Tax credit for large green transition investments in Finland

Recent updates: The Finnish Parliament has accepted the proposed law on the investment credit for large clean transition investments. The law will come into effect on the 1^st of May, 2025.

Applications can be submitted to Business Finland and the application period ends 29^th August 2025.

The proposed temporary tax credit is designed to attract new green transition investments to Finland. Classified as state aid, this tax credit is enabled by the European Commission's Temporary Crisis and Transition Framework, which also defines the types of eligible investments and the timeline for when the credit can be granted.

The tax credit would be deductible from the payable amount of corporate income taxes and could cover 20 percent of the amounted investment costs. The maximum amount of the credit is EUR 150 million per group company. However, no more than 10 percent of the total credit could be deducted per year. Deductions could be made no earlier than the year the investment is completed, although at the earliest in 2028. The proposed 20-year time limit for using the investment credit would be calculated from the first tax year beginning in 2028. 

• Investments accelerating the production of renewable energy (excluding electricity) and for energy storage.
• Investments related to decarbonization of industrial production processes and for energy efficiency measures.
• Investments related to the production of equipment, key components, and related critical raw materials essential for the transition to a net-zero economy such as production of batteries, solar panels, wind turbines, heat-pumps, electrolysis, and equipment for carbon capture usage and storage.

The tax credit is a significant benefit for qualifying investments and the tax credit introduces a new kind of mechanism into the Finnish tax system, which has historically lacked similar tax credits. 

• The qualifying investment costs must amount to at least EUR 50 million. The threshold has been criticized, but the final figures may be subject to change before the final legislation. Eligible costs of the for the tax credit include tangible assets needed for the production, such as land, buildings, factories, equipment, machines, and certain intangible assets. The proposal does not provide additional guidance on how other received grants and incentives, might impact the calculation of the qualifying investment costs for the project.
• The interaction between the tax credit and global minimum tax rules can create challenges for large multinationals. The tax credit may reduce the effective tax rate in Finland below 15 percent, to the point where a domestic top-up tax could be applicable, offsetting the benefit of the tax credit.
• The maturity of the project is important as the right to the credit must be applied for in advance, and the right to the credit must be granted by the end of 2025 and the application for the tax credit must be submitted before the start of the work related to the investment. The start of work would refer to the commencement of construction related to the investment or the first legally binding equipment order commitment, or another similar commitment that makes the investment irreversible, whichever occurs first. Purchase of land and preparatory activities, such as obtaining permits and conducting preliminary feasibility studies, would not be considered the start of the work.

The use of the investment credit would be applied for annually in connection with corporate income taxation, and its implementation would be managed by the Tax Administration. The decision of the tax credit will be made by Business Finland and the the investment credit will be applicable to investments for which the application for investment credit has been made on 19 December 2024 or thereafter. 

We offer extensive support throughout the application process for the investment credit - from assessing eligibility and advising on qualifying investments to supporting on ongoing compliance after receiving the investment credit. If you're considering this opportunity, we are happy to arrange a consultation to explore how we can assist your project.