Finnish government proposes fixed-term tax credit for green industrial investments

Insights|September 24, 2024

The Finnish Government published, on Monday 16 September 2024, the draft Government Proposal regarding the previously announced new fixed-term tax incentive for green industrial investments (“draft”) for comments.

Investment projects eligible for the incentive

According to the draft, the incentive would be intended for large investments aimed at building a climate-neutral economy. The incentive would be granted only to projects whose eligible costs amount to at least 50 MEUR.

The incentive could be granted to, for example:

• investments in the production and storage of renewable energy such as renewable hydrogen, biofuels, bioliquids, and biomass fuels;

• investments in industrial processes to reduce greenhouse gas emissions and the consumption of energy; as well as

• investments essential to the transition to a climate-neutral economy, such as the production of batteries, solar panels, wind turbines, heat pumps, electrolyzers, and the equipment used in CCS processes, as well as their key components and critical raw materials.

The purpose of the Finnish incentive is to adopt, as far as possible, sections 2.5.1, 2.6, and 2.8 of the Commission’s Temporary Crisis and Transformation Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia (2023/C 101/03). However, the production of electricity would be outside the scope of the incentive. In addition, investments that use hydrogen produced with electricity taken from the grid would not be eligible for the contemplated incentive.

The amount and basis of the investment credit

The incentive would be credited against the company’s corporate tax liability (as a so-called Investment Credit), and it would amount to 20% of the eligible investment cost.

The maximum amount of the Investment Credit would total 150 MEUR, with related eligible investment costs amounting to 750 MEUR in total. The maximum amount would be calculated on a consolidated group basis due to state aid requirements.

Only the investment’s reasonable and necessary costs that have arisen from the acquisition of fixed assets would be eligible for the incentive. Regarding timing, the costs would have to arise during the investment period based on written agreements concluded after the application is filed with Business Finland.

For example, salary costs, financing costs, and administrative expenses are not eligible for the incentive. If purchases have been made by a related party, only the share that corresponds to the cost price of the selling group company is eligible for the incentive.

Timeline to commence the investment and apply for the incentive

The incentive is intended to support new investment projects. This means that the application for the incentive must be filed before the project commences.

The company may purchase land and start preparations for the project, such as applying for permits and licenses, as well as performing preparatory feasibility studies before filing the application. However, any construction work may be started, or legally binding contracts for the purchase of equipment may be concluded, only after filing the incentive application.

The incentive application is filed with Business Finland, which also supervises that the terms of the incentive are followed. Only applications that have been accepted by the end of 2025 may benefit from the incentive. Consequently, it is important to prepare the application early enough to be able to complete it, should Business Finland request additional information.

The company may use the investment credits during 2028–2047. However, the Incentive Credits may be used only after the completion of the investment project, and the maximum annual amount is 10% of the total Credits.

Next steps

It should be noted that the round of hearings can cause changes to the now-published draft. Also, the European Commission must accept the incentive before it comes into force. After approval from the Commission, the legislation will enter into force with a government statutory order. The date is not yet known.

The costs eligible for the incentive are defined based on the filing date of the application. It is possible that Business Finland will start receiving applications after the Government has submitted its proposal to Parliament, probably during the second half of October 2024.

As applying for and exploiting the incentive requires extensive advance planning, our experts are happy to discuss the incentive and its use further.

For further information, please see our previous article:

New fixed-term tax incentive for green industrial investments published by the Finnish Government