 April 2022 and ends 31 March 2023. The company decides to change its accounting year. After the change, the next accounting period is shorter: 1 April 2023 – 31 December 2023. In this case, the tax year is 2023 for 2 consecutive periods. Because the company must report every accounting period, the company must submit one tax return for the accounting period that ended 31 March and a second tax return for the accounting period that ended 31 December. The income subject to tax this year will be the sum of the 2 accounting periods’ incomes.
When is the assessment process completed?
The Tax Administration’s assessment process will be over on the end date, shown on your tax decision. However, for limited liability companies and cooperative societies, the end date for tax assessment is no later than 10 months from the closing of their accounting period. If two (or more) accounting periods have closed within one calendar year, the 10-month period starts on the closing date of the most recent accounting period.
Illustration: The accounting year of a limited liability company is 1 January 2022 – 31 December 2022. Assessment will end on 31 October 2023 at the latest.
Illustration: The accounting year of a cooperative society is 1 April 2022 – 31 March 2023. Assessment will end on 31 January 2024 at the latest.
You are entitled to add or correct the information reported on your tax return up to the date when the Tax Administration finishes the assessment process for the year. After you have sent additions or made corrections to your income tax return, the Tax Administration may change the end date that had originally been indicated on the decision letter.
Another reason that may cause the end date to be changed is that the Tax Administration decides to prolong your assessment process. This may take place when actions related to tax control have not yet been concluded. In this case, the Tax Administration will send your company a notice stating that the assessment process is still ongoing. The notice is sent well in advance the end date.
If your company has provided some additional or corrected details for taxation, or if the Tax Administration has sent you a notice indicating that the assessment process is still ongoing, the Tax Administration will send a revised decision even if the final result of the assessment does not change. The decision letter will show whether the end date of your tax assessment was changed.
Corporate entities are payers of public broadcasting tax
In addition to the other taxes related to their income, corporate entities are also required to pay public broadcasting tax. This tax is included in the prepayment imposed to your corporate entity during the tax year. Read more about the public broadcasting tax.
- Changing the length of the accounting period (in Finnish and Swedish)
- Changing the form of legal entity (in Finnish and Swedish)
- Limited liability company’s mergers and demergers (in Finnish and Swedish)
- Requesting an advance ruling regarding your company’s taxes