Limited liability companies in Finland

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.

This article was updated in August 2026. Main changes include updating of number values, corrections to e.g. total tax rate vs. marginal tax rate in context of dividends and other general updates.

What is a limited liability company?

An Ltd 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 Ltd is separate from its owners, management and employees. Company money (and company debts!) belong to the company, not to owners.

Ownership of an Ltd is determined by ownership of shares. An Ltd can have an arbitrary number of shares, which can be owned by natural persons, other judicial persons (or partly by itself). Most commonly, an Ltd 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 small companies.

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 Ltd, the owned Ltd is considered a daughter company (or subsidiary), and the owner a parent company. If enough companies of a sufficient combined size are linked like this, they might come to be considered a concern (or group) and require some additional administrative work.

Shareholders generally meet once a year to adopt 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 Ltd. 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 must have one member be the chairman of the board. The board is the main governing body of the company, but it is subordinate 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-person 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 director, 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 director (in fact this is quite common in solo companies). A director is chosen by the board and is not considered an employee in regard to employment security.

The minimum governance for an Ltd is 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! Even if not a strong legally binding contract, having a longer chat and putting things in writing gives a strong foundation for resolving and avoiding future arguments.

It should be noted that is usually not advisable to get ”superfluous” owners or board members in a company. If someone is not expected to put in work for a company, and they are not investing money, one should seriously consider why they should get shares at all – mixing one’s job and friends & family might not turn out to be a wise choice.

Getting money out of an Ltd

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

• 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 Ltd, 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 filings, constitutes hidden dividend distribution and can lead to penalties.

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

Salaries to the entrepreneur

In one-person 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 (2026: 1,91% of gross salaries).

Otherwise, a normal salary slip and Incomes Register declaration are made, and a withholding according to the entrepreneur’s 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 payroll administration costs.

Unpaid salaries can to a certain extent be entered as accrued expenses in accounting and taxation for the company but not yet be taxed as personal income for the recipient. 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 personnel 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.

Dividends

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

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

Equity is further subdivided into two kinds: free equity and restricted equity. Restricted equity is for example registered share capital or re-evaluation fund capital. These are somewhat uncommon in Ltds registered after July 2019. Restricted 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 might have prohibition clauses, and capitalised development expenses reduce the amount of possible dividend.)

Example: Company Oy has 25 000€ in the bank. It has a bank loan of 10 000€, a 5 000€ due purchase invoice, retained earnings of 7 500€ and a share capital of 2 500€. Assets are 25 000€, liabilities 15 000€, equity 10 000€ of which 7 500€ 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 income tax will have already been paid before a company has accumulated profits.

Dividends are not an expense, and their taxation depends on whether the receiver is a corporation or private person. Dividends from private Ltds to other Ltds 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 Ltd have something called a mathematical value, which is the net worth of the Ltd / number of shares. Net worth is usually the same as equity.
  
  
• For dividends dealt in 2026, we look at the net worth of the company during the previous year. So, if the fiscal year ended on 31.12.2025, we look at that net worth. But if the fiscal year for some reason ended on 01.01.2025, we look at that financial statement for our 2026 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 wage income. Effective tax 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 Ltds 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 (and How I Learned to Love Marginal Tax Rates)?

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.

The short story is very simple: take a minimum of around 25 000€ as a salary each year. More if cash is needed. Take the maximum 8% of light dividends each year. The recipe is simple when you trust the mechanics behind that.

The nitty gritty:

• Since corporate profits are taxed at 20% flat, if your personal marginal income tax rate would be below this (or around 18,50% 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.
  
  For a single person living in Helsinki with no church taxes, this is already reached at around 18 000€ yearly wage income.
  
  
• There is a (theoretically) interesting decision when your marginal tax rate is between 20% and 26% (or 18,5% and 24,5% if taking social security fee in the calculation) of whether to take money out as a salary immediately for lower long-term tax, or leave it in the company for higher eventual taxation but with more compounding time. Frankly, this step is best omitted from this exercise.
  
  
• Realistically, you will likely need more money yearly than 18 000€ – 25 000€ for daily life: draw a further salary until your monthly cash needs are met. If financially possible, leave the rest in the company as profits to be taxed and for long-term dividends.
  
  
• Draw the 8% of lightly taxed dividends each year (whatever the situation).
  
  Why the 26% marginal tax rate? Assume a taxable profit of 100 000€ before salaries. Corporate tax is 20%, and then for many, many years (around 173), 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 6 000€. This along 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 light dividends become more tax-effective, if your personal marginal tax rate is 26% or more.
  
  So why are we looking at the marginal tax rate and not the total tax rate?
  
  The marginal tax rate answers the questions of ”If your income rises 1 000€, how much of that additional income goes into taxes”.
  
  For example, let’s say you annual income is 17 000€, and that it leads to payable taxes of 85€. That is a tax rate of 0,5%. Now let’s say your income rises to 18 000€. You now pay 271€ total in taxes. Your tax rate is still only 1,51%.
  
  However, your income rose by 1 000€, and your total payable taxes rose by 186€. Of that additional 1 000€, 18,6% went into taxes – that is what we call the marginal tax rate.
  
  Now when we apply this to dividends, we have the following situation: our single non-church taxed person born in 1980 living in Helsinki has taken a salary of 25 000€ so far this year. He will pay 1 515€ in income taxes (tax rate 6,1%).
  
  His company has 1 000€ left in profit; should he take a further 1 000€ in salary, or leave that in the company for later dividends?
  
  
  • If he takes it as a salary, he will pay a total of 1 823€ in taxes (tax rate 7%, marginal tax rate 30,8%).
    
    
  • If he leaves it in the company, the company will pay 20% corporate income tax (or 200€), and eventually as light dividends the person in question will pay 7,5% (0,25 * 30%) on what remains (7,5% of 800€ is 60€). In the dividend option, total taxes paid in the long run are 260€, vs. the 308€ in the salary option.
    
    The negative is of course that the salary option is immediate, while the dividend option requires years and decades to pay off.
    
    
• Dividends of above 8% can be a good idea in some niche cases (for example, the company no longer gets profits, and other wage income is low), but these are rare.
  
  

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 12^th 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.
     
     
   • 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.
     
     
     

Travel compensation

In certain cases, employees, including a solo entrepreneur in an Ltd, can receive tax-free travel compensation for work trips. These are still declared to the Incomes 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 not eligible).

The most common travel compensation is the mileage allowance (base 0,55/km in 2026), 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, 54€ in 2026) or 6 hours (half allowance, 25€ in 2026). The number 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 or are not 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.
  
  
• The travel happens for work. Simply working while traveling does not make it work travel.
  

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.

Conclusion

An Ltd is an excellent form for any company, which affords both financial safety and ways to optimise long term growth. While governance is quite light, Ltds 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.