Finland has proposed amendments to formalise tax exemptions for foreign investment funds following the A SCPI CJEU ruling, while introducing home-state tax conditions, easing requirements for ELTIFs, and clarifying withholding tax and profit distribution rules from 2027.
The Finnish Government presented Government Proposal HE 209/2026 vp to Parliament on 2 October 2026, proposing amendments to the Income Tax Act, the Act on the Taxation of Income of Non-Residents and the Prepayment Act.
The primary impetus for these legislative changes was the European Court of Justice (ECJ) ruling in A SCPI (Case C-342/20). In that judgment, the ECJ held that Section 20 a of the Finnish Income Tax Act—which restricted tax exemptions exclusively to foreign investment funds constituted by contract—violated the free movement of capital guaranteed under Article 63 of the Treaty on the Functioning of the European Union (TFEU).
The Finnish Tax Administration had already updated its guidance in 2022, but legislative changes had not been made, apart from changes concerning the tax residency of AIF and UCITS funds.
Following the ruling, the Finnish Tax Administration updated its administrative guidance in 2022 to grant tax exemptions to comparable corporate-form (e.g., SICAV, SCPI) or trust-form foreign funds in practice. However, the statutory language of TVL 20 a had remained unchanged. HE 209/2026 vp formalises this transition into statutory law while tightening tax base protections and facilitating fund structures such as European Long-Term Investment Funds (ELTIFs). The proposed amendments are scheduled to enter into force as soon as possible and will apply for the first time in the 2027 tax year (for income paid on or after 1 January 2027).
The core statutory amendments are summarised below:
Removal of contractual requirement & introduction of home-state tax condition
- Foreign open-ended and special investment funds will no longer need to be contract-based to qualify for Finnish tax exemption. Corporate-form and other non-contractual entities may qualify if treated as corporate entities for Finnish tax purposes.
- Foreign funds must be tax-exempt, fiscally transparent, or effectively tax-exempt in their country of registration.
- Funds that achieve zero tax only through ordinary corporate deductions or tax-exempt dividend income will not qualify as effectively tax-exempt.
- The new home-state tax status requirement will also apply to foreign contractual funds.
Reform of European long-term investment funds (ELTIF) rules
- The proposal removes the requirement for all investors in certain closed-ended special investment funds to be professional investors where the fund is authorised as an ELTIF under EU Regulation 2015/760.
- The change is intended to support retail access to ELTIFs and encourage fund managers to establish such funds in Finland.
Profit distribution clarifications & terminology alignment
- The 75% annual profit distribution requirement for certain special investment funds can be met where at least 75% of profits, excluding unrealised value changes, is included in unitholders’ taxable income under the home-country tax system, even without a cash distribution.
- Terminology concerning unrealised “value changes” will be aligned with the AIFM Act.
Amendments to the Non-Resident Income Tax Act
- The contractual-form requirement for foreign funds to receive Finnish dividends free of withholding tax will be removed, provided the fund meets the TVL 20 a § conditions.
- The EU Parent-Subsidiary Directive withholding tax exemption will be clarified as not applying to distributions by investment and special investment funds.
Technical and conforming updates
Several provisions will be updated to explicitly include special investment funds alongside standard investment funds when referring to profit distributions.
Key practical implications
- Legal certainty: The amendments codify the approach arising from the A SCPI CJEU ruling and existing administrative practice.
- Foreign fund compliance: Foreign contractual funds will need to demonstrate their tax-exempt, transparent, or effectively tax-exempt status in their home jurisdiction.
- ELTIF development: Removing the professional investor restriction for qualifying ELTIFs could support the establishment and growth of private equity, venture capital, and infrastructure funds in Finland.
