June 27, 2017
However, special care should be taken to analyse the tax impact of the premium payment.
First, a premium payment in kind is regarded as a disposal for Finnish income tax purposes. This means that the payment triggers taxation for a tax-resident policyholder transferring securities under the policy. Capital gains are taxed at 30%, and for capital gain exceeding €30,000 in a year the tax rate is 34%. Any capital losses from a genuine payment in kind are generally tax-deductible.
Payment in kind premiums are also disposals for purposes of transfer tax, which is due on transfers of securities defined in Finland’s Transfer Tax Act (TTA). The Act’s definition of securities includes shares, participations in co-operatives and similar interests, profit-sharing promissory notes issued by corporations as well as options on securities. However, promissory notes and other debt instruments with no profit-sharing features are generally excluded from the tax (TTA 17 §). In addition, participations in partnerships are excluded from the transfer tax.
The main rule under the TTA is that the acquirer of the securities is liable for transfer tax when securities change ownership, if either the donor or the transferee is a Finnish tax resident or a Finnish branch of a non-resident bank, investment service company or fund manager. As OneLife is not a tax resident and does not have a branch in Finland, a Finnish tax-resident donor is required to withhold the transfer tax and remit the payment to the national tax authority when securities are transferred into a policy.
However, transfer tax is always due from the acquirer (OneLife) if Finnish real estate company shares or a real estate holding company (or a non-resident company directly or indirectly holding mainly Finnish real estate) are transferred (TTA 16 § and 18 §).
Transfer tax exemption for listed securities
There is a transfer tax exemption applicable to listed securities in cases where (i) securities are transferred against a fixed cash consideration and (ii) the broker is a licenced investment service company (please see TTA 15 a § for specific requirements).
As a starting point, the payment in kind of a life assurance premium is not regarded as fixed cash consideration, so transfer tax can also be triggered when transferring Finnish-listed securities into a life assurance policy.
Transfer tax rate
The general transfer tax rate applicable to securities is 1.6 %, and 2% for shares in real estate companies (TTA 20 §). In addition to the purchase price, certain liabilities taken over by the acquirer as well as certain debts of the transferred company are also included in the transfer tax base.
Conclusion
Finnish transfer tax is triggered if:
- Unlisted Finnish securities are transferred by a Finnish-resident policyholder (debt instruments are generally exempt),
- Finnish-listed securities are transferred by a Finnish resident policyholder directly to the policy without fulfilling the requirements for the above exemption (debt instruments are generally exempt).
- Shares of a Finnish real estate company or real estate holding company (or a non-resident company directly or indirectly holding mainly Finnish real estate) are transferred by a Finnish resident or non-resident. Transfer tax is always due on such transfers of unlisted shares and on listed shares, if the transfer tax exemption for listed shares does not apply (e.g. in the absence of fixed cash consideration).
Due to the tax implications, the transfer method should always be analysed before execution. This applies especially to listed shares and other securities. The client can also liquidate the existing listed securities portfolio, pay the assurance premium in cash and thereafter acquire new securities under the assurance policy through the stock market. Moreover, especially for large listed portfolios, a transfer by means of a ‘block trade’ may be feasible through the stock market, fulfilling the among other things the requirement for a fixed cash consideration. However, a block trade may involve requirements such as short-term bridge financing.
To learn more, please contact
Tarja Valkeinen
Article written by Johan HAGERSTROM The content of this newsletter is governed by the limitations and legal notice of OneLife’s website.