For several decades, one of the main objectives of Finland\u2019s national forest policy has been to increase the size of forest properties and encourage a more entrepreneurial approach to forest ownership. To support this objective, legislation has made it easier to establish jointly owned forests, for example, while their attractiveness as a form of ownership has been enhanced through a lower tax rate than that applied to private forest owners. Forest investors should therefore consider the form of ownership when acquiring forest assets due to differences in taxation and subsidy practices. <\/p>\n\n
The most significant difference between the forms of ownership concerns the taxation of timber sales income. Under direct forest ownership, timber sales income is taxed at 30%, rising to 34% for income exceeding \u20ac30,000. A jointly owned forest is a separate taxable entity and pays 26.5% tax on timber sales income. A limited liability company is subject to a 20% corporate tax rate, but taxation of dividends or salaries must also be taken into account when funds are withdrawn from the company for personal use. Private forest owners and jointly owned forests are also entitled to the forest deduction, whereas limited liability companies are not. As the latest change, the maximum forest deduction and the annual deduction limit will increase from 60% to 75% from the beginning of 2026. <\/p>\n\n
Arttu Lehtinen, a real estate analyst at Suomen Sijoitusmets\u00e4t, examined the economic profitability of different forms of forest ownership in his Master\u2019s thesis. The aim of the study was to determine how different forms of forest ownership affect the economic profitability of owning forest assets, taking current taxation and subsidy practices into account. The study considers a scenario in which a forest property is purchased on the open market, managed for 15 years in accordance with good forest management recommendations, and then either sold on the open market or gifted to an heir. Transfer tax was determined on the basis of the forest property\u2019s purchase price; timber sales income was taxed according to the form of ownership; capital gains tax was applied when the forest property was sold; and gift tax was applied when it was transferred as a gift. The study therefore also compared the profitability of selling a forest property with transferring it as a gift. <\/p>\n\n
The study was based on a sample of 20 forest properties in North Karelia. The purchase and sale prices of the properties were determined using the Suomen Sijoitusmets\u00e4t Market Price Forecast model, which is based on completed forest property transactions and estimates how much has previously been paid for a comparable forest property. The primary measure used to assess profitability was the internal rate of return (IRR), which represents the expected return on an investment. The IRR can be compared with an investor\u2019s required rate of return to determine whether the investment is worthwhile. <\/p>\n\n
Figure 1<\/strong>. Average after-tax internal rates of return for private ownership, ownership through a jointly owned forest and limited liability company ownership across the 20 forest properties included in the study, indexed to 100%. <\/p>\n