The exit tax recently proposed in public debate would generate only limited revenue for the state, while potentially leaving startup founders with a substantial tax liability on shares they have not sold. The model prepared in 2022 was estimated to raise around €25 million the following year.
Finland has occasionally considered introducing an exit tax for individuals, but no such tax has been adopted. The tax would apply to increases in the value of assets accrued while an individual was resident in Finland if they moved abroad. The 2022 draft legislation covered assets including shares, fund units, options and cryptoassets.
Startup founders often hold their wealth in shares in unlisted companies. The calculated value of these shares may rise during a funding round, even if the founder has not sold any shares or received any income.
If the acquisition cost of the shares was €100,000 and their value at the latest funding round was €3 million, the potential tax liability under the 2022 model could amount to €952,000. The tax would therefore be based on an unrealised increase in value.
“A founder could face a tax liability of almost €1 million on shares they have not sold. Moreover, the valuation established during a funding round does not guarantee that the shares can later be sold at the same price. An exit tax would therefore be highly unpredictable for startup founders,” says Riikka Pakarinen, CEO of the Finnish Startup Community.
In 2022, the VATT Institute for Economic Research estimated that the tax would affect only a small number of people. Tax revenues would remain limited and fluctuate from year to year. Valuing assets, reporting, monitoring and enforcement would also create a significant administrative burden.
The tax would affect only a small number of people
“The problems associated with an exit tax outweigh its estimated benefits. The revenue would be limited and uncertain, while administering the tax would be burdensome. At the same time, it would make Finland less attractive as a home for growth companies,” Pakarinen says.
Norway is often cited in discussions about exit taxes, but its experience should be interpreted with caution. The effects of its exit tax cannot be separated from the country’s wider taxation of business owners and entrepreneurs. The amount of capital gains falling within the scope of the tax has also fluctuated considerably from year to year.
The Finnish Startup Community’s position is that Finland should not introduce an exit tax. The tax system should encourage founders to build growth companies in Finland.