Dividend Tax Rate Between India and Finland Under DTAA

Quick answer: Under the India-Finland DTAA, dividends paid by an Indian company to a Finnish beneficial owner are taxed at a flat 10% withholding rate under Article 10(2), regardless of shareholding percentage, versus India's domestic rate of 20% under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961) -- a 50% reduction. The treaty was signed 15 January 2010 in New Delhi and is effective in India from the fiscal year beginning 1 April 2011. Claiming the rate requires a Tax Residency Certificate from the Finnish Tax Administration (Verohallinto) and Form 41 (formerly Form 10F). Since Dividend Distribution Tax was abolished from 1 April 2020, dividends are taxed in shareholders' hands, so the 10% treaty cap applies directly to the withholding.

Key takeaways:

• Flat 10% DTAA dividend rate vs 20% domestic rate -- a 50% reduction
• Applies uniformly regardless of the Finnish shareholder's ownership percentage (the 1983 predecessor treaty charged 15%)
• Treaty signed 15 January 2010, effective in India from FY 2011-12
• Requires a TRC from Verohallinto plus electronically filed Form 41
• Article 22(1)(b) exempts the dividend from Finnish tax where the Finnish company directly controls at least 10% of the voting power in the Indian company, subject to Finnish law on relieving double taxation

Dividend Tax Rate Between India and Finland

The Double Taxation Avoidance Agreement (DTAA) between India and Finland, signed on 15 January 2010 in New Delhi, replaced the earlier 1983 convention and took effect for Indian fiscal years beginning on or after 1 April 2011. Article 10 of the treaty caps the withholding tax on dividends paid between the two countries at 10% of the gross amount, compared to India's domestic rate of 20% under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961). For the full treaty picture, see our India-Finland DTAA complete guide and the withholding tax rate lookup for India to Finland.

This reduced rate applies to Indian companies paying dividends to Finnish shareholders and to Finnish companies distributing dividends to Indian residents alike. Unlike treaties that scale the rate to shareholding size, the India-Finland DTAA applies one flat rate to every Finnish beneficial owner, which simplifies compliance considerably.

For Finnish groups with subsidiaries or portfolio holdings in India -- spanning sectors from telecommunications and clean energy to forest products and industrial machinery -- understanding the dividend article is central to structuring the investment tax-efficiently. Beacon Filing's tax advisory services can help Finnish shareholders apply the treaty rate correctly and document the claim.

Treaty Rate vs Domestic Rate: Detailed Comparison

Domestic Rate (Without DTAA)

Under Indian domestic law, dividends paid by an Indian company to a non-resident shareholder are withheld at 20% (plus applicable surcharge and health & education cess) under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025. This rate applies to all foreign shareholders regardless of residence unless a more favourable treaty rate is available and properly claimed.

DTAA Rate (With Treaty)

Article 10(2) of the India-Finland DTAA provides: "However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the dividends." This is a ceiling -- India may (and does, via the treaty election) apply exactly 10%, and nothing prevents applying a lower rate. Unlike the India-USA treaty, which tiers rates by shareholding percentage, or the predecessor 1983 India-Finland convention, which charged 15%, the current treaty applies a single flat 10% rate irrespective of how much of the Indian company the Finnish shareholder owns.

Effective Tax Savings

For a Finnish parent company receiving INR 1 crore in dividends from its Indian subsidiary, the DTAA saves INR 10 lakh in withholding tax (10% instead of 20%). Article 22(1)(b) goes further for a qualifying parent: "Dividends paid by a company being a resident of India to a company which is a resident of Finland and which controls directly at least 10 per cent of the voting power in the company paying the dividends shall be exempt from Finnish tax." Article 22(1) grants that relief "[s]ubject to the provisions of Finnish law regarding the elimination of international double taxation", so it operates through Finnish domestic law rather than as a self-executing treaty rule. Where it applies, the group's tax cost on the distribution is the 10% Indian withholding rather than that withholding credited against Finnish tax.

Who Qualifies for the Reduced Rate

Beneficial Ownership Requirement

The reduced rate under Article 10(2) applies only if the Finnish recipient is the beneficial owner of the dividend -- someone with the unrestricted right to use and enjoy the income, not a nominee, agent, or conduit obligated to pass it on to another party. A holding company that receives dividends purely to funnel them onward to a third-country parent, with no independent economic function, risks failing this test.

Tax Residency

The recipient must be a tax resident of Finland under Article 4 of the DTAA -- for companies, this generally means incorporation in Finland or a place of effective management there. The Finnish shareholder must obtain a Tax Residency Certificate from the Finnish Tax Administration (Verohallinto) confirming residency for the relevant year.

Anti-Abuse: MLI PPT and the Treaty's Own Article 27

India-Finland is a Covered Tax Agreement under the Multilateral Instrument (MLI) for both countries, so the Principal Purpose Test (PPT) can deny treaty relief where obtaining the benefit was a principal purpose of an arrangement. The treaty also carries its own Article 27 Limitation of Benefits clause, a main-purpose test rather than an objective substance-based LOB: "A person that is a resident of a Contracting State and derives income from the other Contracting State shall not be entitled to relief from taxation otherwise provided for in this Agreement if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of such items of income to take advantage of the provisions of this Agreement." Article 27(2) additionally lets the competent authorities weigh the nature of the income and who ultimately controls or beneficially owns it. The operative day-to-day safeguards for dividends therefore remain Article 10(2)'s beneficial-ownership test and Article 27, with the PPT reinforcing rather than replacing them.

No Permanent Establishment Attribution

Article 10(4) removes the 10% cap where the Finnish beneficial owner carries on business in India through a permanent establishment (or performs independent personal services from a fixed base) and the shareholding generating the dividend is effectively connected with it. In that case the dividend is taxed as business profits under Article 7 instead, typically at the higher foreign-company rate.

Dividend-Specific Treaty Provisions Under Article 10

Definition of Dividends (Article 10(3))

The treaty defines dividends as "income from shares, or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident."

Article 10(1): Residence State Taxation

Dividends paid by a company resident in one Contracting State to a resident of the other State may be taxed in that other (residence) State -- establishing Finland's primary right to tax dividends received by its residents.

Article 10(2): The 10% Source-State Cap

India's right to withhold at source is capped at 10% of the gross dividend where the Finnish recipient is the beneficial owner, as quoted above.

Article 10(4): PE Exception

Where the shareholding is effectively connected with a Finnish beneficial owner's permanent establishment or fixed base in India, Article 10 gives way to Article 7 (business profits) instead of the 10% cap.

Article 10(5): Extraterritorial Rule

India may not tax dividends paid by a Finnish company merely because that company derives profits or income from India, except where the dividend is paid to an Indian resident or is effectively connected with an Indian permanent establishment or fixed base -- a mirror-image protection for Indian residents holding Finnish shares.

Protocol: The Most-Favoured-Nation Clause

The Protocol attached to the 2010 Agreement (an integral part of it) contains a most-favoured-nation clause: if India later agrees with any OECD member state to a lower rate or exemption on dividends, interest, royalties or FTS, the same terms extend to Finland once India's competent authority notifies Finland. Following the Supreme Court's ruling in the Nestlé case (October 2023), an MFN benefit takes effect only once the CBDT issues a formal notification under section 159 of the Income-tax Act, 2025 (section 90 of the Income-tax Act, 1961) -- and no such notification has been issued for Finland. The 10% rate under Article 10(2) therefore stands; claims of a lower rate (for example 5%, by analogy to other treaties) have no basis for Finland.

Documentation Required to Claim the Reduced Rate

Tax Residency Certificate (TRC)

The Finnish shareholder must obtain a TRC from Verohallinto confirming Finnish tax residency for the relevant financial year -- the primary document required under section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961).

Form 41 (formerly Form 10F)

If the TRC does not carry all prescribed details (name, status, nationality, tax identification number, period of residential status, and address), the Finnish shareholder must also file Form 41 electronically on the Indian income-tax e-filing portal -- mandatory since July 2022, even without an Indian PAN.

Self-Declaration

A self-declaration confirming beneficial ownership of the dividend and the absence of an Indian permanent establishment to which the shareholding is attributable is also expected as part of the claim file.

Withholding Procedure for Indian Payers

Section 393(2): TDS Obligation

Under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), the Indian company must deduct tax at source on dividends paid to a Finnish resident -- 10% if the TRC, Form 41 and self-declaration are on file, or 20% under domestic law if they are not.

Forms 145 and 146 (formerly Forms 15CA and 15CB)

Before remitting the dividend, the Indian payer must file Form 145 online. For remittances exceeding INR 5 lakh in a financial year, a Chartered Accountant must also issue Form 146 certifying the applicable DTAA rate and that TDS has been correctly deducted.

Section 395(1): Lower Withholding Certificate

If the Finnish shareholder expects an even lower effective liability, they may apply to the Assessing Officer under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961) for a certificate authorising a lower or nil withholding rate.

Practical Example

Nordic Forest Oy, a Finnish company, holds 40% of the shares of an Indian paper-manufacturing subsidiary. The subsidiary declares a dividend of INR 3 crore.

• Without DTAA: TDS at 20% = INR 60 lakh. Nordic Forest Oy receives INR 2.40 crore.
• With DTAA (TRC and Form 41 on file): TDS at 10% = INR 30 lakh. Nordic Forest Oy receives INR 2.70 crore.
• Tax saving: INR 30 lakh on this single distribution.

Because Nordic Forest Oy directly controls more than 10% of the voting power, Article 22(1)(b) exempts the dividend from Finnish tax rather than crediting the Indian withholding, subject to Finnish law on relieving double taxation -- so the group's tax cost on the distribution is the INR 30 lakh withheld in India.

Example: Indian Resident Holding Finnish Shares

Ms. Iyer, an Indian resident individual, holds shares in a Finland-listed industrial company and receives EUR 4,000 in dividends. Finland withholds tax at the 10% treaty rate (EUR 400) rather than a higher standard non-resident rate. Ms. Iyer must include the full EUR 4,000 in her Indian taxable income and can claim a foreign tax credit for the EUR 400 Finnish tax under section 159 of the Income-tax Act, 2025 (section 90 of the Income-tax Act, 1961), reducing her Indian tax liability by the credited amount.

Common Disputes and Practical Notes

Because India-Finland is a Covered Tax Agreement under the MLI, the Principal Purpose Test sits alongside Article 27 as a second layer of anti-abuse scrutiny, though assessing officers continue to lean on Article 10(2) beneficial ownership and Article 27's main-purpose test as the day-to-day tools for challenging conduit dividend claims. A recurring point of friction is whether surcharge and health & education cess can be added on top of the 10% treaty rate: the weight of ITAT authority treats the treaty rate as an all-inclusive ceiling, though the tax administration does not uniformly follow this position, so payers should be prepared to defend a 10%-inclusive computation on assessment. Because the DTAA rate of 10% is lower than the domestic rate of 20% in every case, a Finnish shareholder should always elect the treaty rate under section 159(4) of the Income-tax Act, 2025 (section 90(2) of the Income-tax Act, 1961) rather than the domestic rate -- there is no scenario under this treaty where the domestic rate is more favourable for dividends.

Frequently Asked Questions

What is the dividend tax rate under the India-Finland DTAA?

Article 10(2) of the India-Finland DTAA caps withholding tax on dividends at 10% of the gross amount, provided the Finnish recipient is the beneficial owner. This compares to India's domestic rate of 20% under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961) -- a 50% reduction with no shareholding-based tiers.

Does the rate change based on how much of the company the Finnish shareholder owns?

No. Unlike some Indian treaties that apply lower rates for substantial holdings, the India-Finland DTAA applies a single flat 10% rate to every Finnish beneficial owner of dividends, regardless of the size of the shareholding. The predecessor 1983 treaty charged 15% across the board before the 2010 revision.

What documentation does a Finnish shareholder need to claim the 10% rate?

A Tax Residency Certificate from the Finnish Tax Administration (Verohallinto), Form 41 (formerly Form 10F) filed electronically, and a self-declaration of beneficial ownership and no Indian permanent establishment. The Indian payer must also file Form 145, and Form 146 if the remittance exceeds INR 5 lakh.

Can the Indian tax department deny the 10% rate under this treaty?

Yes. India-Finland is a Covered Tax Agreement under the MLI, so the Principal Purpose Test can deny relief, and the treaty's own Article 27 denies benefits where a main purpose of the arrangement was to obtain them. Beneficial-ownership challenges and India's domestic GAAR provide further backstops against conduit structures.

Is there a most-favoured-nation clause that could lower the dividend rate below 10%?

The Protocol contains an MFN clause tied to India's agreements with OECD member states, but following the Supreme Court's Nestle ruling (October 2023) it only operates once the CBDT issues a formal notification. No such notification has been issued for Finland, so claims of a rate below 10% for Finland have no basis.

How does Finland relieve double taxation on dividends received from India?

Finland ordinarily credits the Indian withholding tax against its own tax on the same dividend. But under Article 22(1)(b), where a Finnish company directly controls at least 10% of the voting power in the Indian company, the dividend is exempt from Finnish tax rather than merely credited -- relief that Article 22(1) makes subject to Finnish law on eliminating double taxation.