The transfer tax rates have been reduced as follows for:

• real estate: 4% -> 3%
• shares in housing and real estate companies: 2% ->1.5%
• other securities: 1.6% -> 1.5%

While the amended law entered into force on 1 January 2024, the new tax rates are applied retroactively as from the date the government proposal was published, i.e., as from 12 October 2023 onwards.

The new transfer tax rates are applied retroactively to transactions on which a binding agreement has been entered into on or after 12 October 2023. In most cases, the closing date would be the decisive date for this purpose.

According to the Government proposal, the primary objective of the amendment to the transfer tax was to enhance the functionality of the housing market by introducing a more neutral approach to the taxation of real estate asset transfers. Furthermore, the amendment aimed to stimulate the real estate and housing market.

According to the amended Transfer Tax Act, the definition of a security includes a loan receivable transferred in connection with a transfer of a security when the consideration for the loan receivable accrues to the benefit of the transferor of the security. This new provision is applicable to transactions closed on or after 1 January 2024.

Previously it has been possible to acquire loan receivables in connection with certain share acquisitions without transfer tax cost.

The proposal does not provide a clear definition of when an acquisition of a loan receivable is associated with a share acquisition.

In addition to the above, other minor changes to the transfer tax legislation were enacted. For example, the scope of the transfer tax exemption applicable to a tax neutral transfer of assets is extended to transfers made into an existing company (this exemption was previously available only to newly established entities).

Further, in the event securities are distributed as a dividend in kind, the taxpayer is the distributing entity, not its shareholders. This change will enter into force on 1 January 2025.

As of 2024, the lower limit of the property tax is increased to 1.3% for land areas. The tax rates for land and buildings are separated and the lower limit for land area real estate tax increased to 1.3% as from 2024 onwards.

Currently, the same tax rate is typically applied to buildings and land areas as determined by each municipality. Based on the tax legislation, the general property tax rate is required to be in the range of 0.93% and 2%.

Due to the reform, the tax rate applied for land will increase in 245 municipalities in the continental Finland. The reform impacts property tax cost especially in Helsinki and Espoo where the value of the land is high and where the municipalities are required to increase tax rate from 0.93% to 1.3% (leading to c. 40% one-off increase in tax rate).

The Government contemplates to implement a reform of real estate taxation rectifying the disparity between real estate tax values and the fair value of properties. This reform will be implemented over a long transition period.

• Real estate tax reform has been prepared for over a decade and it will hopefully now move forward to implementation.
• The valuation method applied in the current real estate tax legislation generally leads to very conservative valuations of tax base for real estate tax purposes and does not take into account geographical differences in value. The purpose of the real estate tax reform is to make the valuation methodology more simple, transparent, and fair while ensuring that the tax base values would be more closely linked to the movement of fair market values. Tax bases of land would be determined on the basis of sales data by the Land Survey Authority of Finland. Tax bases of buildings would be based on average construction cost data prepared by the Statistics Finland.
• While the intention of the real estate tax reform is not to increase amount of taxes payable as a whole, it is clear that the reform will treat different types of properties differently. At this stage, it is very difficult to estimate the exact impact of the reform.
• It appears that the intention is to allow a reasonable transitional period for the new rules to enter into force. A Government proposal to implement the change is expected in Spring 2024.

Tax amendment to be investigated: Adjusting tax regulations relating to investment funds to match European Union statutory requirements and investigating a strengthening of the tax base.

Under current Finnish tax legislation, contractual real estate funds are tax exempt subject to certain conditions. As a result of a recent ECJ decision (C-342/20), Finnish tax legislation is in breach of free movement of capital given the tax exemption is only available to contractual investment funds but not to funds established in corporate form.

The Government intends to align Finnish tax legislation with the EU law requirements. At the same time, it will be investigated if it is possible to broaden the tax base. It appears that the work of the previous Government continues in this respect. The previous Government was planning that the tax exemption would be limited only to funds with at least 30 investors, but the change in legislation was never implemented.

Real estate investors should analyse the impact of the above changes to their investment structures and upcoming transactions.

The upcoming real estate tax reform may significantly impact the amount of real estate tax payable. The impact assessment in this respect could be initiated as soon as the Government proposal has been released (Spring 2024).

Despite the changes, the Finnish tax environment remains competitive for international real estate investors.