The Ministry of Finance has released a draft government proposal (“Draft Proposal”) on a temporary tax credit for large industrial investments (“Investment Credit”) to support companies in transition to a net-zero economy.
The Draft Proposal is currently open for public comments until 11 October 2024. Subsequently, the Draft Proposal is intended to be issued to the Parliament in Week 41. The Investment Credit Act is intended to enter into force as soon as possible. In any case, the Act will enter into force by 1 January 2025 at the latest after its adoption and ratification and the approval of the proposed state aid (2023/C 101/03) by the European Commission.
Key Features for Using the Proposed Investment Credit
The tax credit is designed to encourage new investments in a climate-neutral economy, enabling companies to deduct a part of their investment costs from future corporate taxes.
The tax credit would be available to a company that undertakes large investments in Finland that contribute to a climate-neutral economy, with eligible investment costs of at least EUR 50 million. The tax credit can be up to 20 % of eligible investment costs, with a maximum limit of EUR 150 million per group.
According to the Draft Proposal, the following investments would qualify for the investment credit:
- investments in the production of energy from renewable sources, including e.g. the production of renewable hydrogen, renewable hydrogen-based fuels and biofuels, as well as storage of electricity and heat, but excluding the production of electricity.
- investments in decarbonisation of industrial production processes and energy efficiency.
- investments in strategic sectors that aim at transitioning to a climate-neutral economy, such as production of e.g. batteries, solar panels, wind turbines, heat pumps, electrolysers and equipment for carbon capture, use and storage.
The credit would be available as of the year of completion of the investment, starting no earlier than 2028, and for a period of 19 years thereafter. The annual tax deduction would be capped to 10 % of the total amount of the credit.
Our Insights
The proposed Finnish Investment Credit is one of the broadest in the European Union, which contributes to making the Finnish investment environment more attractive for investors. However, the timeline for applying for the Investment Credit is short, as the application needs to be submitted at the latest in 2025 so that the grant decision can still be made before the end of 2025. Accordingly, it is important to start reviewing whether a contemplated investment would qualify for the credit as soon as possible.
From a tax perspective, it is worth noting the Investment Credit provides investors a possibility to offset the credit against taxable profit generated in other activities as well, including taxable profit of other group companies by utilization of group contributions.
The provisions of the Income Tax Act on the deduction of tax losses are expected apply to the deduction of Investment Credits, under which the Investment Credit would be forfeited in a change of ownership (including internal reorganisations). Similarly, a company undergoing a merger or demerger may risk losing its right to deduct the Investment Credit. The Draft Proposal does not address the application of these rules to the Investment Credit in detail, and so uncertainties remain to a degree. Hence, careful planning of the investment structure is highly recommended to optimize the use of the Investment Credit and to minimize the risk of forfeiting it.
Finally, utilizing the Investment Credit may trigger a 15 % top-up tax under the minimum tax regulation (Pillar II), for groups with a consolidated turnover exceeding EUR 750 million, which can to a large extent counteract the benefits of the Investment Credit.
We will closely follow the developments concerning the new legislation and its implications. When considering the possible utilisation of the investment credit, we are happy to discuss the matter with you and provide assistance.
