Fund Market Tax Reform

Author: Harri Vehviläinen Read time: 3 min

Finland is preparing a tax reform to improve flow-through taxation of investments into Finnish regulated funds, expected to be applied as of tax year 2027.

Current circumstances

As background for the contemplated tax reform, a Finnish limited partnership (in Finnish “kommandiittiyhtiö”) is not a separate tax subject but the taxable profit is determined at the level of the Finnish limited partnership and thereafter taxed in the hands of limited partners. Therefore, a Finnish limited partnership is not a fully tax transparent entity, but rather a calculation unit. This has resulted in adverse tax position of foreign investors and non-profit organizations, which has already prior to the contemplated reform been mitigated with a specific tax provision¹. However, due to the inefficiencies of the current specific tax provision, the contemplated tax reform is being prepared during year 2026².

Contemplated tax reform

The tax reform is intended to facilitate especially two types of investments in Finnish regulated fund having legal form of a Finnish limited partnership:

1. Foreign fund-of-funds, that are not a tax subject,
2. and Non-profit organizations.

Prior to the tax reform, a foreign fund-of-fund may have been eligible for the current specific tax law provision to achieve fully tax transparent treatment, but excessive administrative burden would be required covering i.a. the investors in the fund-of-fund, which has effectively limited the potential investments by foreign fund-of-funds. The tax reform has a purpose to remove the excessive administrative burden and enable equal treatment of investments in Finland regardless if the foreign fund-of-fund makes the investment into a Finnish limited liability company or into a Finnish regulated fund having legal form of a Finnish limited partnership.

Prior to the tax reform, a non-profit organization has generally been able to invest into a Finnish limited liability company without tax implications, due to the passive nature of the investment. However, if a non-profit organization makes a similar passive investment into a Finnish regulated fund having legal form of a Finnish limited partnership, tax implications have arisen despite the passive nature of the investment. Therefore, the contemplated tax reform has a purpose to enable equal treatment of investments in Finland regardless if the non-profit organization makes the investment into a Finnish limited liability company or into a Finnish regulated fund having legal form of a Finnish limited partnership.

Looking Ahead

With the reform expected from the 2027 tax year, focus is shifting to readiness for taking benefit of the changes aiming to simplify taxation and remove barriers for foreign fund-of-funds and non-profit investors. Investors are encouraged to commence evaluating further investments into Finland under the new tax regime in order to benefit from improved flow-through taxation of Finnish regulated fund investments. Early planning will be key as the reform progresses during 2026.

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^1. Section 9(5) and (6) of the Finnish Income Tax Act (Tuloverolaki, 1535/1992). Section 9(5) was introduced by Government Proposal HE 64/2005 vp to equalise the tax treatment of indirect investments through a Finnish private equity limited partnership with direct investments into Finnish target companies. Section 9(6), extending the provision to foreign fund-of-funds structures, was introduced by Government Proposal HE 306/2018 vp.

^2. Ministry of Finance legislative project VM084:00/2025 (the so-called YHY-hanke). The Government Proposal is scheduled for introduction to Parliament in week 41/2026, with the aim of ensuring the reform is enacted during the current parliamentary term. The political mandate derives from the Finnish Government’s mid-term policy review (puoliväliriihiohjelma) of 22–23 April 2025.