Proposal for Tax Credit to Boost Finland’s Green Transition

On 19 December 2024, the Finnish government proposed to the Parliament a temporary tax credit aimed at accelerating large-scale clean transition investments (HE 207/2024). This proposal aims to kickstart industrial projects related to renewable energy and sustainable clean transition.

Finland has set ambitious plans for clean transition investments, and the proposed tax credit aims to accelerate the pace of implementation. The proposed tax credit scheme will incentivize projects in three key areas:

Production of energy from renewable sources and energy storage: This would comprise, for example, the production of renewable hydrogen or fuels derived from it, as well as the storage of electricity, heat, renewable hydrogen, biofuels, bioliquids, biogases, biomethane and biomass fuels.

Electricity generation would be excluded from the scope of the tax credit as the scheme is specifically designed to stimulate investments in electricity-consuming projects.

Decarbonisation of industrial production processes and energy efficiency measures: This may include, for example, projects that reduce greenhouse gas emissions by means of electrification of production processes or by transitioning from fossil fuels to renewable hydrogen or hydrogen-derivatives fulfilling certain criteria. On the other hand, decarbonisation by means of carbon capture would not be covered.

Strategic sectors for a climate-neutral economy: The production of essential equipment (e.g., batteries, solar panels, wind turbines, and heat pumps), key components, and the production or recovery of critical raw materials required for such equipment.

Key Details of the Tax Credit

The tax credit allows companies to deduct a portion of eligible investment costs from their corporate income tax, meaning it primarily applies to profitable activities.

The key features of the proposed tax credit are as follows:

Eligibility Threshold: Investments must exceed EUR 50 million to qualify and this is assessed on a project-by-project basis.

Credit Amount: Companies can claim 20 percent of eligible investment costs, up to a maximum of EUR 150 million. For investment costs exceeding EUR 750 million, the full credit would be available.

Company and Group Limits: The proposed cap of EUR 150 million is company specific, meaning a company can receive up to EUR 150 million for all eligible projects.  For groups of companies, the cap applies to the entire group.

The tax credit can first be utilised during the tax year in which the investment is completed but not before 2028. Annual deductions are capped at 10 percent of the total credit amount, with a 20-year period for utilisation starting from 2028, regardless of the project completion date.

Application Process

To qualify, companies must apply for the tax credit before commencing work on the project, making only new investments eligible. Commencement of work means the start of construction work related to the investment, or the first binding commitment to order equipment, or other commitment that makes the investment irrevocable. However, the purchase of land and preparatory works, such as obtaining permits and conducting feasibility studies, would not be considered as commencement of work.

Applications must be submitted and approved by 31 December 2025. At this point, the project should be defined enough as the application requires detailed information, such as a description of the project, including the start and completion dates of the project, and a cost estimate and financing plan for the project.

Business Finland will manage the application process, assess eligibility, and issue decisions by the deadline as well as oversee project implementation. The Finnish Tax Administration will oversee the implementation of tax credits under corporate taxation.

Next Steps

The proposal is currently under review by the Finnish Parliament and the European Commission.

The relevant law is intended to enter into force once the proposal has been approved by the Parliament and the European Commission has approved the proposed state aid as compatible with the common market. The act will take effect on a date specified by a separate government decree but would apply also to investments for which investment credit applications are submitted on or after 19 December 2024.