Taxation on non-cash dividends

This is an unofficial translation. The official instruction is drafted in Finnish and Swedish languages (VH/6691/00.01.00/2024).

These instructions describe the tax treatment of non-cash dividends. These instructions do not cover value‑added taxes.

Updates have been made in order to reflect the changes, in force from 1 January 2025, to the provisions of the Act on transfer tax (Varainsiirtoverolaki (931/1996)). The Act’s new provisions contain detailed rules on a reversed liability for paying transfer taxes in situations where a Finnish limited liability company distributes securities as a non-cash distribution. This means that the transfer tax liability, which usually concerns the recipient of any transfer of property, will lie on the transferor instead. Reversal of the parties’ liability for filing and paying transfer tax does not extend to foreign companies that distribute securities for non-cash dividends nor to situations where property items other than securities – including real estate – are distributed.

1 Introduction

A limited liability company can pay out dividends in assets other than cash (dividend in kind, often also called in specie or in natura). A typical example is a distribution of another company’s stocks. Securities, real estate units, apartment shares or motor vehicles may also be distributed.

Cash dividends may be distributed simultaneously with dividends in kind. If corporate stocks are distributed, some shareholders can be paid cash dividends so that an amount equalling a share fraction is credited to recipients of dividends in cash.

The amount distributed in kind is deemed to be the fair market value of assets on the day when the dividends first become available to the shareholders for withdrawal. If the company’s general meeting did not set an exact date when dividends become available, the date when the general meeting was held will be deemed as the date when they first become available. If the distributing company is listed in a stock exchange, it will normally have set an exact date of payment, indicated in the text of the listed company’s decision to distribute dividends. Therefore, if listed-company stocks are distributed, the amount of the dividends is the weighted average price of the company’s stock, quoted on the dividend payment date as referred to by the company’s decision.

These instructions describe the tax treatment of non-cash dividends in Finland from the perspectives of recipients of dividends who may be resident taxpayers or non-resident taxpayers, and from the perspectives of both Finnish and foreign distributing companies.

From the recipients’ point of view, dividends in kind are income subject to income tax in the same way as cash dividends are. As a result, the type of assets that the non-cash dividends represent has no effect on the recipient’s income-tax assessment. Instead, the important aspects from the recipient’s perspective are whether the distributing company is listed or non-listed, whether the recipient is a natural person or a company, and certain other circumstances. Taxation on dividend income is discussed in more detail in the Tax Administration’s guidance “Taxes on receipts of dividends” — Osinkotulojen verotus, (available only in Finnish or Swedish).

If the distributing company distributes securities or units of real estate, the transaction is subject to the rules governing transfer taxes applicable to assets such as securities or real estate. Transfer tax is payable on the transaction. If a Finnish limited liability company distributes securities, the company must file and pay transfer tax. If a foreign company distributes non-cash dividends (a company established under the laws of another country, not Finland) in the form of securities or in the form of real estate, the recipient of the dividends must file and pay transfer tax. However, the tax does not need to be paid if the transferred asset consists of corporate stocks in a business enterprise, and if neither one of the parties to the transfer is a resident taxpayer in Finland, a branch located in Finland of a foreign credit institution, a Finnish branch of an investment service firm or of a finance company. If the distributing company is committed to covering the transfer tax that would otherwise be payable by the recipient of dividends, the transfer tax will be deemed as part of the taxable dividends in the recipient’s hands (ruling of the Supreme Administrative Court, KHO 2020:127).

The distributing company may be under an obligation to withhold tax on the taxable dividends upon payment, including tax-at-source on dividends going to a nonresident, if cash dividends are also distributed simultaneously with the non-cash dividends. If dividends paid in cash were not distributed simultaneously with dividends in kind, or if the recipient is a corporate entity or a business partnership, the recipient must pay income tax or tax-at-source on the recipient’s initiative. The payer of dividends must submit an annual information return on dividends to the Tax Administration.

2 Income tax

2.1 A natural person or estate as the recipient of dividends

For natural persons and estates of deceased persons, the taxability of non-cash dividends is determined in the same way as that of cash dividends. If the distributing company is foreign or if the property item to be distributed is real estate, and the payer of dividends is committed to covering transfer tax on the dividend recipient’s behalf, the transfer tax will be part of dividend income and its taxability will be determined in the same way as that of cash dividends. If a Finnish limited liability company distributes non-cash dividends in the form of securities, the company must file and pay transfer tax. Where securities are distributed this way, the paid transfer tax is not included in the taxable income in the hands of the recipient.

The dividends’ value is the market value of the distributed non-cash assets on the day when the dividends were first available for withdrawal. If the company’s general meeting did not set an exact date when they become available, the date when the general meeting was held will be deemed as the first date of availability. If the general meeting sets an exact date of payment when the dividends become available, they are taxable income for the tax year of that date. If the distributing company is listed in a stock exchange, it will normally have set the exact date, which is indicated in the text of the listed company’s decision to distribute dividends. As a result, when a company has distributed stocks of a listed company, the value of these non-cash dividends is the weighted average price of that listed company’s stock, quoted on the dividend payment date that the distributing company’s decision refers to.

The taxability of non-cash dividends distributed by a listed company is determined according to the provisions of § 33 a, subsection 1 of the Act on income tax (Tuloverolaki (1535/1992)) if the dividends are part of the recipient’s personal source of income. For more information on how ‘listed company’ is defined and how dividends received from a listed company are taxed within the personal source of income, see section 2.1 of the Tax Administration’s guidance “Taxes on receipts of dividends” — Osinkotulojen verotus (in Finnish or Swedish, link to Finnish).

In the case of a non-listed company distributing dividends in kind, receipts by a natural person or an estate of a deceased person are split in the same way between capital income and earned income as cash dividends would be (§ 33 b, subsections 1 and 2 of the Act on income tax), if the dividends are part of the recipient’s personal source of income. For more information on how dividends received from a non-listed company are taxed within the personal source of income, see section 2.2 of the Tax Administration’s guidance “Taxes on receipts of dividends” — Osinkotulojen verotus (in Finnish or Swedish, link to Finnish).

For more information on the treatment of dividends that belong to a business source or an agricultural source of income for a natural person or estate, see section 2.4 of the Tax Administration’s guidance “Taxes on receipts of dividends” — Osinkotulojen verotus (in Finnish and Swedish, link to Finnish).

Receipts of dividends in kind in the hands of a Finnish-resident natural person or an estate are shown on the pre-completed tax return. The pre-filled details and figures are based on the annual information return received from the distributing company.

2.2 A company as the recipient of dividends

For tax purposes, the term ‘company’ refers to corporate entities such as limited liability companies and cooperatives, and to business partnerships such as general and limited partnerships. When a company receives non-cash dividends, they are taxed in the same way as cash dividends are. If the distributing company is foreign or if the property item to be distributed is real estate, and the payer of dividends is committed to covering transfer tax on the dividend recipient’s behalf, the transfer tax will be part of dividend income and its taxability will be determined in the same way as that of cash dividends. When a Finnish limited liability company distributes non-cash dividends in the form of securities, the company must file and pay transfer tax. Where securities are distributed this way, the transfer tax is not included in the taxable income of the recipient although the distributing company paid it.

The tax treatment of dividend in kind received by a limited liability company or cooperative is usually determined as provided in § 6a of the Act on the taxation of business income (Laki elinkeinotulon verottamisesta (360/1968)), regardless of the source of income to which the income belongs to. The tax treatment of dividends received by corporate entities is discussed in more detail in section 3 of the Tax Administration’s guidance “Taxes on receipts of dividends” — Osinkotulojen verotus (in Finnish and Swedish, link to Finnish).

Dividends received by partnership-type companies (ay, ky, öb, kb) are taxed as the partners’ income on the basis of § 16, subsections 3 and 4 of the Act on income tax. In other words, they are taxed the same way as all the other income of business partnerships. The taxable and tax-exempt parts of the received dividends are determined in the partners’ tax assessment in accordance with the tax rules that apply to the partner’s taxation as appropriate. Taxation on dividends received by business partnerships is discussed in more detail in section 4 of the Tax Administration’s guidance “Taxes on receipts of dividends” — Osinkotulojen verotus (in Finnish or Swedish, link to Finnish).

The dividends’ value is the market value of the distributed non-cash assets on the day when the dividends were first available for withdrawal. If the company’s general meeting did not set an exact date when the dividends become available, the date when the general meeting was held will be deemed as that date. If the distributing company is listed in a stock exchange, it will normally have set the exact date, indicated in the text of the listed company’s decision to distribute dividends. From the perspective of the receiving company’s income taxes, the tax year for which the dividend income is taxable is the year during which the distributing company decided to distribute the dividends.

Corporate entities and business partnerships that receive dividends are required to declare them on their income tax returns for the year.

2.3 The acquisition cost and the date when the assets were received

When non-cash assets are received in a dividend distribution, the received asset’s acquisition cost is the asset’s fair market value at the date when the dividends first became available to the shareholders. This means the entire fair market value of the assets concerned, even if the dividend income would be tax-exempt for the recipient, fully or in part. When a Finnish company has distributed non-cash dividends in the form of securities, the transfer tax paid will not be added to the acquisition cost because the transfer tax liability lies on the distributing company, and because the transfer tax is not a part of the dividends. If a foreign company or a company that distributed a unit of real estate for dividends has paid transfer tax on the recipient’s behalf, the entire transfer tax needs to be added to the acquisition cost even if the dividends had been tax-exempt income for the recipient, fully or in part.

The significance of the acquisition cost of assets in income taxation varies depending on the characteristics of the asset, on the dividend recipient, on the source of income, and on the type of the asset or property. For example, if the recipient is entitled to deduct the acquisition cost of the assets through depreciation year-on-year, the acquisition cost would form the base for the calculation of depreciation. Correspondingly, calculations related to corporate net worth are often performed using residual acquisition cost values of the company’s assets. If an asset received in a non-cash distribution is later sold to a third-party buyer, or transferred otherwise to a third party, and the transfer is subject to taxation, the calculation of capital gains or losses would require knowledge of the asset’s acquisition cost.

The start date of asset ownership is the date when the dividends were first made available to shareholders for withdrawal. This concerns all the taxpayers and entities that are involved. The length of ownership may affect the calculation and taxability of capital gains, and correspondingly, it may affect the deductibility of capital losses. For more information on how stock dividends’ durations of ownership are calculated, and for information on various transfers of corporate stocks in the taxation of natural persons, see the Tax Administration’s guidance “Taxes on sales and other conveyances of securities” — Arvopapereiden luovutusten verotus (in Finnish and Swedish, link to Finnish).

2.4 Taxation on the company paying dividends

From the perspective of the distributing company paying out non-cash dividends, the transaction is a transfer of assets at fair market value to another party. The date of the transaction is the date when dividends first become available (ruling of the Central Tax Board 72/1997). The selling price of the assets distributed is deemed to be the fair market value of the assets on that date.

In general, the fair market value of assets distributed as dividends is taxable income in the income taxation of the company distributing the dividends, and the undepreciated acquisition cost of the assets is tax-deductible as an expense. With regard to the company’s business source of income, the asset type of the assets distributed may affect the tax treatment of the selling price and the way the company can deduct the assets’ acquisition cost. For example, if shares in another company are distributed, the selling price (or other comparable price) of the shares may be tax-exempt and the acquisition cost may be non-deductible based on § 6 b of the Act on the Taxation of Business Income. The asset’s acquisition cost may also be deductible with certain limitations when the asset falls into the “other assets” category.

The conditions of applying the provisions of § 6 b of the Act on the Taxation of Business Income are discussed in more detail in the Tax Administration’s guidance “Tax treatment of transfers of corporate stocks” — Yhteisön käyttöomaisuusosakkeiden luovutusten verokohtelu (in Finnish and Swedish, link to Finnish). The deduction of the acquisition cost of commodities belonging to the asset type of other assets is discussed in more detail in the Tax Administration’s guidance “Removal of the previous division between different sources of income” — Eräiden yhteisöjen tulolähdejaon poistaminen (in Finnish and Swedish, link to Finnish).

If a Finnish company distributes securities, the Finnish company will be liable for paying transfer tax. In this case, the transfer tax will be a deductible expense for the distributing company when its income taxes are assessed for the year, because the transfer tax is seen as an expense to be paid because the company distributed dividends.

If the asset distributed to shareholders is a unit of real estate or if the distributing company is a foreign corporate entity, the party liable for paying transfer tax is the recipient of the dividends. If in these circumstances, the company distributing dividends commits to carry responsibility for the transfer tax for which the recipient would be liable, the amount of transfer tax will also be regarded as a distribution of profit in the income-tax assessment of the distributing company. The above distribution of profit is non-deductible for the company because the question is not of expenses arising from obtaining or retaining income (see the Supreme Administrative Court’s ruling KHO 2015:84 and Central Tax Board 63/2019 (no amendment, record no. 4279 of the Supreme Administrative Court, 25 November 2020)).

3 Transfer tax

3.1 Non-cash dividend distribution consists of securities

From 1 January 2025 a number of changes to the provisions of the Finnish Act on transfer taxes (Varainsiirtoverolaki (931/1996)) have come into force. The new provisions contain detailed rules on a reversed liability for transfer tax in situations where a Finnish limited liability company distributes securities for dividends. This means that the transfer tax liability, which usually concerns the recipient of any transfer of property, will lie on the transferor instead. The start date for the new rules to take effect is 1 January 2025. The reversed liability for paying transfer tax concerns sales, transfers, conveyances, etc. involving distributions of non-cash dividends that become available 1 January 2025 or later. If the distributing company’s general meeting of shareholders did not set an exact date when dividends first become available, the reversed liability will apply on sales, transfers, conveyances relating to which the date when the company decided to distribute non-cash dividends was 1 January 2025 or a later date.

The reversed transfer-tax liability concerns no other entities than Finnish limited liability companies established under the laws of Finland. In situations where a foreign company distributes non-cash dividends in the form of securities, the generally applicable rules emanating from the Act on transfer tax will govern the parties’ liabilities to file and pay transfer tax. Although a foreign corporate entity would have its place of effective management in Finland, it is still regarded as a foreign company for purposes of the above rule concerning transfer taxation. If the foreign distributing company commits itself to carry responsibility for the transfer tax for which the recipient would otherwise be liable, the foreign distributing company can only file a transfer tax return on the dividend recipient’s behalf if the recipient has authorised the company to do so. The transfer tax return needs to be filed for every recipient one by one. In addition, the company will have to pay the transfer tax using Finnish reference numbers for payment, which are different for every dividend recipient.

When the distributing company is Finnish, it must file a transfer tax return and pay transfer tax using the company’s own reference number for transfer tax. No itemisation of every recipient needs to be included in the transfer tax return. Instead, an itemisation and full information concerning the recipients will be required when the company files its annual information return for the year.

With regard to a conveyance of securities, the transfer tax return must be filed and transfer tax must be paid within two months from the date when the non-cash dividends – the securities – first became available to company shareholders. If the company’s decision to distribute dividends indicated no exact date of availability, the return must be filed and transfer tax must be paid within two months from the date when the decision was made. If the distributing company is listed in a stock exchange, it will normally have set the exact date of payment, indicated in the text of the listed company’s decision to distribute dividends. 

When securities are distributed to shareholders as non-cash dividends, the base for determining the size of the transfer tax is the quoted market value on the date when dividends first become available. In the case of securities, transfer tax is 1.5% of quoted market value. However, if any shares referred to in § 20, subsection 3 of the Act on transfer tax are distributed as dividends (including shares in housing and real estate companies), the base for transfer tax must also include the housing-company’s debt allocation on the particular set of shares within the meaning of § 20, subsection 4 of the Act on transfer tax, plus an amount reflecting the loans the company had taken during building construction, and also a debt allocation within the meaning of § 20, subsection 4 of the Act on transfer tax. If a fraction of, for example shares in housing companies, is distributed as a dividend, only the portion of the loans allocated to this fraction are included in the transfer tax base.

For more information on the filing and payment of transfer tax, see the Tax Administration’s guidance “Transfer tax on the conveyance of securities” — Varainsiirtovero arvopapereiden luovutuksessa (in Finnish and Swedish, link to Finnish).

3.2 Non-cash dividend distribution consists of real estate property

If the distributing company distributes a unit of real estate to shareholder(s), the recipient must file a transfer tax return and pay transfer tax using the recipient’s reference number for transfer tax. With regard to a conveyance of real estate, the transfer tax return must be filed and transfer tax must be paid no later than when applying for an official registration of title or, if registration of title has not been applied for within the relevant legal deadline or if no registration is necessary, within six months from the date when the parties entered into agreement upon conveying the real estate property to its recipient.

If the distributing company commits itself to carry responsibility for the transfer tax for which the recipient would be liable, the company can only file a transfer tax return on the dividend recipient’s behalf if the recipient authorises the company to do so. In this case, the company will need to file the transfer tax return in the recipient’s name, and proceed to paying the transfer tax using the recipient’s reference number.

When real estate is distributed to shareholders as non-cash dividends, the base for determining the size of the transfer tax is the fair market value on the date when dividends first become available. The rate of transfer tax for real estate is 3% of fair market value. For more information on the filing and payment of transfer tax, see the Tax Administration’s guidance “Transfer tax on the conveyance of real estate property” — Varainsiirtovero kiinteistön luovutuksessa (in Finnish and Swedish, link to Finnish).

4 Tax withholding 

In general, payers of dividends must withhold tax upon payment when the recipient is a natural person or an estate of a deceased person treated as a resident taxpayer in Finland on the basis of § 9, subsection 1, paragraph 1 of the Act on income tax. However, when the company distributes non-cash dividends, it is not possible for the company – the payer – to withhold tax this way. Furthermore, when real estate is distributed and the distributing company commits itself to pay the transfer tax on the recipient’s behalf, it is not possible for the company to withhold tax with respect to the transfer tax paid on the recipient’s behalf (§ 11 of the Act on tax prepayments (Ennakkoperintälaki 1118/1996)).

If cash dividends have also been paid to some or all shareholders in conjunction with the non-cash distribution, the payer must withhold tax on the cash dividends. In this case, the maximum tax that can be withheld will equal the amount of the cash dividends. If the company distributes cash dividends later during the same year based on another decision of the company to distribute more, any non-withheld tax related to the earlier dividends in kind does not need to be taken into account when determining the withholding on the cash dividends. For more information, see the guidance on withholding on paid-out dividends “Withholding tax on payments of dividends and submitting the required reports to the Tax Administration” — Ennakonpidätys osingosta ja Verohallinnolle annettavat ilmoitukset and “How to carry out withholding” — Ennakonpidätyksen toimittaminen (in Finnish and Swedish, links to Finnish).

If the payer of dividends cannot have withheld tax from dividend income or tax was only withheld in part, the recipient of dividends may, in order to avoid having to pay back taxes later, ask the Tax Administration to prepare a calculation of income-tax prepayment or additional prepayments. Prepayments and additional prepayments are discussed in more detail in the Tax Administration’s guidance Prepayments – individual taxpayers.  

Corporate entities and business partnerships must independently include their income in the form of dividends when performing calculations to determine their prepayments or additional prepayments. For more information and instructions, see the Tax Administration’s guidance Tax prepayment – corporate taxpayers.

5 Tax at source

On the basis of § 3 of the Act on the taxation of non-residents’ income (Laki rajoitetusti verovelvollisen tulon verottamisesta (627/1978)), the payer generally needs to withhold tax at source when paying out dividends if the recipient is a non-resident taxpayer. If cash dividends have also been paid to some or all shareholders in conjunction with the non-cash distribution, the payer must withhold tax on the cash dividends. In this case, the maximum tax that can be withheld at source will equal the amount of the cash dividends. For more information on how much needs to be withheld at source, see the Tax Administration’s guidance Tax rates on dividends and other payments from Finland to nonresidents.

If dividends are paid in non-cash terms entirely, the payer of the dividends cannot withhold any tax on them at source. If the payer cannot have withheld the tax, the recipient who is a non-resident taxpayer must ask the Tax Administration to prepare a calculation of the source tax that needs to be paid and pay the tax (§ 16 of the Act on the taxation of non-residents’ income). The recipient is also required to make the request for tax at source if the payer of dividends has only been able to withhold a part of the tax. Natural persons can file Form 6220e — Information on income for the calculation of tax at source to submit a request to the Tax Administration for taxation at source.

The deadline for a nonresident recipient to submit the request for tax at source based on receipts of non-cash dividends is the deadline date of the income tax return concerning the tax year for which the non-cash income is taxable. When the recipient is a natural person, the tax year for which dividend income is taxable is the year of the date when the dividends were first made available to shareholders. When the recipient is a corporate entity or a business partnership, the tax year for which dividend income is taxable is the year during which the distributing company decided to distribute the dividends. If the recipient of dividends requests a calculation of tax at source late, i.e. past deadline, the lateness may cause a punitive tax increase to be imposed.

If the recipient who is a nonresident has not asked for a calculation of tax at source independently, the Tax Administration may impose the missing tax and a punitive tax increase on the recipient.

If the recipient of dividends wants to invoke the provisions of a tax treaty that affect how much tax will be withheld at source, the recipient has to provide the payer with the information necessary for the tax treaty to be applied. The application of tax treaties is discussed in more detail in the Tax Administration’s guidance Paying dividends, interest and royalties to nonresidents.

If the preconditions listed in § 13, subsection 1, paragraph 3 of the Act on the taxation of non-residents’ income are satisfied, natural persons may demand income tax treatment in the order laid down in the Act on assessment procedure. For further instructions for submitting the claim, see the Tax Administration’s guidance Paying dividends, interest and royalties to nonresidents.

6 Annual information return

The payer of dividends must file an annual information return to provide a report to the Tax Administration concerning the distribution of non-cash dividends (§ 15, subsection 1 of the Act on assessment procedure and § 8, subsection 2 of the Official decision of the Tax Administration on information-reporting requirements). The dividends’ value to be entered in the reporting is the market value of assets on the day when the dividends were first available. In addition, any cash dividends distributed simultaneously must also be reported when filing the information return.

If the payer of dividends paid transfer taxes on dividend recipients’ behalf, the amounts of the transfer tax must be included in the reportable income on the annual information return, because the transfer tax is part of the recipient’s income consisting of dividends. This also concerns any non-cash distributions consisting of real estate where the payer of dividends has paid transfer tax on the recipients’ behalf.

The annual information return on paid dividends must be submitted by the end of January of the year following the year when the dividends were first available.

Dividends paid to a resident taxpayer referred to in § 9, subsection 1, paragraph 1 of the Act on income tax must be reported on Form 7812e — Annual information return on paid dividends. Dividends paid to a non-resident taxpayer referred to in § 9, subsection 1, paragraph 2 of the Act on income tax must be reported on Form 7809e — Annual information return on payments to non-residents. The annual information return must be submitted electronically if it concerns five or more recipients of dividends.