Author: TaxDAO
The developed economies of North America and Europe are gradually establishing tax management and regulatory frameworks for cryptocurrencies. The number of regions implementing tax, anti-money laundering, and counter-terrorism financing regulations for cryptocurrencies is also increasing globally, but the questioning of the safety and sustainability of cryptocurrencies has never waned.
Recently, the European Commission released a legislative proposal for the Digital Euro on schedule, indicating the arrival of the era of the Digital Euro. Therefore, it is necessary to analyze the cryptocurrency tax system and regulatory situation in Finland, the founding member of the Eurozone, and explore its future development trends through Finland’s attitude towards cryptocurrencies. This article will provide a brief introduction to Finland’s tax system, the regulatory situation of cryptocurrencies, and the participation of multilateral cryptocurrency tax governance, enabling investors to understand how to correctly declare and pay taxes, and help investors better plan investments and analyze costs. Secondly, closely monitoring the cryptocurrency tax dynamics and regulatory changes in various countries can help investors understand the government’s attitude towards cryptocurrencies and policy trends. This is of great significance for making correct investment decisions, formulating long-term strategies, and evaluating market risks.
I. Finnish Tax System
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As a country that has ranked first in the World Happiness Report for six consecutive years, Finland has the most sound social security system and high-quality public services in the world, and the high welfare of society comes from Finland’s high-level taxation. In 2021, Finland’s total tax rate was 43%, far higher than the OECD’s average tax rate of 34.1%. However, its corporate income tax is only 20%, lower than the OECD average of 21.94%, making it one of the most competitive countries in the European Union and the OECD.
(I) Personal Income Tax
A person’s taxable income includes wage income, capital gains, and social welfare plan income (such as unemployment insurance, government pension plans, and medical insurance), which are levied by the state (National Tax), municipal (MuniciBlockingl tax), and church (Church Tax), respectively. The income tax levied by the state is calculated based on a progressive tax system, and the higher the income, the more tax is required to be paid.
Table 1.1 2023 Finland Personal Income Tax Brackets
Source: PWC: Finland Individual-Taxes on personal income, June 2023
Capital gains and dividend income are taxed at a fixed rate. For annual investment income of up to €30,000, the tax rate is 30%, and for income over €30,000, the rate is 34%. The local municipal tax rate is determined by each municipality. In 2023, municipal tax rates in Finland range from 4.36% to 10.86%, with an average municipal tax rate of 7.38%. Church tax is only payable by members of the Evangelical Lutheran, Orthodox, and Finnish German churches in Finland. The tax rate varies between 1% and 2.10% depending on the parish.
(II) Corporate Income Tax
All resident companies, non-resident companies, branches, and permanent establishments operating in Finland are subject to corporate income tax. Partnership enterprises are not considered independent tax entities, but the tax amount payable by each partner is calculated based on their share of the taxable income of the partnership enterprise. The corporate income tax rate is a flat rate of 20%.
(III) Consumption Tax
The standard rate of value-added tax (VAT) in Finland is 24%, and two types of low tax rates, 10% and 14%, are also available. The tax rate for catering services, food and animal feed is 14%, while the tax rate for books, newspapers and magazines in paper or electronic form, passenger transport and accommodation services, drugs, television and radio business expenses, tickets for cultural and sports activities, self-created and self-sold works of art, royalties, and public performance remuneration is 10%. Social welfare, health and medical services, public education, financial and insurance services are exempt from VAT. In addition, Finland also levies special consumption taxes (excise taxes) on specific goods and services, such as energy tax and tobacco tax.
(IV) Other Taxes
Other taxes levied in Finland include property tax, insurance tax, real estate tax, vehicle tax, etc.
II. Finnish Cryptocurrency Taxation and Regulation
In order to protect cryptocurrency investors, prevent tax evasion and money laundering, mitigate systemic risks, and ensure market integrity, Finland imposes taxes on cryptocurrencies in addition to regulating cryptocurrency providers and exchanges.
(I) Regulation of Cryptocurrencies
On October 4, 2018, the Finnish government issued a proposal 167/2018 (HE 167/2018) to introduce a law on bank and payment account monitoring systems and virtual currency providers. Virtual currency providers will be treated as other financial market operators mentioned in financial supervisory laws and will be required to pay regulatory fees.
On April 26, 2019, the Finnish Financial Supervisory Authority (FIN-FSA) announced that the Act on Virtual Currency Providers (572/2019) would take effect on May 1, 2019. Under the Act, the FIN-FSA will serve as the registration and supervisory authority for virtual currency providers. Any virtual currency-related service providers offering “virtual currency trading services,” “custodian wallet providers,” and “virtual currency issuers” in Finland must register. These providers must meet certain statutory requirements, keep customer funds separate from their own funds, and comply with anti-money laundering and counter-terrorism financing regulations. In addition, registration can only be carried out when the applicant has the right to operate in Finland. The term “having the right to operate in Finland” means that the applicant must be established in Finland, or for foreign companies, have a branch established in Finland. From another perspective, as long as the service provider is established in Finland (either as a permanent institution or branch) or promotes services or products to individuals or any institution in Finland in a cross-border manner (even if the service provider has no local presence), it falls within the scope of regulation and application of this Act.
Secondly, under the Act on Bank and Payment Account Monitoring System (571/2019, revised version, hereinafter referred to as the “Account Monitoring Act”), virtual currency providers must provide customer information to all bank and payment account registration agencies in Finland’s customs. The FIN-FSA also issued Regulations and Guidelines (4/2019) on virtual currency providers, which cover the holding and protection of customer assets (including virtual currencies), customer due diligence, and risk management systems.
However, the registration obligation does not apply in the following cases:
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Individuals or legal persons that provide virtual currency services within a limited network, such as closed networks that are not open to the public and require registration;
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Individuals or legal persons who occasionally provide virtual currency services in other professional activities that require authorization, registration or prior approval;
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Virtual currencies issued by central banks and other institutions.
(II) Cryptocurrency tax system
The Finnish Tax Administration (Vero) does not regard cryptocurrency as legal tender like the euro, nor as a legal payment instrument, but as a type of personal asset that can be freely traded on the open market. The official definition of “cryptocurrency” is a digital form of value that has the following characteristics:
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There is no central bank or other public institution as the issuer, and it is not considered a legal payment instrument;
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Can be used by individuals to settle debts;
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Can be electronically transferred, stored, and exchanged.
As long as a cryptocurrency is exchanged for one or more other cryptocurrencies, traded with legal currencies (such as US dollars or euros), used to purchase goods or services, transact non-fungible tokens (NFTs), participate in cryptocurrency staking, or earn income from leverage/futures trading, it is subject to taxation. This article will provide a more detailed introduction to the types of taxes involved.
1. Subject to capital gains tax
Generally, purchasing cryptocurrency or transferring currencies within a cryptocurrency wallet or exchange is not taxed, but profits from selling cryptocurrency are subject to capital gains tax. If the total cryptocurrency transaction amount exceeds 1,000 euros, it needs to be taxed as income according to regulations. The tax rate for income profits below 30,000 euros is 30%, and the part exceeding 30,000 euros is 34%.
2. Subject to income tax
Income from mining cryptocurrency is subject to a personal income tax of up to 31.25%. In addition, compensation paid in cryptocurrency as wages or to self-employed individuals is taxed the same as compensation paid in euros or other legal currencies.
In short, according to the Finnish Tax Administration, capital gains tax must be paid for using cryptocurrency for sales, transactions, or purchases, while earning cryptocurrency is subject to income tax as wages or compensation.
III. Future Development Trends of Cryptocurrency in Finland
Currently, buying, selling, and using cryptocurrency in Finland is legal. The Finnish government is also committed to building a good cryptocurrency investment environment through legislative regulation and participation in multilateral governance, but the trend of recognizing cryptocurrency as legal tender is still unclear. This article also believes that with the characteristics of cryptocurrency and the market environment with frequent fraudulent incidents, Finland’s regulation of cryptocurrency will only gradually tighten, but the trend of tax compliance will become more complex due to the participation of multiple parties.
(I) Regulatory and Tax Compliance Trends of Cryptocurrency
In November 2022, the bankruptcy of FTX, the world’s second-largest cryptocurrency asset exchange, caused industry shock, and the brutal collapse caused by its platform’s “wild growth” has attracted the attention and attention of governments around the world. The (pseudo) anonymity of cryptocurrency also creates a data gap for regulatory agencies and may create unnecessary conditions for money laundering and terrorist financing. Although authorities may be able to track illegal transactions, they may not be able to identify the participants in such transactions. Currently, regulatory mechanisms in most countries and regions are imperfect, and the cryptocurrency ecosystem is under different regulatory frameworks in different countries, resulting in cross-border tax evasion, making coordination more challenging. Therefore, ensuring the stability of cryptocurrency trading platforms and the transparency of cryptocurrency taxes needs to be achieved through multilateral governance and regulation.
The EU’s Fifth Anti-Money Laundering Directive (AMLD5) extends the coverage of the Fourth Anti-Money Laundering Directive (AMLD4) to “providers of services for the exchange between virtual currencies and legal currencies” and “custodian wallet providers.” Finland’s virtual currency provider bill and account detection bill are based on the fifth anti-money laundering law, and some of these obligations even exceed the law to ensure that all cryptocurrency transactions are carried out within the jurisdiction. The Sixth Anti-Money Laundering Directive (AMLD6) released in 2020 further expands the scope of obligations for a large number of financial transaction-related companies, emphasizes individual accountability, and introduces strengthened punishment measures and mechanisms for cross-border cooperation among member states.
On May 13, 2023, the “Market Regulation of Crypto Assets” (MiCA) was also finally approved by the EU Council, and is expected to be implemented from 2024. EU member states will have the world’s first comprehensive rules for regulating crypto assets. The regulation aims to establish a framework for issuing crypto assets and providing related services, including stablecoins. The regulation also requires companies that issue and trade crypto assets, tokenized assets, and stablecoins in all 27 EU countries, including Finland, to obtain the necessary licenses and requires stablecoin issuers to hold adequate reserve funds. From January 2026, service providers will need to know the names of the sender and receiver of crypto asset transactions, regardless of the transfer amount.
As a member of the OECD, Finland will also follow the revised “Crypto Asset Declaration Framework and Common Declaration Guidelines” released in 2023, and will report in bulk the account information of foreign residents in financial institutions within the country to its tax authorities, and automatically exchange tax-related information to enhance global tax transparency and ensure the security of cryptocurrency transactions.
Finland actively participates in multilateral regulation and tax governance to assist in strengthening cross-border coordination to ensure the effectiveness of supervision and law enforcement. As the current trend indicates, Finland will only tighten its regulation of cryptocurrencies and their platforms, and further improve the market regulatory framework. However, multilateral governance involving information sharing may raise concerns about personal privacy and become complex due to the competition of different political interests, making it a long and arduous task to achieve tax compliance.
(II) Trend of “Legalization” of Cryptocurrency
As mentioned earlier, Finland does not regard cryptocurrencies as “currency” or a legal payment tool, but rather as personal assets that can be circulated and exchanged in the market. A consultant to the Finnish central bank once stated that the concept of cryptocurrency is a “fallacy.” If it were to be legally recognized as a legal payment currency, its security, stability, and sustainability would still be a serious challenge.
Secondly, the emergence of cryptocurrency technology has also promoted the transformation of the digital economy. The development of new digital payment technologies has prompted central banks around the world to actively respond, accelerating the promotion of legal digital currencies to protect monetary sovereignty and maintain financial system stability. The European Commission, for example, will give digital euros the same legal currency status as cash euros through the legislative process, not only to cater to the global trend of digital currencies, but also to seize the high ground of global cross-border payments. Olli Rehn, Governor of the Finnish central bank, stated in a speech at the University of California, Berkeley that central bank-issued digital currencies are more trustworthy than privately issued and managed payment methods. He also cited the European Central Bank’s previous view that a digital euro would help ensure that the central bank always plays an anchoring role in the EU’s currency system, promoting the stability and reliability of the digital euro in maintaining the stability of the monetary system.
Overall, in the era of economic digitalization and rapid growth of cryptocurrencies, it is very important to ensure the safety of cryptocurrency investors, regulate trading venues, improve trading transparency and track trading information. Finland’s strict legislation and regulations and active participation in the multilateral governance of cryptocurrencies show its emphasis on cryptocurrencies, but it also distrusts these decentralized digital assets. Therefore, this article believes that cryptocurrencies cannot be recognized as legal tender in Finland for now, and will be strictly controlled. The country’s positive attitude towards the digital euro will also affect the future development and status of cryptocurrencies in the country.
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