Parliament approved in April amendments to the Finnish Income Tax Act, which will change the taxation of life insurance and capitalisation contracts with effect from 1 January 2020.

As of the next tax year, profits of insurance products will be taxed proportionally in case of surrenders. Additionally, it will be possible to deduct possible loss when the contract ends, in other words, the total loss compared to premiums paid when the contract matures or is fully surrendered. Losses from partial surrenders are not tax deductible.

The taxation change is completely in line with the report of the working group that the Ministry of Finance appointed to look into harmonising taxation of different investment products. The report of the working group was published in May and it was generally hoped that new law would bring the long uncertainty to a close. 

However, the wording of the law leaves room for uncertainty and interpretation, especially when it comes to article 35 b of the law. The aim of this article was to put a stop to so-called “artificial insurance structures”, but has raised more questions than it has given answers. To keep the tax benefits of their insurance solutions, from next year onwards, policyholders are not allowed to enter any agreements with third parties, which means that all asset management and advisory agreements must solely be made between the insurer and the third party in question. In case the policyholder wishes to influence investment decisions of his insurance portfolio, this is possible, but the orders need to be given to the insurer instead of the asset manager.

The asset management industry, both domestic and foreign insurance companies have to streamline their procedures and documentation in order to comply with new laws and regulations in Finland.  At OneLife, we have already started mapping the changes needed as we want to ensure that we continue to offer compliant solutions for our Finnish clients, now and in the future.

Should you have any questions concerning this topic, please contact us.

  Tarja Valkeinen
Country Manager – Finland