In conversation with Janne Jokinen we discuss the tax and law for entrepreneurs.
Interviewer: Sethi Namrata
Respondent: Janne Jokinen
wo- an unfinished word
(word) an uncertain passage in speech or an unrecognised speaker
(-) an unrecognisable word
(–) unrecognisable words
[pause 10 s] a pause in speech of at least 10 seconds
, . ? : a grammatically correct punctuation mark or a pause in speech of less than 10 seconds
Length of the recording: 22 minutes
Welcome to Finnish Your Business! In our podcast we leave no business unfin(n)ished. I am your host Namrata Sethi, and this podcast is brought to you by MEGE. MEGE is a joint-project with Haaga-Helia University of Applied Sciences, Helsinki Business College, Aalto University and the Shortcut, and is funded by Uudenmaan Liitto. Joining us today is Janne Jokinen from Jokinen Associates. Welcome to our show Janne!
Janne Jokinen: Thank you Sethi. It’s a pleasure to be here and I feel honored and thank you.
Sethi Namrata: If you could please introduce yourself.
Janne Jokinen: Yes. I’m an attorney. In Finnish asianajaja which means member of the Finnish Bar Association. I also belong to this International Bar Association. I have been in law practice for over 30 years since my graduation, doing advisory and dispute resolution for my clients. On the side I also teach at Haaga-Helia University of Applied Sciences on these topics.
Sethi Namrata: What does entrepreneurship mean to you and why is it important?
Janne Jokinen: I think entrepreneurship is actually the key. Because if you think a bit deeper what it means, it actually is the core how additional value is created in our economies. If there are no entrepreneurs who are willing to take the risk and of course in anticipation for the reward, which is uncertain, there wouldn’t be any development in technologies, in ways of doing business, in various fields of life. It’s fundamentally important.
Sethi Namrata: How do you help entrepreneurs?
Janne Jokinen: I help entrepreneurs by giving them advice. Which is normally regarding contracts and in process of concluding. Or if they have other type of questions, like regarding, if something is legal, is something is doable according the laws. That is called proactive legal care. Taking care of the problem before it arises actually. Of course sometimes I also have to help entrepreneurs by solving these problems. If there is a contract dispute, which cannot be (-) [03:32] settled by negotiation. So we have to resort to going in to a court or start and arbitration. In that way I help and assist entrepreneurs.
Sethi Namrata: Sorry, no worries. At what stage should they come to you?
Janne Jokinen: Oh at what stage yes. That is a very good question. Early on, that is my advice. Because in hindsight often I can see that a lengthy and a very, financially and mentally taxing could have been avoided by taking these necessary steps in advance. Before it has escalated. Often that is when the contract is being drafted and negotiated. If you have a short and vague, incomplete contract, that opens up the possibility for these disputes afterwards. It would be definitely worth a while to contact early and in that way avoid these avoidable missteps, for example.
Sethi Namrata: What legal issues should we consider when we (-) [05:32] your business or like when you have partners?
Janne Jokinen: If you form, the most popular form of running a business in Finland nowadays is limited liability company. You can form one without putting in any share-capital. That is relatively new. But you can have several shareholders. I think the most important thing where you’re starting a business with partners or shareholders is, to have that shareholder agreement, where you beforehand define the roles of everybody. What is the idea you have regarding your business. Are you going to grow it like intrinsically or if you are going to look for venture capital. Or at certain point maybe you want to flip the company, meaning you do and exit. So everybody’s clear about the purpose and their roles, their responsibilities. Also about these exit mechanisms, it’s clearly agreed then if one has to sell with the others. There are many many clauses. That is a private document which is very important. I think every company or every startup should have one. Preferably before you start the business. When you have started your business, it’s more difficult maybe to have and agreement on the content on your shareholder agreement.
Sethi Namrata: What are the legal issues when like we are hiring?
Janne Jokinen: When you’re hiring, you have to take into account the Finnish laboural norms. Like these norms covering employment. Historically in Finland we have a lot of regulation in hiring people. Employees are quite well protected as a weaker party of that contractual relationship and that’s why it’s important to know for example, in the field specific collective agreement. If you have to comply with that, because in the collective agreement you find a minimum wages and other employment related rules for that specific field.
Sethi Namrata: What are the legal issues that we should be aware when fundraising? And I just wanted to ask like, where can we ask help for it?
Janne Jokinen: Oh, for fundraising I think there are several sources you can resort to. There are these Finnish venture capital associations. There are official websites you can retrieve the information from, for example this trade register contains several links. Even if your own bank as an entrepreneur, they could have some ideas where you can have more information contacts.
Sethi Namrata: How are the companies in Finland taxed?
Janne Jokinen: We have a flat rated corporate tax for limited liability companies. Which is currently 20% for the profits. Then the owner will be taxed separately, if you take out salary as an entrepreneur from your limited liability company. It will be taxed most often according to your personal income tax rate. That depends on how much assets you have in the balance sheet. Because you can take some part as dividends, which are then taxed as capital income and dividends. Some part of the dividends are salaried dividends. The company pays for profits of course. Business related expenses are first deducted and then if the company shows profit, 20% of that. You have to take into account, if you take a salary from your company, that will decrease the amount of profits. It’s to be deducted before calculating the profit. There is very good information available if you log on to, for example the Finnish tax authorities website, Vero.fi. In several languages you can get very good detailed information of company taxations.
Sethi Namrata: What if I’m making less than 10k revenues on the (-) [11:58]?
Janne Jokinen: If you make less than 10 thousand –
Sethi Namrata: Yes yes! Less than than 10 thousand.
Janne Jokinen: You mean as profit or?
Sethi Namrata: Or revenue I guess.
Janne Jokinen: Revenue, ahh okay. There might be possibilities that you can be exempted from VAT. You can apply for that. There are certain limits, which are pretty low. It’s not always actually very important to be exempted from the VAT, because that is a tax the entrepreneur collects from the customers. It can be set off like deducted against the VAT. This entrepreneur has paid for business related purchases, like computers, other equipment. That’s possible and you can find more information on that in the previously mentioned websites.
Sethi Namrata: And if I’m not making any profit, how does that impact?
Janne Jokinen: There is no tax, if there is no profit. You can have a bit revenue but you can still be at big loss. Losses you can carry forward. So if this year you make a loss, it will be confirmed in taxation. You can use it year after if you make profit and it will be deducted in the future profits. There are time limits for that. But you can use even losses to benefit you company.
Sethi Namrata: And how does it impact like if I’m still hiring people? I’m not making profits but I’m still hiring people.
Janne Jokinen: You can finance their salaries by external funds for example. If you have got capital infusion from a venture capital firm for example. You can have a lot of money actually in the company bank account and that can be used for salary payments even if you don’t make profit. But then you are burning in investor money. Many companies, big companies have done that. They have just continuously shown losses and funny enough, their valuations have grown because the companies have grown in size. So you can make losses, provided you adequately capitalized.
Sethi Namrata: There is lot of like people, who are taking light entrepreneurship also. Are there legalities that we should be aware that when I’m freelancing? Like using UKU or Eezy.
Janne Jokinen: There’s a relative new ways of trying that entrepreneur role. There’s services when you can, you can invoice through your different clients. I see it can be a good first step, testing waters so to say, if you want to be an entrepreneur or if you then after trying it that way, you can easily leave.
Sethi Namrata: Is there like any impactful taxes or legalities that we should be aware of when we’re taking the light entrepreneurship route.
Janne Jokinen: There can be legal issues. Also relating to if you’re considered as an employee or if you are considered as an entrepreneur. It’s actually a world wide discussion at the moment, who are genuine entrepreneurs. These food messengers for example, Uber drivers. In the UK there was high court dishes and coming a few weeks a go, defining uber-drivers as employees. Of course it has a huge impact if you have to yourself as an entrepreneur, pay towards your own pension, entirely. Because if you are employed, a big part of your pension fees are actually payed by the employer. And you have all that employee protection. It should be carefully considered.
Sethi Namrata: From where do I get support from like accountant or (-) or (-) [18:02] ?
Janne Jokinen: That’s very important what you asked. You actually should have as a starting entrepreneur, you should have an accountant, who is reliable, who knows about these filing you do to the tax authorities regularly. Can help you in many ways. There are these accountancy services available. You can search for an accountant but you should – I think the important one is that – you should have one. You shouldn’t as an entrepreneur, a starting one, try to do all the things yourself. You can outsource and this is one field of activities you definitely should outsource. These services are not expensive, but they are very useful.
Sethi Namrata: It is often advised that you already as an entrepreneur you already have so many rules in your company. So it’s always better to get help when you can.
Janne Jokinen: Yes, one shouldn’t be too shy on that. Because there are various sources you can turn to. There are these in Finnish ”uusi yritys keskus”. This is like a center for new enterprises. They publish actually over 100 page long PDF-document, also in English. Which is a guide for starting entrepreneur. Covering all the issues, not only legal but a little bit of marketing and defining your customer groups and doing these risk analyses, like SWAT. It’s a very good source. You should try to find information from different sources, which are plenty. And not try to solve it yourself. In a way it’s easier to contact these experts and get it right in one go. So to say.
Sethi Namrata: This brings us to the last question. What advice you would give to an entrepreneur in five words.
Janne Jokinen: Five words. Trust yourself. Be resilient. Hopeful.
Sethi Namrata: That’s great. Very valuable advice.
Janne Jokinen: Thank you.
Sethi Namrata: Thank you so much for joining us Janne and giving us this amazing insight on this
topic. Thank you so much
Janne Jokinen: Thank you Sethi. As you have said in the beginning, it has been a pleasure to be here. Thank you.
(Theme music continues playing)