What Every Finnish Oy Owner Needs to Know
SALARY OR DIVIDENDS? A PRACTICAL TAX PLANNING GUIDE FOR FINNISH OY OWNERS
How to think about owner compensation before the tax year closes
Every Finnish limited company owner eventually faces the same question: should you take more salary, or would dividends leave you with more after tax?
The answer is not a fixed rule. It depends on how profitable your Oy is, how much net asset value it has built, what other income you receive, and whether the company needs cash for growth. But the mechanics are clear enough to give you a strong starting point.
KEY IDEA
For many owners, salary is the starting point. Dividends become more compelling when salary has reached roughly €40,000 and the company has enough net assets to support tax-relieved distributions.
IS THE SALARY-VERSUS-DIVIDENDS QUESTION RELEVANT TO YOU?
Not every business owner needs to make this choice. If you operate as a sole trader, or toiminimi, your business profits flow directly into your personal taxable income. There is no dividend structure to use.
The question is also less pressing for a newly established Oy. Before meaningful tax-relieved dividends can become available, the company generally needs time to build retained earnings and net assets. In the early stages, salary is often the more practical way to pay yourself.
Once your Oy has been operating for a year or two and begins accumulating profit, the decision deserves a regular review. Do not wait until the final days of the tax year. Your expected profit, salary already paid, available net assets, and personal income all affect the outcome.
START WITH THESE QUESTIONS
• Is the business generating a stable profit after operating costs?
• Has the company built meaningful net assets and retained earnings?
• Do you have salary or other taxable income outside the company?
• Does the company need to retain cash for hiring, investment, or growth?
WHY SALARY GENERALLY COMES FIRST
The key reason is deductibility. When your company pays wages, those wages reduce the company’s taxable profit. That can reduce the corporate income tax paid by the company.
Dividends work differently. They are paid from profits that have already been taxed at company level, and the dividend itself is not a deductible business expense. Looking only at your personal tax can therefore give an incomplete picture.
For moderate income levels, salary is often the more efficient starting point when you consider the combined tax burden of the company and the owner together. It also provides a straightforward, regular way to pay for your personal living costs while the company continues to develop.
THE PRACTICAL STARTING POINT
Consider salary up to the point where your marginal income tax rate approaches approximately 26%. In practice, this is often around €40,000 in annual salary, although your individual position may differ.
WHEN TAX-RELIEVED DIVIDENDS START TO MAKE SENSE
Once salary reaches approximately €40,000, dividends may become worth considering.
Finnish tax rules allow an Oy owner to distribute tax-relieved dividends up to 8% of the company’s mathematical net asset value each year, subject to the relevant conditions and limits.
Within that 8% ceiling, dividends up to €150,000 per year are treated as capital income under the guidance covered here. 75% is tax-exempt and 25% is taxable. The resulting effective personal tax rate is about 7.5% on that portion.
When the company’s 20% corporate tax is also taken into account, the approximate combined burden is 26%.
IMPORTANT: The €150,000 annual cap applies per person, not per company. If you receive dividends from more than one unlisted company during the same calendar year, the amounts are combined and considered together rather than receiving a separate cap for each company.
WHAT DOES NET ASSET VALUE MEAN?
Net asset value, or nettovarallisuus, is the company’s total assets minus its total liabilities.
The higher the figure, the greater the potential capacity for dividends within the 8% ceiling.
This is why retaining some profit inside the company can be valuable. Extracting everything every year may provide cash today, but retaining profit can build net assets and increase access to tax-relieved distributions in future years.
The right balance depends on the company’s cash needs and growth plans.
WATCH THE LIMIT
The 8% ceiling is linked to net asset value, while the €150,000 capital income cap is linked to the individual recipient. Treat both as part of the same annual planning review.
A PRACTICAL DECISION GUIDE
TOTAL WITHDRAWAL UNDER APPROXIMATELY €40,000
Salary. Personal tax may remain below the approximate 26% marginal threshold.
EARLY-STAGE OY WITH MINIMAL RETAINED EARNINGS
Focus on salary and building the company’s net assets first.
OY WITH HEALTHY NET ASSETS
Consider approximately €40,000 in salary plus dividends within the 8% net asset value ceiling.
DIVIDENDS EXCEED THE 8% THRESHOLD
Review carefully. The excess is generally less efficient and may be taxed as earned income.
OPERATING AS A TOIMINIMI
The dividend structure does not apply. Business profit flows into personal taxable income.
YOUR ANNUAL PLANNING CHECKLIST
☐ Estimate the company’s full-year profit and cash position.
☐ Review salary already paid and your other personal income.
☐ Calculate or confirm the company’s mathematical net asset value.
☐ Check the 8% dividend capacity and the €150,000 personal annual cap.
☐ Decide how much profit should remain in the company for growth or resilience.
☐ Revisit the plan before year-end and confirm it with a qualified adviser.
DO NOT OPTIMISE IN ISOLATION
There is no universal salary-to-dividend formula. Your company’s profitability, accumulated net assets, other personal income, growth plans, and timing all shape the answer.
A strategy that works for an established Oy with strong net assets may be unsuitable for an early-stage company that needs to reinvest its profits.
The most useful habit is to review the decision continuously rather than treating it as a once-a-year exercise. Compare the total tax position of the company and the owner, consider the cash the business needs, and act before the tax year closes.
YOUR NUMBERS DESERVE A SECOND LOOK
Finivo reviews salary and dividend strategy as part of bookkeeping and tax advisory work for Finnish small businesses and sole traders.
BOOK A FREE CONSULTATION
Speak with Tanveer Lashari at Finivo, based in Uusimaa, Finland.
Learn more at finivo.fi or contact info@finivo.fi.
DISCLAIMER
The figures and examples in this article are general guidance, not individual tax advice. Confirm your position with a qualified adviser and check the current Finnish tax rules before making salary or dividend decisions.
