Finland Investment Climate 2009

27 October 2009
by Ina Dimireva -- last modified 28 October 2009

The Finnish Government is open to direct foreign investment. There are no general regulatory limitations relating to acquisitions. Legislative control of mergers and acquisitions is mainly governed by domestic and EU competition rules.

Openness to Foreign Investment

Certain acquisitions of large Finnish companies may require follow-up clearance from the Ministry of Employment and the Economy in accordance with the Act on the Control of Foreign Acquisitions of Finnish Companies. The purpose of the clearance is to protect essential national interests.

Unlike many other countries, however, Finland does not "positively" discriminate in favor of foreign-owned firms by giving them tax holidays or other subsidies not available to other firms in the economy. Instead, Finland relies on "condition-providing policies" which means pursuing policies that offer all firms in the economy appropriate conditions and sufficient pools of advanced factors of production, including an educated labor force and well-functioning infrastructure.

There are some legal requirements for non-European Economic Area (EEA) residents (persons or companies) to conduct business in Finland. In certain areas involving specific safety or health hazards or financial risks, specific conditions must be met to conduct trade. A non-EEA (person or company) operating in Finland must obtain a license or a notification when starting a business in the "regulated" forms of trade. Licensed trades are governed by acts and decrees.

Licensed trades include (the licensing authority is in brackets):

• inspection of motor vehicles (Finnish Vehicle administration AKE)
• production, import, export, wholesale, special sale and usage subjected to the licensing of alcohol beverages and spirits (Products Control Center of Social Welfare and Health)
• production, import, distribution and selling of medicines; pharmaceutical companies, pharmaceutical wholesalers and pharmacies engaged in the aforementioned activities. Hospital pharmacies and medicine centers in health centers and hospitals engaged in the production and distribution of medicines. Selling of pharmaceutical, veterinary and drug preparations (National Agency of Medicines)
• stock exchanges, central securities depositories, option institutions, clearing houses (Ministry of Finance)
• production and import of precious metal products. exception: gold/platinum products weighing less than 1g and silver products weighing less than 10g (Safety Technology Authority TUKES)
• mining operations and prospecting: applications for mining claims and patents (Ministry of Employment and the Economy)
• production of synthetic fertilizers and manufactured feeds and trade in seeds (Finnish Food Safety Authority EVIRA)
• Commercial Airline Operations(scheduled and charter airline traffic), Air operator certificates and operating licenses (Civil Aviation Administration, Flight safety Authority)
• collection of debts on behalf of others (State Provincial Office of Southern Finland)
• postal services (weighing less than 2kg). Courier services, distribution and delivery operations concerning minor postal matters do not require a license. (Government)
• credit institutions, pawn broking institutions, investment service companies, mutual fund companies and custodians (Financial Supervision Authority RATA)
• electrical contracting (electrician activities, repair of electrical appliances ) (TUKES and Henkilo- ja Yritysarviointi SETI Oy)
• design, construction, manufacture, repairing, servicing and using of electrical appliances , production and transport of electricity for other than personal use (TUKES and Henkilo- ja Yritysarviointi SETI Oy)
• telecommunications activities (Ministry of Transport and Communications)
• handling and storage of chemicals hazardous to health and the environment (TUKES)
• large-scale handling (TUKES)
• small-scale handling (Local Chief Fire Officer or Chemicals Control Authority)
• insurance brokering (Insurance Supervision Authority)
• insurance Agencies (Ministry of Social Affairs and Health)
• package tour agencies (Consumer Agency)
• security companies (Ministry of the Interior)

Providers of investment advisory services need authorization (RATA) in compliance with The Markets in Financial Instruments Directive (MiFID), which entered into force in November 2007.

In certain areas of trade, new entrepreneurs are required to register or file a separate notification of starting the business. These include:

• housing agencies, real estate agents and housing rental agencies (State Provincial Office)
• staff hire services (Industrial Safety Districts)

Other Notifications:

• notifications complying with the Freedom of the Press Act (City Administrative Court)
• Public events such as entertainments, competitions etc open to the public (Police)

The Aland Islands are an exception to common Finnish practice. Based on international agreements dating from 1921, property ownership and the right to conduct business are limited to only those individuals with right of domicile in the Aland Islands. However, the Aland Government can, occasionally, grant exemptions from the requirement of right of domicile for those wishing to acquire real property or conduct a business in Aland.

Since the beginning of the 1990s, the Finnish state has renewed its ownership policies and started to privatize fully state-owned companies. The Finnish state has holdings in 53 major companies. Of these, 31 are state-owned companies in which the State is the majority shareholder and 22 are associated companies in which the State has a minority shareholding. The State has holdings in 12 listed companies. As of May 2007, ownership steering of state-owned companies has been centralized in a corporate ownership steering unit in the Prime Minister's Office.

Responding to the global financial crisis, the GOF announced in October 2008, a decision to concentrate the Finnish state's eight non-strategic share portfolio into a separate holding company, Solidium, aiming at receiving the highest possible yield from its holdings. Solidium can both increase and decrease GOF’s equity investments, and when necessary, acquire holdings in other companies as well. The decision will affect state holdings in the following Finnish companies: Kemira, Metso, Outokumpu, Rautaruukki, Sampo, Sponda, Stora Enso and TeliaSonera. The new arrangement will give GOF more flexibility in intervening directly to protect Finnish ownership of key companies.

Taxes: The corporate tax rate was lowered in 2005 from 29 to 26 percent, and the tax rate on capital gains from 29 percent to 28 percent. The effective tax rate for dividends received from quoted companies is 19.6 percent as 30 percent of the dividend is regarded as tax exempt and 70 percent as taxable. The company distributing dividend pays 26 percent corporate income tax on its profit. Interest income is either subject to withholding tax (28 percent) at source or taxable as capital income. The net wealth tax was abolished in 2006.

In 2006, the United States and Finland signed a protocol amending the existing bilateral income tax treaty significantly reducing tax-related barriers to trade and investment flows between the countries. For more information, see A12 Bilateral Investment Agreements, page 15.

The salary and fringe benefits paid to qualifying foreign key employees, such as employees with special knowledge or competence, are taxed at the rate of 35 percent during a maximum of 48 months of the assignment in Finland provided that the employee has a special tax card (which must be applied for separately).

Finnish Tax Administration’s Doing Business - Finland Tax Guide

The Finnish Foundation for Share Promotion’s Tax Guide

Conversion and Transfer Policies

Except for those relating to money laundering, there are practically no legal obstacles to direct foreign investment in Finnish securities and exchange control regarding payments into and out of Finland. There is no limit on dividend distributions, as long as they correspond to a company's official earnings records. Payments to or from Finland must, however, be made through authorized banks in Finland.

Finland implemented the EU regulation on controls of cash being transported over the Eu Community Border in June 2007. According to the regulation persons carrying USD 14,500 (EUR 10,000) or more will be required to declare cash upon entering or leaving EU territory. The regulation only imposes an obligation to declare, it is not a restriction or prohibitation regarding imports and export of cash.

Finland adopted the single currency (the Euro) on 1 January, 1999. The Euro replaced the Finnish Markka (FIM) at the end of a three-year transition period on January 1, 2002. One Euro equals FIM 5.94573.

Expropriation and Compensation

Private property rights are well protected in Finland. Private property is only expropriated for public purposes (eminent domain), in a non-discriminatory manner, with reasonable compensation, and in accordance with established principles of international law.

Dispute Settlement

There is no record of any significant investment dispute in Finland in recent years. Finland has a civil law system. Swedish law and Nordic tradition have influenced statutory law and jurisprudence. EC law is directly applicable in Finland and takes precedence over national legislation. Finland has written and consistently applied commercial and bankruptcy laws, and secured interest in property are recognized and enforced.

Finland has signed the Convention on the Settlement of Investment Disputes between States and National of other States (also known as the ICSID Convention or the Washington Convention) on July 14, 1967 and deposited its instrument of ratification on January 9, 1969. Finland has attained status as Contracting State to the ICSID Convention on February 8, 1969. Finland signed the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards in December 1958. The convention entered into force in Finland in April 1962.

The Arbitration Institute of the Central Chamber of Commerce of Finland, established in 1911, promotes as an impartial body the settlement of business disputes by arbitration. The Institute appoints arbitrators both to domestic and international arbitration proceedings.

The Finnish legislation on arbitration was reformed in 1992. The main purpose of the reform was to modernize the then existing arbitration act (dating from 1928) and adapt it to international standards. The Arbitration Act (967/1992)is divided into two sections: Section one (Articles 2-50) applies to all arbitral proceedings having their seat in Finland, i.e. irrespective of whether related to a national or an international dispute, and Section two (Articles 51-55) applies to all "foreign awards", i.e. arbitral awards having been rendered outside of Finland. Arbitral awards in redemption cases under the Companies Act have to be registered with the National Board of Patents and Registration.

The Market Court was established in 2002 as a special court for rulings in market law, competition and public procurement cases.

Major revisions to the Finnish competition legislation took effect in May 2004. The Act on Competition Restrictions was harmonized with EU competition rules.

Performance Requirements/Incentives

There are no performance requirements or commitments imposed on foreign investment in Finland. However, to conduct business in Finland, some residency requirements must be met; the intent being to ensure that persons liable for the company’s acts can be brought to court if necessary.

In 2003 the Finnish Parliament has adopted legislation which relaxed the domicile requirements in Finnish company law. According to the amendment, the managing director and at least one member of the board of directors (and the supervisory board, if any) of a Finnish limited liability company must be domiciled within the EEA. The nationality of the founder is thus irrelevant.

Foreign-owned companies are eligible for government incentives on an equal footing with Finnish-owned companies. Support is given in the forms of cash grants, loans, tax benefits, equity participation, guarantees and employee training.

Business aid: In Finland, government-administered aid to business (investment aid, aid to business development, start-up subsidies, transport aid, energy subsidies, employee training, tax relief) is mainly aimed at improving the long term competitiveness of small and medium-sized enterprises (SMEs). Business aid to companies is coordinated by Employment and Economic Development Centers (T&E Centers), whose 15 regional offices provide consulting and training as well as financial aid. The centers are also a significant channel for EU finance. Public funding is allocated to projects expected to contribute considerably to project implementation, business success and employment.

Loans and guarantees by Finnvera: The state-owned financing company Finnvera plc improves and diversifies the financing possibilities of companies by granting loans and guarantees and by export financing services. Finnvera serves its clients through 15 regional offices and through the Representative Office (Finnish-Russian Innovation Center) in St. Petersburg.

R&D incentives by Finnish Funding Agency for Technology and Innovation (Tekes): Funding by Tekes is intended for challenging and innovative projects potentially leading to global success stories. Tekes funding is aimed at companies and other organizations operating in Finland and actively developing their technology, services and business operations. The funding also supports the establishment and expansion of start-up companies.

EU-funded support: The EU-funded programs aim to diversify the economic and business structure and to improve employment. This is done by supporting the establishment and development of small and medium-sized enterprises and the expansion of their activities. Financing is directed to projects developing the competitiveness, know-how and operating environment of the SME sector, with a special emphasis on start-up businesses and service sector companies.

Invest in Finland’s investment incentives document

Right to Private Ownership and Establishment

Private ownership and entrepreneurship is normal in Finland. In most fields of business activity, participation by foreign companies or individuals is unrestricted. As the government pursues privatization of state-owned companies, both private and foreign participation is welcome except in some enterprises operating in sectors related to national security.

Competitive equality is the official standard applied to private enterprises in competition with public enterprises. Private companies do not face discrimination. With the end of the Restriction Act in January 1993, Finland removed most restrictions on foreign ownership of property in Finland. Restrictions, such as requirements to obtain permission of the local government in order to purchase a vacation home in Finland were abolished January 1, 2000, bringing Finland fully in line with EU norms.

Protection of Property Rights

Secured interest in property, both movable and real, are recognized and enforced. The Finnish legal system protects property rights, including intellectual property, and Finland adheres to numerous international agreements concerning intellectual property. Finland has joined the most important copyright agreements. Patent rights are consistent with international standards. In Finland a granted patent applies for 20 years. The time of validity of patents can under certain conditions be prolonged through a Supplementary Protection Certificate. In 1996, Finland joined the European Patent Convention (EPC) and the European Patent Organization (EPO). Finland is a member of WIPO, and participates primarily through its membership in the EU. The idea of protection of intellectual property is well developed.

Finland Joined WIPO’s Patent Law Treaty (PLT) in March 2006.

Pharmaceutical Patents: In 2008, the Finnish government approved a pharmaceutical reference pricing system, a provision of which undermines the patent protection of medicines created and manufactured by non-Finnish pharmaceutical companies. Previously, under Subsection 2 of Section 57(c) of Finland’s Medicines Act, pharmaceuticals were excluded from the Government’s generic substitution system if they were protected by an analogous process patent in Finland and they enjoyed product patent protection in at least five other countries in the European Economic Area. Section 57 recognized in a balanced and fair manner, the intellectual property of process patent holders in Finland.

The reference pricing scheme passed by the Finnish parliament in November 2008 ended the 57(c) arrangement. By subjecting products protected by process patents to the reference pricing restrictions applicable to generic products, the new law deprives pharmaceutical process patent holders in Finland of appropriate compensation for the value of the intellectual property they created in the original products.

Information on copying and copyright infringement is provided by the following copyright holder interest organizations: the Copyright Information and Anti-Piracy Center (CIAPC), The Finnish Copyright Society, The Finnish Copyright Institute, the Copyright Information Centre, and The IPR University Centre. The Business Software Alliance (BSA), a worldwide software anti-piracy organization, began operations in Finland in January 1994.

Finland has been a member of the Paris Convention for the Protection of Industrial Property since 1921, the Berne Convention for the Protection of Literary and Artisticworks since 1928 and the Rome International Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations since 1983.

Finnish copyright legislation was amended in 2005 to meet the demands of the digital environment and the internet. The amendments to the Copyright Act and the amended section 49 of the Criminal Code came into force from the beginning of 2006. This reform implemented the Copyright Directive adopted by the EU in 2001. The amendments also addressed a number of national issues, such as the prohibition of importation of pirate recordings for personal use.

The Finnish Copyright Act, which also grants protection to authors, performing artists, record producers, broadcasting organizations and catalog producers, has been adjusted to comply with EU directives. As part of this harmonization, the period of copyright protection was extended from 50 years to 70 years. Protection for database producers (currently a part of catalog producer rights) has been defined consistent with EU practice. The Finnish Copyright Act provides for sanctions ranging from fines to imprisonment for up to two years. Search and seizureare authorized in the case of criminal piracy, as is the forfeiture of financial gains. The Copyright Act has covered computer software since 1991.

Finland signed the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT) in May 1997, and the Finnish Parliament adopted the treaties in autumn 2005.

Finland has been a member and signatory to the TRIPS Agreement since 1995.

Recent amendments to the Finnish Penal Code have enhanced the position of employers in regard to the protection of their business secrets, with employees now required to keep a former employer's business secrets confidential for two years after termination of employment.

The Trade Mark Act, which came into force in March 2000, brought Finnish Trade Mark Law into line with the Trade Mark Treaty (TLT). Finland signed the Singapore Treaty on the Law of Trademarks in October 2006.

The significance of mortgage banks has remained minor as deposit banks have traditionally handled housing loans in Finland. The Mortgage Society of Finland is operating in accordance with designated special legislation.

Transparency of the Regulatory System

The legal and enforcement framework for competition conforms to European Community praxis. Finland brought its law into full conformity with the prohibition-based system of EC competition law in May 2004.

The Securities Market Act (SMA) contains regulations on corporate disclosure procedures and requirements, responsibility for flagging share ownership, insider regulations and offenses, the issuing and marketing of securities, and trading. The law defines and takes into account new instruments, which have become common in financial markets, such as securities lending and repurchase agreements. Finnish legislation recognizes the same internationally common financial market contractual arrangements as legislation elsewhere in the EU. Regulations concerning clearing of securities trades have been incorporated in the law since 1998. Clearing has become subject to licensing, and is supervised by the Financial Supervision Authority, which oversees the financial markets.

Finnish tax, labor, health and safety, and related laws and policies are largely neutral towards the efficient mobilization and allocation of investment. Finnish legislation does not normally influence regional distribution of investment except when specifically designed to do so, such as through regional incentive programs.

Efficient Capital Markets and Portfolio Investment

Credit is allocated on market terms and is made available to foreign investors in a non-discriminatory manner. The private sector has access to a variety of credit instruments. Legal, regulatory, and accounting systems are transparent and consistent with international norms.

The Helsinki Stock Exchange is part of the OMX Nordic Exchange division within the NASDAQ OMX Group, together with the stock exchanges in Stockholm, Copenhagen, Reykjavik, Tallinn, Riga and Vilnius.

Compared to the international average, the number of banks in Finland is high. The reason for this is the high number of savings banks, Local Cooperative Banks and banks in OP-Pohjola Group. At the end of 2007, there were 338 banks operating in Finland, 323 of them domestic. The total assets of the domestic banking groups and branches of foreign banks (Nordea Bank Finland, OP-Pohjola Group, Aktia Group, Savings Banks, Local co-operative Banks, Bank of Aland, Tapiola Bank Group, Hypo Group, Glitnir Corporation), and largest Nordic banking groups (Danske Bank Group- including Sampo Bank, SEB Group, Handelsbanken, DnB NOR bank Group, Swebank, and Kauphting Bank) amounted to 1.9 billion euro in 2007.

Increased mergers and alliances have been shaping the Finnish banking sector in recent years. The banking and finance market has become increasingly international, with Scandinavian banks particularly active in cross-border mergers and acquisitions. Finnish banks’ profitability, efficiency and capital adequacy are all at a healthy level.

Hostile takeovers have not in the past been part of the Finnish business culture and Finnish law does not distinguish between friendly and hostile takeovers. Finnish legislation does not expressly address takeover defenses. In Finnish law, the legality of takeover defenses is evaluated primarily in light of the leading principles of the Security Markets Act (SMA), the principle of equal treatment of all shareholders, and general principles of company law. If challenged, the legality of the defensive measures is subject to review by the courts.

Finland changed over to the Single Euro Payments Area (SEPA) in January 2008. The system began with credit transfers and cards, and direct debit will be taken into use in 2009, replacing 31 national payment systems in Europe with one single European system working with uniform standards and regulations.

Political Violence

There have been no instances of political violence since the struggle for independence in 1918.

Corruption

Corruption in Finland is covered by the Criminal Code and provides for sanctions ranging from fines to imprisonment for up to four years, depending on the seriousness of the crime. Both giving and accepting a bribe is considered a criminal act under the Criminal Code. Finland has statutory tax rules concerning non-deductibility of bribes.

Over the past decade, Finland repeatedly has placed first or second on Transparency International’s Corruption Perceptions Index (CPI), indicating extraordinarily low perceived levels of corruption, as determined by expert assessments and opinion surveys.

In December 2007, the Council of Europe’s Group of States against Corruption (GRECO) recommended in its evaluation report Finland to sharpen its present control over political financing, and to increase the transparency of donations to political parties and election candidates.

In 2008, Finland's Transparency International CPI score decreased from 9.4 in 2007 to 9.0 in 2008, ranking Finland fifth on the list of least corrupt countries, mostly due to a lack of transparency in election campaign finance.

GOF acknowledged that there was a need for reform in this area and the 2004 Act on the Disclosure of Election Financing was amended, it entered into force in September, 2008. The reporting threshold for individual campaign contributions in municipal elections was cut from USD 1,420(EUR 1,700) to USD 2,410 (EUR 1,000). Campaign expenses must also now be publicly disclosed.

Finland is a signatory to the OECD Convention of Anti-Bribery. The instruments of ratification of the convention were deposited in December 1998. The amended Penal Code entered into force in January 1999. The convention entered into force in February 1999.

Finland ratified the UN Convention against Corruption in July, 2006.

Finland ratified the Council of Europe Civil Law Convention on Corruption in October 2001, it entered into force in November 2003, and signed the UN Convention against Corruption in December 2003. The Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime entered into force in Finland in July 1994. The UN Convention against Transnational Organized Crime was ratified in February 2003.

Finland ratified the Criminal Law Convention on Corruption (EST 173) in October 2002, and the Convention entered into force in February 2003. Finland made reservations in respect of Article 12 (trading in influence) and Article 17 (jurisdiction).

Finland is a party to the 1957 European Convention on Extradition. Finland has ratified the 1959 European Convention on Mutual Legal Assistance in Criminal Matters and its 1978 Additional Protocol. Finland is a party to the 1996 Convention on Extradition between EU member States as well the 1995 Convention on Simplified Extradition Procedure between EU.

The U.S and Finland have an extradition treaty, signed in June 1976; it entered into force in May 1980. The U.S. and Finland signed a bilateral extradition and mutual legal assistance treaty (MLAT) in December 2004. The U.S. and the EU signed bilateral extraditions and mutual legal assistance (MLAT) treaties in December 2003. The Finnish Parliament ratified the agreements (HE 85/2005) and approved the necessary implementing bilateral instruments in December 2007.

OPIC and Other Investment Insurance Programs

In January 1996, OPIC and Finnvera (the former Finnish Guarantee Board FGB) signed an agreement to encourage joint U.S. - Finnish private investments in Russia and the Baltic States. The 1996 agreement was preceded, in 1992, by a Principles of Cooperation Agreement between OPIC and the Finnish Fund for Industrial Cooperation (Finnfund).

Finland has been a member of the Multilateral Investment Guarantee Agency (MIGA) since 1988.

Labor

The Finnish labor force is highly skilled and well educated. Of the 2.5 million persons employed, 4.5 percent are employed in the primary sector, 25.5 percent in industry and construction and 70 percent in services.

Finland has a high unionization rate of around 75 percent, and a long tradition of social dialogue. Wage formation and labor market institutions are based on legislation and agreements. The working life legislation has been prepared on a tripartite basis by government and social partners. Collective bargaining and collective labor agreements are generally binding in nature. Finland adheres to most ILO conventions; enforcement of worker rights is effective.

Regulation of the labor market – minimum wages, working hours, working conditions etc – to a large extent takes place through collective agreements instead of parliamentary legislation. In recent years, labor market partners at the local level have been given more flexibility in enforcing the stipulations of the collective agreements e.g. concerning working time arrangements. The Act on Employment Contracts is the main regulating act applied to employment relationships. It includes the minimum conditions regarding working hours, annual leave, safety conditions etc.

The unemployment rate in November 2008 was 6.0 percent, against 6.1 percent a year earlier. The unemployed are granted compensation (labor market subsidy) which, if linked to earnings, as has been the case for about 60 percent of the unemployed, guarantees moderate income for a period up to 500 working days. Since January 2006, the labor market subsidy has had restrictions placed upon it. People without jobs after 500 days need to demonstrate that they are actively pursuing employment in order to continue receiving the benefit.

Finland is participating in anexperiment taking place in the European Community, the purpose being to find out what impact a targeted reduction in value added tax has on employment and the grey economy. The value added tax rate on hairdressing services and certain small repair services (bicycle, shoe, leather product, clothes and linen repairs) has been reduced from 22 percent to 8 percent for 2007-2010.

The temporary limits on the free movement of workers from eight EU member states were not renewed, and the restrictions applied to work permits ended in Finland in May 2006. Parliament adopted the amendments to the Aliens Act fully incorporating the directive on free movement of EU citizens into national law. The Act came into force in April 2007.

Due to the aging population in Finland all sectors of the economy are estimated to face labor shortages in the future.

Foreign Trade Zones/Free Trade Zones

Finland has four Free Zones and four Free Warehouse areas. The four designated Free Zones are located in Hanko (Southern Customs District); Hamina and Lappeenranta (Eastern Customs District); and Turku (Western Customs District). The four Free Warehouses are located in Helsinki (Southern Customs District); Naantali, (Western Customs District); and Kemi and Oulu (Northern Customs District).

In Finland, the duty-free free zone and warehouse licenses have in most cases been granted to municipalities or cities, but one or several commercial operators, approved by the customs districts, are usually in charge of warehousing operations within the area. The duty-free storage areas are available to both domestic and foreign-owned companies. The free zone area regulations have been harmonized in the EU by the Community Customs Code.

Finnish Board of Customs

Source: U.S. Department of State