Tax solutions in appropriate laws

Tax solutions in appropriate laws: The current capital gains tax is based on the Income Tax Act enacted in 1993, although the capital gains tax has been amended in various ways. At that time, however, the Income Tax Act was significantly amended and taxation was divided into accrued income and capital income according to different practices. The tax rate for capital gains tax and corporation tax was set at 25%. The reform took a model from abroad and aimed to moderate the level of taxation so that it was not too far from the international level.

Capital Income Tax: How is capital income taxed?

Capital income tax is imposed on capital income through the existing system in Finland limited progressive. This means that in case of capital income, those who earn more and those who earn less pay almost the same amount of tax. In 2019, capital gains tax will be 30 percent of income below €30,000 and 34 percent of capital income above €30,000. Tax is paid every year like income tax. Hence use Corp Tax Calculator for proper usage.

Capital income tax works in such a way that all income from capital is added together and the cost of earning or maintaining the income is deducted from the amount as income. This amount is then subject to a flat rate of 30% up to EUR 30,000 and a capital gains tax of 34% above. Thus, the amount of tax is practically the same irrespective of how much capital gain a person has made.

Examples of capital gains

It is possible to receive capital income from various sources. When we talk about net return on capital, we mean the cost of managing the capital minus the capital income, which in practice means the value of the time spent working on the asset. The amount of capital income varies depending on its source. For example, in financial investments, capital gains can be high, but capital gains from apartment rentals are usually in the range of around 3-4% annually.

Examples of capital income are:

  • Income from apartment rental
  • Mutual fund returns
  • Interest income (excluding interest on bank accounts and other income subject to cash tax)
  • Highest dividend income
  • Gain on sale of property or securities

Capital income means income or profit derived from money, i.e. capital. Capital does not require work to generate income, but income comes from property. So Capital income can be, for example, rental or dividend income or capital gains. Capital income received by Finns is subject to capital income tax, which has traditionally been the same across all recipients of capital income. However, in recent years, capital income tax has become moderately progressive, resulting in two levels of taxation. Internationally, the average tax rate on capital income in wealthy countries is in the order of about 30 percent.