Limited liability companies in Finland

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This article is aimed at entrepreneurs operating or looking to start a Finnish limited liability company, and who want to know the basics about their governance, and how to best take money out of the company.

If your company doesn’t yet have electronic financial management and accounting, we are accepting new clients. We are an authorized Fennoa accounting firm.

What is a limited liability company?

An LLC is an independent legal entity. This means that it can enter into judicial contracts, own property, and be subject to obligations, just as a natural person can. An LLC is thus wholly separate from its owners, management and employees. Company money (and company debts!) belong to the company, and to the company only.

Ownership of an LLC is determined by ownership of shares. An LLC can have an arbitrary number of shares, which can be owned by natural persons, other judicial persons or partly by itself. Most commonly, an LLC only has one type of shares, each conferring to its owner a vote. It is also possible to have different series of shares, some conferring less votes than others, but this is rare in SMEs.

If more than 50% of the votes (commonly the same thing as more than 50% of shares) is owned by another legal person, such as another LLC, the owned LLC is considered a daughter company, and the owner a parent company. If enough companies of a sufficient combined size are thus linked, it might come to be considered a concern, and require some additional administrative work.

Shareholders generally meet once a year to ratify the previous fiscal year’s financial statement, decide on whether to deal out dividends, and discharge (absolve of normal responsibility) the board of their actions for that year. This meeting is called an (ordinary) general meeting, and as with all meetings, minutes should be prepared and archived.

General meetings also choose board members for the LLC. The board must consist of at least 1 ordinary member, and if there are less than 3 ordinary members, one deputy member. Deputy members have no duties or responsibilities, unless they actually exercise their powers.

A board of more than 1 ordinary member can have one member be the chairman of the board. The board is the main governing body of the company, but it is beholden to all shareholders, and must pursue the general good of the company. The whole board is always able to represent the company, but it is advisable to have more lax representation rules for ease of governance.

A board can hold board meetings, but this is not usually needed in one-man companies. If there are several entrepreneurs involved, it is a good idea to hold meetings for decisions of importance. Naturally, minutes are produced for board meetings.

A company can also choose a CEO, who is tasked with the day-to-day affairs of the company. There is nothing wrong in having the same person as both the only owner of the company, the only ordinary member of the board and the CEO (in fact this is quite common in solo companies). A CEO is chosen by the board and is not considered an employee in regards to employment security.

The minimum governance for an LLC is thus one general meeting per year, which for a solo company can take as little as 10 minutes.

For a company with several shareholders, it is advisable to make a shareholders’ agreement, which details what is expected of each entrepreneur, and how remuneration will work. It is a latent problem, if in a 50-50 owned company one person excepts to do nothing but get dividends, and the other expects both to work for the company. Agree beforehand and know what is expected of each!

Getting money out of an LLC

Loans from the entrepreneur to the company, investments (SVOP) to the company, or loans from the company to entrepreneurs (not advisable, heavily taxed and generally against the LLC act) are not discussed here, save that loaning small amounts of money to the company and repaying these to yourself requires no special declarations, and can be made at one’s discretion (as long as there is no liquidity issue).

For an entrepreneur, there are 3 main ways of permanently getting money out of an LLC:

  • Paying yourself a salary

  • Dealing out dividends

  • Paying travel compensation

There are also other ways of paying company money to yourself (interest from loans given by the entrepreneur to the company, renting space or purchasing goods from the entrepreneur), but they usually require a valid commercial reason, and the income is most often treated as capital gains tax for the entrepreneur.

In case of commercial transactions between the entrepreneur and the LLC, extra care should be used to base those around fair market value. Fair market value is also an issue between companies belonging to the same concern, or which are otherwise connected (for example, by common board members or family members of such).

Any transfer of property, or right of use of property (e.g. entrepreneur using a company car or apartment), without appropriate tax declarations, constitutes hidden dividend distribution, and is illegal.

Let’s get into the three main ways of paying money out in more detail.

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Salaries to the entrepreneur

In one-man companies, where liquidity is not an issue, there is no limit to how much salary can be paid to the entrepreneur. It is similar to salaries paid to normal employees, but in the case of YEL-insured entrepreneurs, the only employer cost to come on top of salaries is the national health insurance fee (2021: 1,53% of gross salaries).

Otherwise a normal salary slip and income register declaration are made, and a withholding according to the entrepreneurs normal tax card is taken and paid to the Tax Administration, along with the health insurance fee.

This income is progressively taxed as earned income, along with any other salaries or certain social benefits you might be getting.

In addition to salaries in money, fringe benefits can be offered to the entrepreneur. These are things such as the company paying for the entrepreneur’s private phone use, giving a car or apartment for personal use, or offering a bicycle, public transport ticket or lunch vouchers.

These are often taxed at a predetermined value, while the full cost of procuring these is a deductible expense for the company. This makes certain fringe benefits advantageous from a tax point of view, but some of these (lunch vouchers for example) are administratively complicated, and it best to check if the tax benefit outweighs increased pay roll administration costs.

Unpaid salaries can to a certain extent be entered as accrued expenses in accounting and taxation, but not yet be taxed as personal income. This has limitations, and constant and misguided use of this will lead to these accrued expenses being taxed before money is actually paid. What this does mean, is that there is no rush to optimise taxation during the last week of December, and it might be possible to enter these expenses for December and pay the salary out next February.

There are also other untaxed benefits that employees or an entrepreneur can take out from the company. They often have their own limitations, and it is best to discuss these with your accountant before partaking:

  • Sports and/or cultural benefit of 400€ each year

  • Health care

  • Internet connection for work use

It is to be noted, that adding the prefix ”work” before expenses is not an automatic way to make a purchase a deductible non-salary company expense. In particular work clothes, work glasses and work lunches do not exist but in very specific cases.


An important note about dividends: Dividends cannot be dealt out, if it would endanger the financial stability of the company.

An LLC’s assets (=property in the books) are divided into two categories: those backed by equity, which means the LLC has no obligation to return money equivalent to those assets, and those backed by liabilities, which means that sooner or later the LLC will have to pay back loans or purchase invoices with assets.

Equity is further subdivided into two kinds: free equity and unfree equity. Unfree equity is for example registered share capital or re-evaluation fund capital. These are somewhat uncommon in LLCs registered after July 2019. Unfree equity cannot be given out as dividends.

Most equity is of the free type: retained profits or other invested capital (SVOP). These can largely be dealt out as dividends if the company so desires, although there are some restrictions (for example, certain public grants such might have prohibition clauses, and capitalised development expenses reduce the amount of possible dividends.)

Example: Company Oy has 25 000€ in the bank. It has a bank loan of 10 000€, a 5000€ due invoice, retained earnings of 7500€ and a share capital of 2500€. Assets are 25 000€, liabilities 15 000€, equity 10 000€ of which 7500€ is free equity.

What this means: a company, which has accumulated profit, can deal all or part of it as dividends to shareholders. Dividends are given per share, so it is not possible to leave any owner out. it must be noted, that a 20% corporate tax will have already been paid, before a company has accumulated profits.

Dividends are not an expense, and it’s taxation depends on whether the receiver is a corporation or private person. Dividends from private LLC’s to other LLC’s are not taxed.

For private persons, taxation is unfortunately a bit complicated:

  • Dividends are taxed as capital gains. These are taxed at 30% if under 30 000€ per year, and 34% for the part above this. We’ll use 30% here for calculations.

  • Shares of an LLC have something called a mathematical value, which is the net worth of the LLC / number of shares. Net worth is usually the same as equity.

  • For dividends dealt in 2022, we look at the net worth of the company during the previous year. So, if the fiscal year ended on 31.12.2021, we look at that net worth. But if the fiscal year for some reason ended on 01.01.2021, we look at that financial statement for our 2021 net worth.

  • If 8% or less of the net worth is dealt as dividends, this is 75% non-taxed and 25% capital gains tax. Effective tax rate is thus 0,25 * 30% = 7,5%.

  • If above 8%, the part above is 25% non-taxed, and 75% taxed as normal income. Effective rax rate is thus 0,75 * your (progressive) income tax rate.

  • If you are doing really well and get more than 150 000€ of dividends which fall under the 8% and are thus capital gain dividends from one or more non-listed LLC’s in a year, 85% of the part above that is taxed as capital gains, and 15% non-taxed (effective tax 0,85 * 34% = 28,9%).

So, dividends or salaries?

While it is possible to somewhat optimise total taxation, balancing salaries and dividends is 70% mathematics and 30% guesswork. Optimisation is somewhat possible in solo companies, but if there are several owners, it becomes much more difficult due to conflicting interests.

How to look at things for solopreneurs:

  • Since corporate profits are taxed at 20% flat, if your personal income tax rate would be below this (or 19,70% to be exact due to the social security fee), draw salaries until profits are at 0€. You can lend your net salary back into the company in any case.

  • If thinking really long term and perhaps betting on tax law changes, once your personal tax rate is at 20%, do not draw any more salaries. Leave any profits in the company and let them be taxed at 20%. The profits can then be reinvested to make use of compound interest.

  • Realistically, you will likely need more money for daily life: draw a salary until your private tax rate is at 26%, or as little as possible above that. Draw the 8% of lightly taxed dividends each year.

    Why 26%? Assume a taxable profit of 100 000€. Corporate tax is 20%, and then for many, many years (around 160), you draw exactly 8% worth of dividends, until no more funds remain. Assume no further profit is made, and that the company has assets = net worth.

    Due to those dividends being taxed at 0,25 * 30% = 7,5%, total taxes on dividends are 6000€. This summed with corporate taxes of 20 000€ gives 26 000€, or 26% of taxable revenue, or 20% + 0,8 * (0,75 * 30%) = total tax rate for light dividends.

    Obviously, the example is theoretical, but in theory light dividends become more tax-effective, if your personal tax rate is 26% or more.

  • When your personal tax rate is above this 26%, tax-wise the optimum is to draw as little additional salary as you need and take the 8% of light dividends each year. Of course, if you need more money, it is perfectly acceptable to draw more dividends.

  • Dividends of above 8% can be a good idea if money is needed, and no more taxable profit is expected into the company.

Real life is not an investment textbook, and trying to optimise taxation to a cent will only make your accountant richer. These are just general guidelines, and do not constitute financial advice.

What is the procedure for dealing dividends then?

  1. When preparing a financial statement, the amount of money that could be taken out as dividends is stated there. The board makes a suggestion for dividends that is recorded in the financial statement.

  2. When the financial statement is being adopted by owners in the general meeting, the suggestion of the board can be accepted, or it can decide to deal out less. More than the board’s suggestion has some extra requirements. The meeting decides when this dividend is available, generally on the day of the meeting.

  3. These dividends are paid to shareholders:

    • In the case of natural persons (full tax resident in Finland), a 7,5% withholding is made, and paid by the 12th of the next month. This requires a few declarations; your accountant will take care of this. The 92,5% net dividend is paid to the shareholder (or the shareholder can decide to reinvest that amount into the company).

    • If the receiver is a (Finnish) legal person, no withholding is made.

    • In both cases, the decisions are declared along with the corporate tax declaration, or separately afterwards. There is also a separate annual declaration made in January, if dividends were dealt during the previous year.

Photo by Clem Onojeghuo on Unsplash

Travel compensation

In certain cases, workers, including a solo entrepreneur in an LLC, can receive tax-free travel compensation for work trips. These are still declared to the income register, but they do not count as taxable income. These are available even if no actual salary is paid, but the entrepreneur needs to work for the company (passive owners are barred from these).

The most common travel compensation is the mileage allowance (base 0,44/km in 2021), which can be paid if a private car (does not need to be one’s own, e.g. spouse’s car is fine) is used during work trips.

The second most common one is per diem allowances. These can be paid for work trips of over 10 hours (full allowance, 44€ in 2021) or 6 hours (half allowance, 20€ in 2021). The amount of free meals on the work trip (for example, a training trip includes meals as part of the package) affects these.

There are also per diem allowances for foreign trips, the amount of which varies by country, and sometimes by region within the country.

For a trip to count as a work trip, a few things to keep in mind (this is the short version):

  • Trips between one’s home and permanent working location, i.e. office, shop or construction site are never work trips, and mileage cannot be paid. These can to some extent be deducted in one’s personal taxation.

    What constitutes a permanent workplace varies, and some cases are hard to judge. For example, a consultant working regularly at his or her client’s place may form a permanent working place there.

  • For per diem allowances, the target location must be at least 15 kilometres away from one’s home and working place.

  • Obviously, the trip needs to be related to company matters, in a tangible way.

A travel invoice is required to claim these compensations. It states such things as who made the trip, when it began, when it ended, what was the route used, and what was the purpose of the trip. These can be a bother, if they are made manually.

Our main financial administration software Fennoa has a built-in travel invoice module, which can be used by the entrepreneur and any workers, to make travel invoicing as smooth as possible.


An LLC is an excellent form for any company, which affords both financial safety and ways to optimise long term growth. While governance is quite light, LLCs do require salary slips to be made each month money is taken out for personal use, unlike private traders and partnerships.

Accounting Agency Mesiperä offers accounting services, and we can also help you register your company. Check out our services for more detail.

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