The new government program of Finland and its impact on startups and growth companies

The parties forming the new government in Finland for the years 2023-2027 have published their negotiation results on June 16, 2023, outlining the government program that will shape Finland in the coming years. The document is titled "Vahva ja välittävä Suomi", translating into A Strong and Caring Finland, and contains several provisions that startups and growth companies should be aware of when planning their business operations.

With the government program spanning 244 pages, in this article we aim to highlight the provisions that - in our view - are likely to result in interesting new legislation from a business perspective.

Labor legislation

The government program proposes several provisions directly impacting the everyday operations of startups and growth companies. The most significant provisions include the possibility of concluding fixed-term employment contracts for one year without specific justification and changing the grounds for termination related to individual reasons to only require justifiable cause. Both provisions are expected to have a positive impact on the hectic everyday life of startups and growth companies as the new regulations are likely to encourage companies to recruit new employees. However, it is still uncertain how the final new legislation will be formulated.

In addition to the aforementioned provisions, the government's decision to limit the applicability scope of the Act on Cooperation (1333/2021, fin. yhteistoimintalaki) to companies regularly employing 50 or more employees will also have an instant impact on the operations of startups and growth companies. This allows companies to operate in a more agile manner during their growth phase and reduces the administrative burden until the company clearly expands to employ more than just the core team. Similarly, for companies employing fewer than 50 people, the government plans to remove the obligation for the employer to rehire an employee in all situations as currently imposed by the Employment Contract Act (55/2001, fin. työsopimuslaki).

Furthermore, the government program emphasizes the increasing of local agreeing, which would be strengthened, for example, by removing the restrictions on local agreeing for companies that are not bound by industry-wide collective agreements and expanding the right for a company to deviate from the same provisions of labor legislation that previously could only be deviated from through a national collective agreement. This provision is beneficial for startups and growth companies, as utilizing local agreeing to compete for the best talents is already common in the industry.

However, there are certain goals within the immigration and integration policy that may pose challenges for companies, since they have an impact on employment opportunities. One provision that is likely to hinder international recruitment is the requirement to leave Finland if a foreign worker who arrived in Finland with a work-based residence permit does not enter into a new employment relationship within three months as of the termination of the prior employment agreement. Three months can be seen as a relatively short period to find a completely new job, especially if the termination or the inability to extend a fixed-term contract comes as a surprise to the employee. If implemented, this may hinder Finnish startups' and growth companies' ability to compete for international talent.

Another factor that could potentially hinder accessing the workforce are the proposed stricter requirements for permanent residence permits, particularly the requirement of exceptional proficiency in Finnish or Swedish language after four years of residence. Adequate language skills will only be sufficient if the six-year residence requirement is fulfilled. The working language of many startups and growth companies aiming for international expansion is often English, making it challenging to learn Finnish or Swedish. This requirement may naturally reduce the attractiveness of companies located in Finland.

Tax legislation

From the perspective of startups and growth companies, a key aspect of the government program is the provision to maintain a competitive corporate tax rate and readyness to respond to tax changes in comparable countries. Similarly, the program promises to maintain the current tax treatment for entrepreneurs engaged in long-term work in such companies, and there are no plans to intervene in the dividend taxation or entrepreneur deductions of unlisted companies.

From a taxation standpoint, it will also be interesting to see how the government's commitment to continue the work on combating tax evasion and the shadow economy will materialize. At the same time, there is an emphasis on refraining from projects that create disproportionate administrative burden and extend beyond what is necessary to achieve the goal of countering tax evasion. At best, this provision can be seen as increasing predictability for companies, as they should not face new and potentially impactful burdens. However, due to the openness of the provision, it is still premature to make far-reaching decisions.

As a related note regarding the labor law changes described earlier, efforts have been made through taxation to remove barriers in regard to the sending of posted workers to Finland. Additionally, the position of such workers is intended to be improved by extending the period of employment under the Key Personnel Act (1551/1995, fin. Laki ulkomailta tulevan palkansaajan lähdeverosta). These provisions seem to support companies aiming for international growth, as the talents they require are in high demand at a global level.

Overall, the tax-related provisions in the government program appear to be favorable for entrepreneurs and provide a predictable outlook for companies already operating in Finland. Furthermore, some previously criticized tax initiatives have been abandoned (see, for example, our comments on the previously planned exit tax).

Corporate legislation

From a corporate law perspective, the position of startups and growth companies is improved by legislative reforms aimed at reducing the administrative burden on businesses. Concrete measures mentioned include streamlining the liquidation procedure of a limited liability company and the regulation concerning the loss of the own capital. According to the government program, the intention is to implement the "one in, one out" principle, which aims to remove one administrative obligation for each new administrative obligation introduced. Similarly, national legislation is intended to be lightened insofar as it has been created in addition to the legislation derived from the European Union. The administrative burden can potentially deplete already scarce resources in the early stages, so these changes are certainly welcomed, even though it remains unclear which specific administrative obligations will be removed.

Another interesting aspect is the recognition of new forms of entrepreneurship and the examination of entrepreneurship-promoting models, such as the Estonian “Entrepreneur Account”, in the context of Finland. These measures would facilitate the establishment and relocation of companies to Finland. It is also interesting to observe whether Finland will recognize, at the legislative level, decentralized autonomous organizations (DAOs), as mentioned in our article on DAOs (see our earlier DAO article).

The government program also pays attention to Finland's financial markets, which naturally have a close connection to corporate legislation. Attention is drawn to the initiation of an investigation into lowering the threshold for listing requirements and the addition of debt conversion and restructuring procedures to the corporate reorganization process. Lowering the listing threshold, if implemented, would diversify the financing opportunities for startups and growth companies, which is excellent news. Regarding debt conversion, the aim is to enable the conversion of part of a company's debts into shares, even against the will of the shareholders. The aforementioned will be a significant corporate law change that still carries some uncertainties and requires a balancing act between the interests of shareholders and creditor protection. In principle, this reform can also be viewed positively from the perspective of startups and growth companies, as it can prevent the termination of a good project suffering only from temporary liquidity constraints.

Summary

The new government program clearly sets the goal of attracting capital and entrepreneurship to Finland. To achieve this, immediate preparations have been promised, including the development of a one-stop-shop principle where all administrative and licensing processes would be centralized in one place within a predetermined timeframe, as well as investments in technology. It is also noteworthy that the aim is to create the prerequisites for developing the world's best startup and growth company ecosystem, while emphasizing the importance of data economy and digitalization.

In summary, the new government program provides many reasons to consider establishing business operations in Finland and, on the other hand, to believe that it is worthwhile to invest in existing business activities in Finland. As all regulatory matters are still in the very early preparatory stage, well-founded and active discussions with the relevant policymakers can also help improve aspects that currently appear less positive for businesses.

At Nordic Law, we have extensive experience in providing legal assistance to tech and fintech startups and growth companies. We have served numerous clients in matters related to company formation, relocation, and fintech license applications. If you would like to learn more about the benefits of establishing a business in Finland or discuss the significance of the government program for your own business, do not hesitate to contact us.

Our Associate Trainee Mikael Huhtala took part in writing this article.