How are mutual funds taxed?
1. Mutual fund capital gains and losses in taxation
Capital gain arises when you sell (or otherwise transfer) your fund units for a profit. Capital gain is taxable income. Capital loss arises in case the sell price is lower than the buy price.
Capital gain: you pay tax based on the capital income tax rate.
Capital loss: it is primarily deducted from the tax year's profits on sale, or capital gains. They can also be deducted from other capital income in case there are no capital gains or some capital gains.
2. Amount of tax of mutual fund income
Capital gains on mutual fund units are subject to a capital income tax of 30 per cent. If the capital gains of your fund units exceed 30,000 euros during the tax year, you must pay 34 per cent tax on the exceeding amount.
Example: The capital gains of your fund units are 35,000 euros. Of this amount, 30,000 euros are subject to a tax rate of 30 per cent and the rest 5,000 euros is subject to a tax rate of 34 per cent.
You must make sure you pay tax on capital gains on your investments, such as shares and mutual fund units. You pay tax on capital gains on shares when you sell them.
For additional information on tax payment, see the Finnish Tax Administration’s website.
The 30,000-euro limit applies to your total capital income, which also includes the sale of shares, for example.
3. Reporting information on mutual funds to the Tax Administration
The fund management company will report to the Finnish Tax Administration the purchases and sales of fund units carried out and the dividends paid during the year. The information is shown in your pre-completed tax return.
Differences of funds' income units and accumulation units in taxation
Based on the distribution of dividends, fund units are divided into income units and accumulation units.
In income units, income is annually distributed to unitholders. When you sell your investment, the fund management company deducts a withholding tax of 30 per on the profits and pays it to the Finnish Tax Administration.
In accumulation units, income is not distributed. Instead, it increases the value of the units.
You can find the fund unit type in each fund's rules. The one and the same fund usually has both income and accumulation units.
Checklist for mutual fund investors:
- Log into My archive in the op.fi service for information on purchases, sales and dividends of your mutual fund investments. Go to My archive.
- Check your pre-completed tax return. Check tax deductions too. In some cases, you may be entitled to tax deductions.
- Please contact a tax advisor in complex situations or if you need personal advice.
In which case is capital gains not subject to tax?
Capital gains on mutual funds are exempt from taxes if the sale prices of mutual funds and all assets transferred in the tax year total no more than 1,000 euros.
The amount includes transfer prices and acquisition costs of all type of assets (such as transfer prices and acquisition costs of mutual funds, shares, real property and shares in housing companies).
So, you can sell all your assets without paying tax, provided that the total amount is no more than 1,000 euros.
Note: If you exceed the 1,000-euro limit by even a cent, all of the capital gains will become taxable. The maximum recommended redemption price is 999 euros to avoid exceeding the limit. If the sale prices are a maximum of 1,000 euros and the acquisition costs too, you cannot deduct capital losses.
FIFO principle in the taxation of mutual fund investment
The FIFO is an acronym for "First in First Out". When you have bought fund units at different times and prices and you decide to sell some of these units, the FIFO principle determines which units are sold first.
Example: You have bought fund units in three tranches, as follows:
- 100 units at the price of 10 euros per unit.
- 50 units at the price of 12 euros per unit.
- 50 units at the price of 11 euros per unit.
You decide to sell 120 units. According to the FIFO principle, the first 100 units are those you bought for 10 euros. The remaining 20 units are those you bought for 12 euros.
The funds' capital gain or loss is calculated on the difference between the sell price and the buy price. When using the FIFO principles, the buy price of the oldest units is used in selling, which affects the taxable capital gains or loss.