One of three ways to draw income
In a Finnish limited company, the owner doesn't take money through private withdrawals like a sole trader does. Instead, there are three ways to draw income from the company: salary, dividends, or a shareholder loan. Of these, dividends are often the most tax-efficient — but only up to a certain limit.
The tax rules around dividends aren't complicated, but they're different from salary taxation. And if you don't know about the 8% rule, you may end up paying more tax than you need to.
Where dividends come from
Dividends are paid from the company's distributable equity — meaning the company needs profit reserves, either from the current financial year or from previous years, before dividends can be paid.
The decision to distribute dividends is made at the annual general meeting. The board proposes, the meeting approves. In single-owner companies this is effectively one person, but the formalities still need to be observed.
Dividends are not a tax-deductible expense for the company — unlike salary. Salary reduces the company's taxable income; dividends are paid from already-taxed profit.
How dividend taxation works
The tax treatment of dividends depends on how large the dividend is relative to the company's mathematical value.
The mathematical value is straightforward: the company's net assets divided by the number of shares. Net assets are total assets minus total liabilities at the balance sheet date.
The 8% rule
If dividends paid are no more than 8% of the company's mathematical value, they are taxed favourably:
- 25% of the dividend is taxable capital income
- 75% of the dividend is tax-free
The capital income tax rate is 30% (or 34% above €30,000 in capital income). Since only 25% is taxable, the effective tax rate is around 7.5% at best.
Example: the company's mathematical value is €200,000. The 8% threshold is €16,000. If you distribute €16,000 in dividends, €4,000 is taxable capital income and €12,000 is tax-free.
What happens above the 8% threshold?
If dividends exceed the 8% threshold, the excess is 75% earned income and 25% tax-free.
Earned income is taxed progressively like salary — at higher income levels, the marginal rate can be 40–50%. At that point the dividend tax advantage disappears and salary may be a better option overall.
The €150,000 annual cap
If dividends from an unlisted company exceed €150,000 per year, everything above that amount is 85% earned income (15% tax-free). This affects few small business owners, but it's worth knowing.
Salary or dividends: which makes sense?
There's no single right answer. The optimal mix depends on the company's profit, the owner's other income, and the company's net assets.
Salary makes more sense when:
- The company's net assets are small (the 8% threshold is low)
- The owner needs regular monthly income
- The owner's personal tax rate is low
- Building up YEL income and Kela benefits is a priority
Dividends make more sense when:
- The company has substantial net assets (a larger 8% threshold)
- The effective dividend tax rate stays below the earned income rate
- The owner has a high marginal tax rate on salary
For most small company owners, a sensible combination is a modest salary — enough to cover living costs and maintain a reasonable YEL income — plus dividends within the 8% limit.
How net assets grow
Because the 8% threshold is calculated from net assets, higher net assets mean a larger amount of favourably taxed dividends.
Net assets grow when:
- The company makes profit and leaves it in the company rather than distributing everything
- Additional capital is invested into the company
This is one reason some limited company owners pay themselves a low salary in the early years and leave profits in the company — it builds net assets and improves future dividend tax efficiency.
Practical checklist for dividend distribution
- Dividends are paid after the financial statements are adopted at the annual general meeting, usually in spring
- The general meeting decides on dividend distribution — formalities must be observed even with a single owner
- A 7.5% withholding tax is deducted at source from capital income dividends
- The recipient reports dividends in their personal tax return
- Bookkeeping must be current so that net assets can be calculated correctly
In NoCFO, net assets and distributable equity are visible directly from the financial statements, which the software compiles automatically from bookkeeping data.
Frequently asked questions
What are dividends in a Finnish limited company?Dividends are profit distributions to shareholders. They are paid from distributable equity following a decision by the annual general meeting.
How are dividends taxed in Finland in 2026?Dividends from an unlisted company are taxed favourably within the 8% threshold of the company's mathematical value. Of that dividend, 25% is taxable capital income and 75% is tax-free. The portion above the threshold is taxed mainly as earned income.
What is the 8% rule for Finnish company dividends?The 8% rule means that favourable dividend taxation applies only to dividends up to 8% of the company's mathematical value (net assets divided by number of shares). Within this limit, dividends are highly tax-efficient.
Is salary or dividends better for drawing income from a Finnish limited company?It depends. Salary accrues YEL income and Kela benefits, and is deductible for the company. Dividends within the 8% limit are tax-efficient but don't build social security entitlements. For most small company owners, a modest salary combined with dividends makes the most sense.
When can dividends be paid?Dividends can be distributed after the financial statements have been adopted at the annual general meeting — typically in spring or early summer following the financial year end.
How do net assets affect dividends?Higher net assets mean a larger 8% threshold — more dividends can be distributed at the favourable tax rate. Net assets grow when profits are retained in the company rather than fully distributed.
NoCFO keeps your limited company's bookkeeping current automatically and compiles financial statements directly from the software. Get started free →