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Country Commercial Guides
FY 2000: Finland
CHAPTER VII: INVESTMENT CLIMATE
Openness to Foreign Investment
The Finnish Government maintains a favorable attitude toward direct foreign investment. In 1993, laws restricting foreign ownership were abolished (by Decree no. 1612/92) to confirm the already commonly accepted liberal treatment of foreign investments in Finland. Because of this liberalization, Finland's EU entry, the opening of ex-Soviet markets -- creating opportunities for Finland to act as a gateway -- and the economic recovery, foreign investments in Finland have accelerated in recent years.
There are some requirements that do not restrict foreign ownership but are necessary on legal grounds. In certain areas involving specific safety or health hazards or financial risks, specific conditions are laid down for carrying on trade. These regulated forms of trade are governed by section 3 of the Trade Act as well as by specific legislation. A non-European Economic Area resident (person or company) operating in Finland must refer to the authorities to obtain a license or a notification when starting a business in the "regulated" forms of trade, including: banking and insurance, nuclear energy related activities, mining, manufacturing and sale of medicinal substances, dangerous chemicals and explosives, private security services, travel agencies, transportation, fisheries, restaurant and catering services, and real estate brokerage. Supply of mandatory labor pension insurance and workers' compensation is possible only through a company established in Finland. This provision is designed to ensure compliance with social security legislation.
The Aland Islands are an exception to common Finnish practice. Based on international agreements dating from 1921, property ownership and the right to conduct business is limited to only those individuals with particular right of domicile in the Aland Islands.
The "Invest in Finland" Bureau operates within the government-sponsored Finpro (formerly Finnish Foreign Trade Association). Its purpose is to provide potential investors with detailed information on investing in Finland.
Right to Private Ownership and Establishment
Private ownership and entrepreneurship are well respected in Finland. In most fields of business activity, participation by foreign companies or individuals is unrestricted. As the government pursues privatization of state-owned companies, both private and foreign participation is welcome except in some enterprises operating in sectors related to national security.
Competitive equality is the official standard applied to private enterprises in competition with public enterprises. Private companies do not face discrimination. With the end of the Restriction Act in January 1993, Finland removed most restrictions on foreign ownership of property in Finland. Only minor restrictions remain, such as requirements to obtain permission of the local government in order to purchase a vacation home in Finland. But even restrictions such as this will be abolished by January 2000, bringing Finland fully in line with EU norms.
Protection of Property Rights
The Finnish legal system protects property rights, including intellectual property, and Finland adheres to numerous international agreements concerning intellectual property. Finland has joined the most important copyright agreements. Patent rights are consistent with the international standards. In 1996, Finland joined the European Patent Convention (EPC). Finland is a member of WIPO, and participates primarily through its membership in the EU. The idea of protection of intellectual property is well developed.
Information on copying and copyright infringement is provided by several copyright holder interest organizations such as the Copyright Information and Anti-Piracy Center. The Business Software Alliance (BSA), a worldwide software anti-piracy organization, began operations in Finland in January 1994. According to a recent survey, the rate of software piracy in Finland (32% in 1999) is one of the lowest in Europe.
The Finnish Copyright Act, which traditionally also grants protection to authors, performing artists, record producers, broadcasting organizations and catalog producers, has been adjusted to comply with EU directives. As part of this harmonization, the period of copyright protection was extended from 50 years to 70 years. Protection for data base producers (currently a part of catalog producer rights) has been defined consistent with EU practice. National transition period procedures are defined in Parliament. The Finnish Copyright Act provides for sanctions ranging from fines to imprisonment for up to two years. Search and seizure are authorized in the case of criminal piracy, as is the forfeiture of financial gains. Computer software has been covered by the Copyright Act since 1991.
Adequacy of Laws and Regulation Governing Commercial Transactions
Finland's laws governing commercial transactions and contracts are harmonized with EU norms.
Foreign Trade Zones/Free Ports
See section trade regulations, customs, and standards
Major Taxation Issues Affecting U.S. Business
The tax rate of limited companies has been lowered significantly. In 1985 the total tax rate was 59 percent (including municipal tax). In 1993 Finland adopted the so-called dual income tax system aimed at fostering savings and investment and improving the efficiency of their allocation. This was done by making the tax treatment of various sources of financing as uniform as possible. Capital income was taxed at a flat state tax rate of 35 percent. The capital income tax rate was set at the same level as the corporate tax. The nominal tax rate was reduced from 36 to 25 percent. The tax rate of limited companies was raised in 1999 from 28 to 29 percent, one of the lowest among the Western industrial countries. With effective tax rates from 10 to 28 percent, corporate taxation in Finland is below international standards.
A company is regarded as resident in Finland if it is registered in Finland or is incorporated according to Finnish law. Resident corporate activities are taxed for state income taxes only (they are not subject to municipal income taxes). The taxation of company profits and dividends is delineated in the Act on Company Imputation Credit and the Act on Business Taxation.
Depreciation of fixed assets is accomplished using the declining balance method. The asset base for calculating depreciation is the net book value of fixed assets plus acquisition value of assets coming into use less any sales proceeds, insurance compensations, etc. received during the tax year. The maximum annual depreciation is 25 percent of this base. Acquisition costs for inventory on hand at the end of the tax year is valued on the FIFO basis.
Performance Requirements/Incentives
There are no performance requirements or commitments imposed on foreign investment in Finland. However, to do business in Finland, some residency requirements must be met to ensure that persons liable for the company's acts can be brought to courts if necessary.
At least half of the founders (natural or legal persons) of a company to be established in Finland must reside within the EEA. Otherwise, a special permit issued by the Ministry of Trade and Industry is needed. The residence requirement can, in most cases, be fulfilled also by appointing a legal representative with residence in Finland to be in charge of the business.
The extensively revised Companies Act came into force in September 1997. In line with common Western European practices, the law divides limited liability companies into public (Oyj) and private limited (Oy) companies. New financing instruments, such as capital loan and preference shares were made available to companies.
All companies registered in Finland have access to government assistance under special development programs. Foreign-owned companies are eligible for government incentives on an equal footing with Finnish-owned companies. Assistance and subsidies are granted by the Ministry of Trade and Industry (MTI) or other ministries depending on the field of business activity, the Ministry of Trade and Industry sponsored Regional Development Fund (KERA) and Technology Development Center (TEKES), as well as the Parliament-managed venture capital fund, the Finnish National Fund for Research and Development (SITRA). Companies operating in Finland have access to EU structural funds through national programs. EU funding may cover half of total costs of a program provided that the other half comes from national private or/and public sources.
Indirect and direct subsidies are provided in the form of tax benefits, loans, guarantees, and cash grants, investment in equity, as well as in supply of expertise and employee training. Subsidies may be given for manufacturing, tourism and business services. MTI provides subsidies for investments in the form of regional investment aid, aid for small businesses or development aid for small and medium size enterprises (SMEs) and aid for improvement of operational environment of undertakings. Start-up and development costs and investments in fixed assets and operating capital are financed by Kera Ltd. Firms established in development regions may receive subsidies for the transportation costs of products. MTI provides grants to promote internationalization. Aid for export promotion projects to be undertaken in EU/EEA territory is available only to SMEs as defined by EU/EEA state aid regulations. MTI grants energy subsidies to companies and organizations for investments promoting energy conservation and the use of domestic energy sources. To promote venture capital investments in Finnish SMEs the Finnish Guarantee Board (FGB) grants venture capital guarantees.
Transparency of the Regulatory System
The Trade Act, as well as specific legislation referred to in it, provides more detailed information on trade practices in Finland. Section five of the Trade Act names "regulated forms of trade" in which a non-EEA resident needs permission from the Ministry of Trade and Industry. Also, according to the Trade Act, everyone launching a business in Finland is obliged to submit a notice to the Trade Register, which is maintained by the National Board of Patents and Registration.
The Securities Market Act contains regulations on corporate disclosure procedures and requirements, responsibility for flagging share ownership, insider regulations and offenses, the issuing and marketing of securities, and trading. The law defines and takes into account new instruments which have become common on financial markets, such as securities lending and repurchase agreements. Finnish legislation recognizes the same internationally common financial market contractual arrangements as legislation elsewhere in EU. Regulations concerning clearing of securities trades have been incorporated in the law since 1998. Clearing has become subject to licensing, and is supervised by the Financial Supervision Authority, which oversees the financial markets. The law defines the requirements of clearing parties and their mutual responsibilities. Clearing institutions are now subject to a minimum capital requirement of FIM 30 (USD 5.7) million. The capital of a clearing member must be at least FIM 10 (USD 1.9) million.
Finnish tax, labor, health and safety, and related laws and policies are largely neutral towards the efficient mobilization and allocation of investment. Finnish legislation does not normally influence regional distribution of investments except when specifically designed to do so, such as through regional incentive programs.
Corruption
Corruption in Finland is covered by the Criminal Code (R1 101/19.12.89). The Finnish Criminal Code provides for sanctions ranging from fines to imprisonment for up to four years, depending on the seriousness of the crime. Both giving and accepting a bribe is considered a criminal act under the Criminal Code. Money, jewelry, household and other equipment, special or low interest loans, trips etc. can be defined as bribes. Honorary titles and recommendations can be considered as bribes. A public servant, charged with accepting or giving a bribe, can be discharged if it is evident that he is unsuitable for his position. Companies in Finland may not deduct bribes paid abroad as export promotion expenses. Only a few persons are convicted of bribery each year in Finland. According to statistics, Finland prosecuted only 25 bribery cases in court between 1985 and 1992. In 1998 Transparency International organization (TI), an international organization combating corruption, ranked Finland second on their list of least corrupt countries in the world.
Labor
The Finnish labor force is highly skilled and well-educated. In 1998 6.5 percent of total employment were employed in the primary sector, 27.3 percent in the secondary sector and 65.8 percent in the tertiary sector. Women make up 47 percent of the 2.2 million member work force. About 85 percent of the work force are organized.
Finland has suffered from high unemployment through the 1990s; unemployment during the recession peaked in early 1994 at 20 percent. Unemployed are granted a compensation which, if linked to earnings, as has been the case for about 60 percent of unemployed, guarantees moderate incomes for a period up to 500 working days. Despite high unemployment levels, there is a shortage of skilled labor in some specialty sectors like telecommunications.
Although Finnish labor is relatively less expensive than during the late 1980s, labor costs are still high. Labor costs have risen in Finland faster in the post-recession years of 1993 - 1995 than in competitor countries. In 1999 labor costs, i.e. the index of wages, salaries and employers' social security contributions divided by the volume index of production, fell by 0.7 percent. Labor costs per unit of output are expected to drop by 0.7 percent in 1999.
High costs have led much of Finnish industry to use laborsaving high technology whenever possible. High unemployment has made trade unions somewhat more open to discuss increased labor flexibility. Finland adheres to most ILO conventions; enforcement of worker rights is effective.
Efficiency of Capital Markets and Portfolio Investment
The continued strong performance of the Finnish economy and the strong financial results of Finnish companies have accelerated foreign investors' interest in shares of Finnish companies. At the end 1997 foreign investors held a total of FIM 172(USD 33.7) billion worth of Finnish shares, i.e. 44 percent of the total market value of shares. When the securities markets were freed of exchange control at the start of 1991, foreigners were holding only FIM 5 (USD 1.2) billion worth of Finnish shares.
In recent years, the market value of shares held by foreigners has been affected considerably more by rises in share prices than by net sales of shares abroad. In 1996 and 1997, increases in share prices raised the market value of Finnish shares held by foreign investors by FIM 79 (USD 15.4) billion, whereas net sales of shares abroad totaled FIM 30 (USD 5.8) billion. Finnish investors have also shown increased interest in foreign shares and bonds during the last couple of years. Insurance companies in particular have begun to diversify their portfolios by acquiring foreign securities. The global up-trend in share prices of recent years has also boosted the market value of Finnish investors' holdings of foreign shares. However, the rise in foreign share prices has not offset the impact of higher prices of Finnish shares on Finland's international investment position, since Finnish investors' holdings of foreign shares are still relatively modest. At end 1997 Finnish investors held foreign shares totaling FIM 18 (USD 3.5) billion and foreign bonds totaling FIM 42 (USD 8.2) billion.
At the end of 1997 the market value of net share investment (i.e. nonresidents' investments in Finnish shares) amounted to FIM 154 (USD 30.2) billion. Changes in share prices are nowadays clearly reflected in Finland's net international investment position, since share investments is the largest item therein.
Conversion and Transfer Policies
Finland does not apply any exchange controls. There are no restrictions on transferring investment capital or profits abroad in freely convertible currencies at a legal market rate. There is no limit on dividend distributions, as long as they correspond to a company's official earnings records. Foreign investors are not required to pay tax on capital gains or investment income derived from Finland. The stamp duty on transactions conducted on the Stock Exchange and on the OTC market has been abolished.
The Bank of Finland compiles the country's balance of payments data in accordance with International Monetary Fund (IMF) standards. To this end, the main details of all single payment items exceeding FIM 50,000 ($ 11,630) are to be submitted on a form either to the Finnish bank effecting the payment or directly to the Bank of Finland.
Expropriation and Compensation
Private property rights are well protected in Finland. There have been no cases of expropriation or nationalization since the Second World War.
Dispute Settlement
In 1969, Finland became a member of the International Center for the Settlement of Investment Disputes (ICSID). There is no record of any significant investment dispute in the last three decades.
Political Violence
There have been no instances of political violence since the struggle for independence in 1918.
Bilateral Investment Agreements
Finland has concluded bilateral investment agreements with the following countries: Albania, Argentina, Belarus, Bulgaria, Chile, China, the Czech Republic, Egypt, Estonia, Hungary, Indonesia, Kazakhstan, Kuwait, Latvia, Lithuania, Malaysia, Oman, Peru, Philippines, Poland, Republic of Korea, Republic of Moldova, Romania, Russia, Slovakia, Sri Lanka, Thailand, Turkey, Ukraine, United Arab Emirates, Uzbekistan, and Vietnam.
OPIC and Other Investment Insurance Programs
In January 1996, OPIC and Finnish Guarantee Board (FGB) signed an agreement to encourage joint U.S. - Finnish private investments in Russia and the Baltic States. Under the agreement, OPIC and FGB will work together to enhance the development of joint ventures by promoting private investment, encouraging cooperative efforts in specific target sectors, and working jointly with appropriate authorities in the host country to promote foreign investment. OPIC is U.S. Government agency that assists U.S. investors with project financing, political risk insurance, and privately managed equity investment funds in developing markets and emerging economies. FGB is a Finnish government-operated export credit guarantee agency.
The 1996 agreement was preceded, in 1992, by a Principles of Cooperation Agreement between OPIC and the Finnish Fund for Industrial Cooperation (Finnfund). The two organizations agreed to share information concerning opportunities for private investment, exchange knowledge of techniques for the encouragement and sustenance of investment, including approaches to risk mitigation and management, and encourage cooperative enterprises among their nationals to finance private investment in developing economies. The former Soviet Union and Eastern Europe are particular points of emphasis. Finland has been a member of the Multilateral Investment Guarantee Agency (MIGA) since 1988.
Capital Outflow Policy
No policies exist that govern the export of capital and outward direct investment. Holders of capital, Finnish and foreign, can move funds at will. Finnfund, the Finnish counterpart of OPIC, provides insurance and financing for investment in developing countries and the ex-Soviet Union regions.
Major Foreign Investors
The six largest foreign companies in Finland in terms of turnover (1997):
ABB Stromberg, FIM 7.3 billion (USD 1.4 billion)
Country of origin: Sweden/Switzerland
Sector of operation: ElectronicsTamrock, FIM 5.1 billion (USD 0.98 billion)
Country of origin: Sweden
Sector of operation: metalKvaerner Masa-Yards, FIM 5.0 billion (USD 0.96 billion)
Country of origin: Norway
Sector of operation: ShipbuildingTeboil, FIM 4.27 billion (USD 0.82 billion)
Country of origin: Russia
Sector of operation: Oil tradeStarckjohann, FIM 3.6 billion (USD 0.69 billion)
Country of origin: Sweden/Finland
Sector of operation: wholesaleShell, FIM 2.93 billion (USD 0.56 billion)
Country of origin: Netherlands
Sector of operation: Oil tradeThere are over a hundred U.S. subsidiaries in Finland. Hewlett-Packard and OMG Kokkola Chemicals were the largest U.S. companies in terms of turnover in 1998 (Hewlett-Packard: FIM 1.68 billion, or $ 320 million, and OMG Kokkola Chemicals: FIM 1.64 billion, or $ 313 million).
Host Country Contact Information for Investment Related Inquiries
Invest in Finland Bureau
Aleksanterinkatu 17
FIN-00100 Helsinki
Finland
Telephone: +358 9 696 9125
Fax: +358 9 6969 2530Bank of Finland
Statistics Desk
PO Box 160
FIN-00101 Helsinki
Finland
Telephone: +358 9 183 2090
Fax: +358 9 183 2556[end of document]
Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title17, United States Code.
