Subsidiary Entity Set Up
Entity Set Up
Foreign companies entering the Finnish market will benefit from the country’s prominent position in leading global economic groupings – such as the European Union (EU), European Economic Area (EEA), Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO) and the Nordic Council. Finland also offers EU-funded incentives for companies setting up in certain sectors or locations, while small and medium enterprises (SMEs) are a robust part of the economy. However, incoming companies will find these attractions balanced by the complexities of employment, tax, payroll, and corporate legislation while ensuring their employees are working productively and efficiently.
There are speedier and cost-effective alternatives, with Bradford Jacobs opening the door to a hassle-free route into the French economy for your company. Work alongside our Professional Employer Organization (PEO) recruitment specialists, and then our Employer of Record (EOR) in-country experts to handle every aspect of compliance. Employers can depend on our in-depth knowledge of Finland, its work culture and business practices. Here we have set out some basic summaries of what you need to make the transition into the Finland market, whichever sector you operate in.
Starting a Business in Finland
Finland has borders with Russia and Scandinavian neighbours Sweden and Norway, and a third of the country is inside the Arctic Circle. Economically, it is a hotbed for small and medium businesses, with a predicted Gross Domestic Product for 2021 of 300 million US dollars, ranking it 44th in the world. Metals, chemicals, electronics, machinery, shipbuilding, pulp, and paper are among its major sectors. Encouragingly, the World Bank ranks Finland 20th out of 190 nations in its Ease of Doing Business report.
Foreign companies who wish to expand into or start their business in Finland usually prefer the option of a Private Limited Liability Company, known as an osakeyhtiӧ. All companies, foreign-owned or local, come under the Finnish Companies Act and must register with the Trade Register, as well as enroll on various registers with the Tax Administration, including the VAT Register, Pre-Payment Register, Employer Register, and the Social Insurance Institution (Kela).
Other procedural requirements include:
- Choose a unique company name with the suffix ‘oy’ for a private limited liability company
- Open a local business account if the company has share capital (but this is optional).
- Incorporation documents including Memorandum of Association, Articles of Association and Trade Register notification
- Obtain a 12-digit tax number for employees and a tax card
- Obtain the Business Identity Code (YTJ)
- Documents filed to the Central Tax Administration and Trade Register must be in Finnish or Swedish
Expanding Business into Finland
Foreign companies moving into Finland are entering a robust economy, ranked an impressive 41st in Gross Domestic Product for a relatively small nation with a population of just 5.5 million. Finland is a multi-sector economy with services taking the major proportion, while manufacturing and refining are also key factors. Leading business opportunities feature electronics; motor manufacturing concentrating on tractors, trucks, buses, and military vehicles; chemicals; forestry producing pulp and paper to account for 20% of exports; energy and metals mining.
Finland welcomes foreign investment, but the employment market is complicated by its mix of laws, and collective and trade union agreements affecting employee benefits and entitlements. There are other questions too: where will you find distributors, manufacturers, and offices? Possible expansion locations for businesses include Helsinki, Espoo, Tampere, Vantaa and Oulu.
Finland Business Facts
- Capital city – Helsinki
- Population – 5.5 million
- Major cities – Helsinki; Espoo; Tampere; Vantaa; Oulu
- Official languages – Finnish and Swedish
- Economy/GDP (2020) – $US278.86 billion, 41st
- World ranking: Ease of Doing Business – 20th out of 190 countries (World Bank, 2020)
- Leading sectors – service sector (60% GDP); industry sector (24.2% GDP); agriculture sector (2.3% GDP). Largest industries: Machinery, vehicles, and metal products; forest and timber products; IT, communications, and biotechnology; chemicals
- Main exports – include telecommunications equipment; machinery including computers; trucks, tractors, and buses; forestry and timber, paper, and paper products; mineral fuels and oil
- Main imports – include foodstuffs, crude petroleum; cars and transport equipment; chemicals, iron, and steel
- Main trading partners – Germany, Russia, Sweden, Netherlands, USA, China
- Government – Parliamentary system, federacy, and republic
- Currency – Euro
- Advantages and Challenges of the Finland Economy
Advantages of expanding into the Finnish economy include:
- Corporate Tax: Finland has the lowest rate among Nordic countries and is below the European Union average
- Politics: Finland is politically stable
- Economic Attitude: Globally minded, welcomes foreign investment with incentive opportunities
- Language: English is usually the language of business
- Logistics: High-class Road and rail links, international airports, ports opening onto the Baltic Sea, easy access to the rest of Europe
- Ease of Business: The World Bank ranks Finland 31st out of 190 nations for ease of starting a business, 10th for paying taxes and No. 1 for resolving insolvency
- Trade: Member of the European Union with whom it has around 50 preferential trade agreements
Challenges facing Finland include:
- Reducing labour cost
- Improving demand for its exports
- Ageing population
- Limited Company / Subsidiary or Branch in Finland
A subsidiary established in Finland is a totally separate legal entity from the parent company, with independent management and can have a different company name and follow its own business activities. The subsidiary can use this freedom to explore markets and build credibility.
A branch, however, is an extension of the parent company and is not considered a separate legal entity.
Main characteristics of a subsidiary:
- It is an entirely independent legal entity from the parent company
- A shareholder’s liability is only limited to the value of their shares
- Incorporation documents include Memorandum and Articles of Association and Trade Register notification
- Subsidiaries require a board of directors and a managing director
- Subsidiaries are subject to Corporation Tax on both Finnish and worldwide profits
Main characteristics of a branch:
- A branch has no separate legal identity from the parent company
- The parent company has complete liability for the actions and activities of the branch
- Documentation includes a resolution to establish a branch, Trade Register Notification, and extract from the parent company’s register
- A branch must have a local representative from the parent company
- Branches do not require Finnish directors
- Branches in Finland are included in the tax liability of the parent company
- Legal Structures for Finland Market Entry
All companies in Finland are regulated by the Companies Act and must comply with certain legal requirements.
Legal Structures for a Private Limited Liability Company:
A private limited liability company (osakeyhtiӧ) is the usual choice for foreign companies expanding into Finland. Board members do not need to be Finnish citizens and if at least one is a European Economic Area (EEA) resident, no extra permit is needed. The managing director must be an EEA resident. If not, however, a separate permit is required.
There is no minimum requirement for share capital. The company does not need to appoint an auditor if only one of the following conditions applies: the balance sheet does not exceed €100,000 (US$118,000) or the net sales or comparable revenue does not exceed €200,000 (US$236,000). The company can have between one and five directors, but if there are only two, a deputy must be named.
Legal Requirements for a Branch:
Legally, the branch must follow the same business as the parent company. If the parent company is located outside the European Economic Area (EEA) the branch will need a permit from Finland’s Patent and Registration Office. The branch must have a registered office and a named representative to deal with local authorities on the branch’s behalf.
Opening a Business Bank Account in Finland
Companies starting a business in Finland need a corporate bank account to keep business transactions separate from personal finances, as part of the company’s accounting system. The corporate bank account for a foreign, private limited liability company needs to register before opening the account and there are no requirements regarding minimum investment or share capital.
- The next step is to gather all relevant documents for the preferred bank according to their services, fees, language spoken and the number of branches perhaps. Documents required for the bank, bearing in mind that each bank will have its own policies with regards to Know Your Customer and money laundering checks, are:
- A document with reasons as to why the company is opening a corporate account
- Information about owners or shareholders
- Paperwork from the Trade Register (90 days old or less)
- Articles of Association or Memorandum
- Authority to open the account from officers of the company and signatories of those signing on the account (board minutes)
- Reference from the bank where the company has an account in the country of residence (no more than 90 days old)
- Details of company’s financial dealings / transactions / budget
- Business plan or details of business operations
- Details of bank account operators including signatures and passport copies
- Personal details and ID of the responsible manager opening the account
These documents may need to be translated into Finnish, Swedish or English, so check when choosing your bank. Remember to ask for relevant tools to operate the account for your business e.g., online banking IDs, debit / ATM cards.
A limited partnership must have a local bank account. However, it is not mandatory for foreign companies to have a Finnish account from which to pay employees’ salaries, but the payees must have a local bank account.