How to Start a Business in Finland?

Are you looking to start a business in Finland? If yes, you’re on the right path because Finland is the top high-income country in Europe, with the main contributors in the service, chemical, forest, IT, and manufacturing industries. A limited liability company (LLC) is the most popular business structure in Finland due to its limited liability and operational flexibility.

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With a flexible legal structure, stable economy, and high-tech infrastructure, Finland is the best choice to start a business if you’re a foreigner who wants to extend your business operations in Europe or a small and medium enterprise (SME) looking to venture into the European Union (EU).

In this blog, we’ll explore the legal background, process, benefits, types of business structures, eligibility criteria, requirements, post-registration compliances, and challenges faced by foreigners in establishing a business in Finland.

Legal Background

Go through the legal framework before starting a business in Finland:

1. Limited Liability Companies Act (624/2006)

This law provides rules for private and public limited liability companies (LLCs). It regulates companies in the trade register, outlines the roles of directors and shareholders, and ensures transparent corporate governance.

2. Partnerships Act (389/1988)

The act governs general and limited partnerships in Finland. It outlines the regulatory framework of partnership firms, including formation, operation, and dissolution. It decides the liabilities of all partners against the firm and provides rules for settling disputes.  

3. Securities Market Act (746/2012)

The Securities Market Act is the main legislation that governs and protects Finland’s securities markets. It outlines rules for the allocation of securities, market manipulation-related abuse prevention, foreign investments, and information disclosures.

4. Act on Preventing Money Laundering and Terrorist Financing (444/2017)

This act provides measures to prevent money laundering and terrorist financing. It requires businesses to investigate and monitor illegal activities through AML and counter-terrorist financing (CFT) principles.

5. Unfair Business Practices Act (1061/1978)

The Unfair Business Practices Act ensures that all businesses, including legal entities and partnership firms, must adhere to ethical behaviour. It also provides regulations for information disclosure concerning the protection of trade secrets.  

Benefits of Starting a Business in Finland

Discover the following benefits of starting a business in Finland:

Flexible Regulatory Environment

With a stable and flexible legal environment in Finland, you can easily register an LLC in just 7 days.

Access to European Markets

Finland is a member of the European Union (EU), which helps foreigners get easy access to over 500 million consumers with little to no trade obstructions. Finland, being a Schengen country, eliminates internal customs control, simplifies the transportation of goods and services with less paperwork, and strengthens the economic collaborations with other Schengen countries in the EU. 

Skilled Workforce

With a highly educated and technologically advanced population, Finland offers a skilled workforce, especially in IT and R&D sectors, so if you’re planning to start a business in Finland then you’ll have an abundance of skilled workforce waiting for you.

Strategic Location

Finland is located in northern Europe, which facilitates easy trade with countries like Sweden, Norway, Russia, Estonia, and the United Kingdom (UK).

Foreign Tax Advantages

Finland has double taxation agreements (DTAs) with 86 countries, so if you’re a Finnish resident for tax purposes, then you can offset your foreign income tax against your income tax payable in Finland. Companies have the advantage of carrying forward unused foreign tax credits for up to 5 years.

EU Free Trade Agreements

Since its membership with the European Union (EU), Finland has benefited from over 40 free trade agreements (FTAs) with over 70 countries. With these agreements, foreign trade has become more flexible due to fewer tariffs and customs duties.

No Minimum Share Requirement

Finland’s private limited liability companies have no minimum paid-up capital requirement. You can start an LLC with just one euro.

Zero VAT in the EU

The 0% VAT applies to the purchase and sale of goods to other EU countries, which would strengthen business operations throughout Europe.

Tax incentives on R&D

The Finnish tax law provides a 100% tax deduction on research and development (R&D) expenses. It also provides a 150% deduction for tax years up to 2027.

Low Corporate Tax Rate

Finland has a 20% corporation tax rate, which is comparatively lower than most EU countries, making it an attractive business spot for global entrepreneurs.

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Types of Business Structure in Finland

Explore the below-mentioned business structure for starting a company in Finland:

Private Limited Liability Company (OY)

A private limited liability company (LLC), also known as a private limited company, is the most common type of business structure in Finland. It has no minimum share requirement. Foreign entrepreneurs prefer this structure because the shareholders or members have limited liability against the company’s debts.

Public Limited Company (OYJ)

A public limited company is suitable for larger organizations that seek external funding through Finland’s stock exchange. An OYJ must have at least three board directors and one managing director. The minimum share capital requirement stands at EUR 80,000. 

General Partnership (GP)

A general partnership consists of at least two members who have an equal share in responsibilities and profits. There’s no minimum paid-up capital requirement. The member’s assets are used to offset the partnership’s debts. All members have unlimited liabilities.

Limited Partnership (LP)

This structure consists of at least two members, one being a general partner who retains unlimited liability and a limited partner who acts as a silent investor with no actual participation in the firm and has limited liability against the firm’s debts.

Branch Entity

A branch entity is just an extension of a foreign parent company. It is not a separate legal entity and works as per the rules of its parent organization, and the latter is responsible for all debts and liabilities of its branch.

Cooperative Association

A cooperative association doesn’t have a predetermined structure. It is formed by at least three members. The members aren’t personally held liable against the association’s liabilities.

Sole Proprietorship (SP)

It is a one-member business establishment. The sole proprietor retains all the profits and has unlimited liability against the firm’s debts. 

Who Can Start a Business in Finland?

Check out the eligibility criteria as listed below to start a business in Finland:

1. All Finnish individuals & corporations residing in Finland or anywhere in the European Economic Area (EEA) are eligible to start a business in Finland.
2. Foreign entrepreneurs & companies are also eligible to operate a legitimate economic activity in Finland, provided they obtain residency or start-up permits, whichever applies to them. They must also hire a local director within the EEA.

Regulatory Requirements to Start a Business in Finland

The list of regulatory requirements for starting a business in Finland is as follows:

• At least one director and two shareholders for Private Limited Liability Companies (OY).
• At least one director who resides in the European Economic Area (EEA) for foreign applicants.
• Paid-up capital requirement of EUR 80,000 for Public Limited Liability Companies (OYJ).
• A registered office in Finland (physical or virtual).
• Residency or start-up entrepreneur permits for applicants who want to stay in Finland.
• There’s no minimum paid-up capital requirement for private limited liability companies (LLCs).
• A local representative agent is needed if you’re a foreign applicant and reside outside the EEA.

Documents Required to Start a Business in Finland

Take a glance at the mandatory documentation required to start a company in Finland:

1. Business Strategy Plan
2. Passport Copies of all Directors & Shareholders
3. Name Reservation Certificate
4. ID & Address Proofs of Directors & Shareholders
5. A Minimum Capital Requirement Statement, if Applicable
6. Company’s Physical or Virtual Address Proof

How to Register a Business in Finland?

The process of setting up a business in Finland is as follows:

1. Make a Business Plan

Although not a mandatory step, it is advisable for all business enthusiasts to chart out a detailed business plan before applying with Finland’s trade register.

2. Business Structure Selection

After outlining the business plan and strategies, the applicant must choose a suitable company structure, such as a limited liability company (LLC) structure, which is the most beneficial form because it protects the shareholders against the company’s liabilities.

3. Name Reservation

The next step is to search and reserve a company name with the Finnish Patent and Registration Office (PRH). The name should be unique and shouldn’t conflict with Finland’s laws.

4. Document Submission

After reserving the business name, the applicant must submit the company registration form with documents like passport copies of directors and shareholders, memorandum of association (MOA), articles of association (AOA), and a statement of minimum paid-up capital to the Finnish Patent and Registration Office (PRH).

5. Business Registration Approval

Finland’s trade authority will examine the documents and grant the certificate for company registration in Finland.

6. Receive a Business ID

After receiving the certificate of registration, the applicant should make a note of their unique business ID (Y-tunnus) for tax registration, license approvals, and visa permits.

7. Tax Registration

After obtaining the business registration, the new LLC owner must register with the Finnish Tax Administration to acquire a tax identification and VAT number or both, whichever is applicable.

8. Obtain Necessary Licenses

All companies need various industry-specific licenses and permits to officially commence their business operations. Licenses include logistic services, shop establishment, healthcare, drug manufacturing, and restaurant licenses.

9. Bank Account Setup

Following the approval of licenses, the company must open a corporate bank account to handle its expenses and finances.

10. Acquire Insurance for Employees

The LLC must register with the Finnish Social Insurance Institution (KELA) and obtain medical insurance for its employees.

11. Get Residency Permits

You must obtain a residency visa if you’re planning to stay in Finland. Most common visas include start-up, specific expert, general work, Schengen-C, and Schengen-D visas.

Timeframe for Finland Business Setup

The company formation process is simple and easy. It takes at least 5 to 7 days to register a company in Finland. However, this timeline depends on the business structure and examination process by the Finnish trade authority.

Visa & Permits

Explore the below-mentioned visa options before setting up a business in Finland:

Schengen Visa

Also known as a short-term visa, enables businesses and individuals to reside in Finland or anywhere in the Schengen area for up to 90 days within 180 days for business or tourism purposes.

C-Type Visa

A C-type visa, also referred to as a long-term visa, is valid for five years. This visa includes two options: single entry, which allows foreign entrepreneurs to stay in Finland for 90 days in 180 days, and multi-entry, which allows two entries in the same period.

Startup Entrepreneur

This visa is specifically for individuals and entrepreneurs who wish to establish a startup in Finland. The eligibility criteria include distinct business activity, a detailed business plan, and a proper funding source.

Residence Permit for Experts

A residency visa permit is mainly designed for experts who either own or work in IT, software development, and research companies.

Annual Compliance Obligations After Business Set Up

Take note of the following compliance requirements after the business is set up in Finland:

1. Submit annual financial reports to the Finnish Patent and Registration Office (PRH).
2. File annual tax returns within the four months following the end of the last month of the accounting period.
3. Obtain intellectual properties (IPs), including patents, copyrights, or trademarks, with the Finnish Patent and Registration Office (PRH).
4. Conduct and record annual general meetings (AGM) with company managing directors, shareholders, and other necessary personnel.
5. Maintain updated records of all directors and shareholders.
6. Hire auditors and company secretaries to ensure proper internal governance.
7. Submit the ultimate beneficial ownership (UBO) declaration to the Finnish Trade Register (PRH).
8. File and pay VAT to the Finnish Tax Administration (FTA), if applicable
9. Timely renew industry-specific licenses.

Challenges of Setting up a Business in Finland

Go through the following challenges of setting up a business in Finland:

Language Barrier

The Finnish company law requires all official documentation to be in Finnish or Swedish, which could be a hassle for non-native foreigners. All global entrepreneurs must hire a local representative to get assistance in navigating the company registration and regulatory approvals in Finland’s official languages.

Complex Laws

Company formation is easy, but obtaining industry-specific licenses could be challenging, given the complexity associated with the approval process and the higher degree of bureaucracy.  

Small Market

Finland has a relatively smaller market compared to the rest of Europe. With just a 5.6 million population, the market size is limited, which could be a demotivating factor for start-ups looking for international ventures.

Conclusion

To sum up everything, business registration in Finland is an easy and smooth process. With advanced infrastructure and the EU market access to tax benefits for startups and tariff-free flow of products and services in the Schengen area, Finland shows a lot of promise for foreign entrepreneurs looking to venture into the European market.

However, obtaining a company registration requires overcoming language barriers and navigating complex regulatory frameworks with strategic planning and professional support. By leveraging Finland’s progressive tax system, government support for startups, and fast-growing industries, foreign entrepreneurs can venture into the realm of endless business opportunities.

Despite the challenges, there are various benefits, such as legislative support for R&D and innovation companies, a well-educated workforce, a strategic location, and low VAT rates for specific industries. So, start a business and increase your wealth because there’s no wealth tax in Finland.

To get expert guidance on company registration in Finland, visit https://enterworld.io/

Frequently Asked Questions About Business Structure in Finland