Finland has a diversified, modern industrial, largely free-market, economy with a per capita income amongst the highest in Western Europe.

Economic overview

Joining the EU in 1995, Finland became the first – and only – Nordic country to adopt the euro as its official currency in 1999 (replacing the Finnish mark): its currency is therefore free-floating and there are no restrictions on capital transactions.

Operating a largely export-driven economy, overseas sales have accounted for over one-third of Finnish GDP in recent years. The GDP as at 2014 (estimate) was $276.3bn. The composition of this by sector is agriculture: 2.7%; industry: 27%; and services: 70.3% (2014 est). The country’s manufacturing sector has been largely competitive and is based mainly on the wood, metals, engineering, telecommunications and electronics industries.

The country is naturally rich with timber and a number of important minerals but is dependent upon imports of most other raw materials, energy and components for manufactured goods. Moreover, technology remains a major source of employment and income with particular emphasis on the mobile communications industry and ICT – especially in the gaming, clean-tech and biotechnology sectors.

Prior to the global financial crisis, Finland’s banks had built up significant capital buffers which meant that the financial sector rode out the worst of the storm relatively well. However, by 2014, GDP was some 7% lower than its pre-crisis level, having fallen for three straight years. With a large trade exposure to Russia – given all of that country’s political and economic problems during 2014 and beyond – both Finnish imports and exports suffered. Domestically, capital spending was looking weak at the end of 2014, with total spend again having fallen for three years.

The recession has impacted Finland’s general government finances and debt ratio, but strong action and foresight saw it meet EU deficit targets in 2013, managing to retain its (S%P) AA+ credit rating with a long-term rating outlook of ‘stable’ (as of March 2015).

The banking sector

In Finland, the domestic banking sector currently consists of:

• Fourteen commercial banks.
• Circa 180 co-operative banks as members of the OP-Pohjola Group.
• Thirty four local co-operative banks.
• Twenty five savings banks.

Around 90% of the Finnish banking market is controlled by just three institutions. Nordea Bank Finland (a subsidiary of the Nordea Group and formerly Merita Bank) is by far the largest player in the country by assets (as at 31st December 2013: $418,832m). It is followed by OP-Pohjola Group ($60,084m, formerly OKO Bank) and Danske Bank ($36,666m, formerly Sampo Bank). In addition to these players, there are around 30 foreign bank branches established in the country, most of which are of Nordic origin. All fall under the watchful eye of the central bank, Suomen Pankki.

Suomen Pankki is the national monetary authority. It is a member of the European System of Central Banks and the Eurosystem. As part of Eurosystem it is responsible for the implementation in Finland of the monetary policy of the European Central Bank (ECB). In addition to ensuring price stability, Suomen Pankki is involved in financial markets and statistics, banking operations and the maintenance of currency supply. As the provider of payments system and liquidity management services to the country’s banking sector it also oversees the settlement of interbank assets and liabilities (via the real-time gross settlement system or RTGS) as operated by the EU national central banks – this system is known as TARGET2.

Both the financial and insurance sectors are overseen by Finanssivalvonta (Fiva), or the Financial Supervisory Authority (FIN-FSA). Back in 2011, FIN-FSA confirmed, through stress-testing, the resilience of the largest banking groups operating in Finland and indicated no need for specific measures to safeguard the stability of the country’s banking sector beyond what was already in place or up and coming via Basel III.

Payments and clearing

In addition, the POPS system clears high-value and urgent payments. It is run by its 12 participating banks but is slowly heading towards obsolescence, largely at the hands of SEPA. Finland is a SEPA pioneer and remains a market leader in terms of SEPA payment volumes.

• Internet banking is offered by all banks in Finland. The vast majority of interbank payment traffic in the country is electronic. Finnish banks have offered electronic services since the early 1990s.
• Credit transfers are used for high-value and urgent corporate payments (via Target2) and low-value retail transactions. Only 1% of transfers are now paper-based. The government pays all staff, suppliers and benefit recipients electronically.
• Payment cards are prevalent in Finland, having replaced cheques (and cash to a large extent) within the B2C space. Most card payments are processed by Nets (formerly Luottokunta). Prepaid and contactless cards are available.
• Direct debits are mainly used in the B2C space, rather than B2B. The domestic direct debit scheme was replaced in February 2014 by SEPA Direct Debits.
• E-invoicing is offered by all banks. State institutions are now obliged to receive only e-invoices from their suppliers. The domestic standard for inter-company invoicing is Finvoice. The TUPAS authentication service is a directory used to identify all businesses and individuals using electronic banking.
• Cheques are not used for B2C and B2B purposes at all. Merchants refuse to accept them.

Investment options

• Current accounts are normally interest bearing.
• Certificates of deposit (CDs) are traditionally the most popular short-term investment instrument in Finland. Offered by most commercial banks but typically have a minimum investment amount of €100,000.
• Time deposits, although less popular than CDs, time deposits are frequently used by smaller companies. The majority of time deposits have maturities of under one month.
• Treasury bills. Not as common as CDs. Issued by the State Treasury in EUR and USD, T-bills have varied maturities from one day to one year.
• Commercial Paper. Popularity of commercial paper has increased greatly recently.
• Money market funds. Available to all corporate investors.
• Repurchase agreements. The interbank repo market in Finland is active.

Tax and legal considerations

• The top corporate tax rate is 20 % (2015).
• The standard rate of VAT is 24%. Lower rates apply to some goods and services. Export sales are zero-rated.
• Finland levies no withholding tax on domestic payments but where no tax treaty exists it applies a rate of 20% on the gross amount on all dividends and royalties paid to non-resident corporate bodies (a 30% rate applies to individuals who are non-resident). Interest paid to non-resident companies is not usually subject to withholding tax.
• Transfer pricing in Finland must follow OECD guidelines for arms-length pricing.