Finland: Updated proposal to amend the withholding tax rate and relief at source process

Further to Taxflash T17028 concerning the Finnish government’s proposal to amend the current tax legislation, Clearstream Banking would like to inform customers that the Finnish Ministry of Finance has now provided a new draft proposal to the market for consultation.

The new draft proposal still includes the following changes:

• Abolishment of the current simplified relief at source process concerning beneficial owners who are eligible for withholding tax rates of 15-29%. Currently, Clearstream Banking customers who are duly registered at the Foreign Custodian Register do not require identity disclosure of beneficial owners. With the new proposal, if a reduced tax rate is requested via the relief at source process, full disclosure will become mandatory for all beneficial owner types;
• The implementation of a preliminary withholding tax of 50% for non-identified beneficial owner residents in Finland. However, this will not have any impact on Clearstream Banking customers as Finnish securities beneficially owned by Finnish nationals cannot be held at Clearstream;
• The standard rate of withholding tax on dividends will increase from 30% to 35% for non-disclosed non-residents. There are, however, indications that non-treaty beneficial owners may continue to benefit from the 30% tax rate, provided the beneficial owner is disclosed;
• A new Depository Register would replace the current Foreign Custodian Register. This implies that all current registrations at the Foreign Custodian Register would lapse and new registrations would have to be made at the new Depository Register:
  • With the new registration, the registered entity will in addition become liable for withholding tax if incorrect information is provided on beneficial owners;
  • Furthermore, it is foreseen that entities wishing to register at the new Custodian Register will have six months to do so prior the applicability of the new legislation.

In addition to the above, the following parts have been amended compared to the first proposed draft law:

• The in-force date of the proposed changes has been extended and will, if approved, only apply to dividends paid on or after 1 January 2020 (instead of 2019).
• The implications of the new Depository Register have been further detailed with the below requirements:
  • The entity with which the final beneficial owner has the account must be registered in the Depository Register, in order to continue to be able to request relief at source for the beneficial owners it holds in its books;
  • An entity can only be  in the Depository Register if it is resident in the European Union or in a country with which Finland has established a Double Taxation Treaty (DTT);
  • An unregistered entity may only grant relief at source to its underlying beneficial owners, provided the unregistered entity enters into an agreement with a registered entity in the payment chain that will assume the required responsibilities on its behalf.

We continue to monitor the situation and will provide further information as it becomes available.