Economic overview
The growth of private consumption will return to normal and will follow the growth path of 1.5% for real incomes. Private investment will recover more slowly due to delays in major forestry industry projects and because investment in housing construction will decline further.
The decline in home construction will end in 2022 and this will be the single biggest factor supporting GDP growth that year. With accelerating economic growth and a slight increase in nominal profits, the demand for labor will gradually increase in 2021 and 2022. The employment rate will rise to 72% in 2022. Government finances in Finland will substantially weaken in 2020 .
The sharp decline in the economy will reduce tax revenues and increase unemployment spending. The imbalance between revenue and expenditure will increase to € 16.6 billion. It is estimated that by 2024 the finances of public administrations will still be in deficit of well over 9 billion euros. The ratio of public debt to GDP is rising sharply and will rise to almost 70% this year. By 2024, the debt / GDP ratio could already be close to 80%.
Exceptionally uncertain economic outlook
A high degree of uncertainty surrounds the current predictions, as these change depending on the duration of the Covid-19 mitigation measures. Furthermore, estimates of the economic impact of the restrictions are also uncertain. In some sectors the restrictions have completely closed the commercial activity, while in others the production continues or even increases. Current forecasts are based to a greater extent than usual on assumptions relating to changes in supply and demand.
In a presumptive calculation for restrictions on the duration of six months, GDP would fall by 12% and an increase in the public deficit to over 10% of GDP this year. This calculation shows that extending the duration of the restrictions would not only deepen the economic downturn but also prolong it due to the devastating effects on production capacity. If this were to happen, the economic recovery would be very slow. In a recent speech, the governor of the Bank of Finland, Olli Rehn, stated that the recipe for recovery cannot be separated from better coordination of the EU’s fiscal and monetary policies.
Main sectors of economy
Electronics emerged as a leading sector of the Finnish economy following the industrial restructuring that took place in the 90s and, for a long time, remained the most important of the entire Finnish industrial system. The start of the depressive phase of the economy coincided with the last phase of the Nokia crisis, when mobile telephony was sold to Microsoft. Nokia retained its portfolio of innovation, network development (formerly Nokia-Siemens), digital cartography and maps, acquiring Alcatel-Lucent in 2015 to form Nokia Corporation. In 2019, the Finnish state increased its stake in Nokia to 3.7%.
The second most important sector remains the forestry sector (wood, pulp and paper), albeit in retreat due to growing competition from Asia. Also of importance is the metallurgical and industrial machinery sector, in which companies such as Metso, Wärtsila, Kone and Outokumpu operate. Strong recovery in the shipbuilding sector, with new capital (the Turku shipyards were purchased by the German Meyer). Another growing sector is that of “green technologies”, whose production base is located in the Vaasa area.
The banking system is dominated by the 3 banking groups (Nordea, Danske Bank and OP-Pohjola) which hold about 85% of the assets. The 3 banks passed the latest ECB stress test with flying colors, relying on a solid capital capable of ensuring the continuity of operations even in the presence of a sudden deterioration of the economy.
Taxation for businesses in Finland
The countries of Northern Europe are those that have the most taxing regime in the EU, and among these Finland is the one that provides the highest tax burden, surpassing even Sweden by a few points. However, the system of taxation is quite simple, even if there are both state and municipal taxes (which on higher incomes lead to a taxation of more than 50%). In addition, Finland has chosen to apply a higher flat rate for non-residents, and has reduced the taxation of corporate income, opening up the possibility of further cuts in the future.
The incomes for individuals are essentially those deriving from work and income from capital. For the latter, an input tax is applied, with a fixed rate of 30% (which rises by another two points in the case of income exceeding 40 thousand euros), thus not considering the income as elements of the overall tax base. The tax regime on income from work is in brackets, with the minimum rate of 6.5% up to € 24,300 from € 16,300 as the minimum taxable income. Then it goes up to 17.5% (below 40 thousand), 21.5%, 29.75% and 31.7% above 100 thousand euros with an additional 6% surcharge. The tiered system does not apply to income earned in Finland by non-residents, with a fixed rate of 35% for capital gains.
Tax corporate income
Resident companies have a rate of 20%, while non-residents have different taxation regimes depending on the type of legal person and the type of business carried out.
Value added tax
The VAT rate is 24%. For food and other primary products, the VAT is reduced to 14%, while that 10% is for transport, tickets for entertainment activities and the like. However, other rates are envisaged for particular situations linked to modest activities ranging from 0% to 9%.
Investing in Finland
investing in Finland still remains an attractive prospect for several reasons. First of all, the appreciable political stability, which makes the Finnish economy well managed and not subject to risks in terms of government decisions. Furthermore, the population of this Scandinavian state is very culturally advanced, so that companies can enjoy a highly skilled workforce. Finally, the country is at the forefront in the high tech sector, this constitutes the backbone of the industrial fabric of Finland, so here is the ideal climate to open a start-up.
An equally important aspect is the considerable opening of Helsinki to foreign capital. Anyone has the opportunity to open a business, regardless of nationality, as long as at least one of the members of the partnership is resident in the European economic area. If it is a question of opening a legal company, however, the domicile of the founder must be in one of the EEA countries. The EEA includes all members of the European Union, as well as Iceland, Liechtenstein, Switzerland and Norway.
The most common corporate forms in the country are the srl, limited liability company, called osakeygtio Oy in the local language and the spa, joint stock company, called osakeyhtio Oyj. To open a joint stock company, a minimum capital of 80,000 euros is required.
In addition, the board of directors must be composed of at least three members and there must be the general manager. The financial statements must be certified by law, while the flat rate tax in force on companies is 26%, in line with taxation in other Eurozone and EU countries. There is no obligation, however, to be listed on the Helsinki Stock Exchange, which is, moreover, small in size.
As for limited liability companies, there are also in this case some obligations, there must be at least one director and one deputy, while the legal obligation to certify the financial statements is triggered when the company invoices at least 200,000 euros per year or has a total budget of over 100,000 euros and at least 3 employees. Again, the flat rate tax is 26%. Srl and spa are not the only corporate roles present in Finland. There are also limited general partnership, small private company and branch.