Tax Credit Introduced for Large Industrial Investments

On 16 April 2024, the Finnish Government disclosed its public finance plan for 2025–2028 with a pivotal element being the introduction of a tax credit for substantial green industrial investments. This policy is reflective of similar strategies adopted by other European economies, such as France, and is a response to the substantial incentives recently introduced by China and the United States. Notably, the Investment Tax Credit under the U.S. Inflation Reduction Act has markedly increased investments in clean energy sectors. Given that Finland's corporate tax rate of 20 per cent is no longer a distinctive advantage in the global investment landscape, the proposed tax credit is anticipated to enhance Finland's competitiveness.

The temporary new tax credit prepared by the Government appears to be well aligned with the EU’s Temporary Crisis Framework, where EU has relaxed its State aid policy to boost green investments. The EU's Temporary Crisis Framework allows Member States to grant aid to incentivise accelerated investments in sectors strategic for the transition towards a net-zero economy, such as battery and hydrogen projects and the fossil-free steel industry. This aid, which may take the form of tax relief, can reach up to EUR 150 million per enterprise – a provision that is consistent with Finland's investment climate and ambitions to become a central hub for net-zero ecosystems.

The proposed tax credit is designed to be 20 per cent of the total investment cost, subject to a maximum of EUR 150 million per project, in accordance with the EU's framework. It will be available for new investment projects that are resolved upon by the end of 2025 with the tax reduction applicable no earlier than 2028, thus establishing a unique funding mechanism for the state. The legislative process is underway to define the technical requirements and details of the tax credit.

The Ministry of Finance is currently working on putting together the particulars of the tax credit, which will be a tall order given the short indicated timeline for the investment decisions and the amount of technical details required. There remains a need for further clarification on various aspects, at least in relation to the eligibility criteria for "new" projects, the concrete interpretation of an "investment decision," the requirements for permit processes, and the interaction between the tax credit and other potential forms of State aid received by  the concerned investment project.

If you have any questions about this Legal Alert, please feel free to contact the undersigned or your regular Borenius contact.