Earlier this year, the Finnish Ministry of Finance issued a draft Government Proposal whereby a new exception to the Finnish interest deductibility limitation rules would be introduced to Finnish tax law. Under the proposed exception, entities could deduct otherwise non-deductible interest expenses under certain conditions. The extended right to deduct net interest expenses would apply to interest expenses from loans used to finance long-term infrastructure projects that are critical to national security of supply.
Under the main rule of interest deductibility limitations, Finnish tax law allows entities to deduct net interest expenses under three alternative thresholds:
- If a company has a maximum of EUR 500 thousand net interest expenses per tax year, they are fully deductible.
- If net interest expenses exceed EUR 500 thousand, they are deductible up to 25% of tax EBITDA.
- Net interest expenses paid to third-party lenders can be deducted up to EUR 3 million without limitation.
The proposed exception would expand the right to deduct otherwise non-deductible interest expenses to include projects carried out by private operators, which projects are largely excluded under the currently existing exception for public infrastructure projects.
To benefit from the proposed exception, an entity must qualify as a critical entity, as defined in the Critical Entities Resilience Directive (Directive 2022/2557) or in Finnish national law that implemented the directive (Act on the Protection of Society’s Critical Infrastructure and Improving Resilience, 310/2025). A broad range of sectors are included within the definition of a critical entity, e.g., energy, transport, banking and infrastructure for financial markets, health, digital infrastructure, space technology and food. In addition, the project operator, borrowing costs, assets, and income must all be in the European Union for the exception to be applicable.
Based on the draft proposal, the extended right to deduct net interest expenses would apply only to interest expenses on loans from (i) third parties and (ii) shareholders that are public entities or companies fully owned by public entities (“non-private owners”). The above-mentioned main rule on the deductibility of the net interest expenses would be applicable separately to each individual activity related to individual infra-structure projects and to other activities.
Under the new provision, the part of the non-deductible net interest expenses relating to an infrastructure investment determined based on the ratio of net interest expenses paid to non-private owners to all net inter-est expenses would be deductible.
The draft proposal does not specifically exclude already-made investments. Consequently, such investments should fall within the scope of the contemplated exception.
Our Insights
The draft proposal was scheduled for presentation to the Finnish Parliament by the end of September. How-ever, state aid aspects remain unresolved, and discussions between the Finnish Ministry of Finance and the European Commission are ongoing. The timeline for this process is unclear. Nevertheless, Finnish Ministries should determine the critical entities by 17 July 2026. Entities can submit rectification claims to the relevant Ministry if they are not designated as critical entities, with further appeal rights to the Administrative Court.
While a number of unanswered questions remain regarding the interpretation of the proposed rule, it appears that the exception could allow significant additional interest deductibility, depending on the case at hand.
We are monitoring the legislative process and the issue of the updated version of the Government Proposal, as well as developments regarding the determination of the critical entities by the Ministries.
Our Tax & Structuring team would be happy to discuss the matter further and provide assistance.