Taxation in Agriculture

Chapter 15. Finland

Abstract

This chapter contains a description of tax provisions applied to agriculture in 2019, unless otherwise specified. They include taxes on income and profit, property, good and services, environmental taxes, and tax incentives for R&D and innovation.

15.1. Overview

In 2016 there were 47 361 active agricultural businesses in Finland. In general, Finnish farmers face the same rules for taxation and social security as the rest of society even if there is a special institution responsible for the social security system for farmers. Agricultural and forestry land is exempt from annual real estate charges levied by municipalities and in the case of the inheritance of agricultural land, for tax purposes, this is valued at a lower value than its market value thereby reducing the tax payable. Fuels and electricity used in agriculture receive tax rebates.

15.2. Income taxation

The central government and municipalities in Finland have the right to levy taxes. Municipalities receive funds from the central government to enable them to provide the services for which they are responsible.

Individuals are taxed according to progressive tax rates at the national level and flat rates at the municipal level. Individuals are subject to income tax whether employees or self-employed. There are four tax brackets, i.e. 6%, 17.25%, 21.25% and 31.25%. Income exceeding EUR 17 600 is taxable and the highest tax rate applies to taxable income exceeding EUR 76 100 (2019). The municipal tax rate applied to income is between 17% and 22.5% (2019). Also all members of both the Evangelical Lutheran Church of Finland and the Finnish Orthodox Church (the two state churches of Finland) pay a church tax.

Any income accrued from capital, e.g. dividends, rental income and capital gains, as well as interest on income, is taxed at a flat rate.

Farmers, like all private entrepreneurs, can divide income to capital income or earned income. The tax rate for capital income is 30% until EUR 30 000 and 34% for capital income over EUR 30 000. Gains from the sale of a taxpayer’s home are tax exempt if the taxpayer has owned and lived in it continuously for at least two years.

All companies are subject to corporate income tax at a rate of 20%, but no capital tax is levied on the net wealth. Commercial accounts establish the basis for taxation. Losses may be carried forward and off set in the subsequent ten tax years. The depreciated balance method is used in Finland.

15.3. Property taxation

Property is subject to property tax based on the taxable value of the property. The revenue goes to the municipality where the property is located and it is the municipalities that determine the tax rates levied on properties. Land used in forestry or agriculture is exempt from property tax.

A tax on inheritances is imposed on each beneficiary’s share of the inherited (or gifted) property. The tax is based on the market value of the property inherited on the date of the death. The amount of tax payable depends on the relationship between the donor and the beneficiary. Rates are progressive up to 33%. If the inheritance or gift includes a farm, there are rules, which reduce taxes in the case of inheritance or transfers between generations with the aim of keeping farm businesses viable and farms undivided. In this case the property can be valued according to its taxation value instead of the market value. The heir or successor is obligated to farm the agricultural property for the following ten years.

A transfer tax is payable on the transfer of real estate. Farm successors who are eligible for support under the EU young farmers scheme are exempt from paying this tax.

15.4. Tax on goods and services

The VAT is, in general, 24% but a reduced rate of 14% is applicable for food and animal feed.

Excise taxes apply to all fossil fuels. Lower rates are applied to diesel and fuel oil used in agriculture, which account for the majority of fuel use in the sector. Excise tax on fuels is based on each fuel’s energy content and carbon dioxide emissions from combustion. Fuels used in agricultural production receive a tax return on the share of energy content. In 2018, the excise tax rebate for the agricultural sector was EUR 75 per 1 000 litres. The remaining tax paid by agriculture was EUR 165.4 per 1 000 litres, the same as in other industries. The total value of the excise tax rebate on fuels for agriculture is estimated to be about EUR 30 million per year.

Electricity consumption is subject to an electricity tax. Electricity used in industry is taxed at a lower rate than electricity in households. Electricity used in agriculture is entitled to a tax return. In 2018, the electricity tax rebate for the agricultural sector was EUR 0.0155 per kwh. The tax paid by other industries is EUR 0.00703 per kwh, which is the remaining tax level also paid by agriculture producers after the rebate. The total value of the rebate to agriculture is estimated to be about EUR 25 million per year for electricity.

15.5. Environmental taxes

The environmental taxes applying to agriculture consist of energy taxes. These are an excise tax on fuels and an electricity tax (see the description in the section above).

15.6. Tax incentives for R&D and innovation

There are no R&D tax incentives in Finland.

15.7. Other taxes

The Finnish social security system is composed of three basic elements: preventive social and health policies, social and health care services, and social insurance. A distinctive characteristic of the Finnish social insurance system is that a large proportion of social insurance is managed by private insurance institutions, although the system is obligatory and statutory, e.g. there is a private insurance institution that manages the social insurance scheme for the majority of Finnish farmers. The social security system is financed through employer contributions, contributions by the insured, and taxes.

In principle, the social security system for farmers offers the same employment security as employees in other professions, e.g. retirement payments, disability payments, and unemployment payments. There is also a possibility of receiving help at the farm. A special pension is given to farmers who cease their commercial activities before their retirement age. Insurance payments are based on, for example, the size of the farm, number of work hours at the farm, and on income.