Finland grants companies unprecedented tax incentives to boost research and development efforts
US companies operating in Finland can now take advantage of Finland’s new tax-based incentives, which bring tax relief on the costs of research and development projects and enhance employee engagement through tax-free shares. Ranked first in the global Covid Economic Recovery Index, Finland offers a safe research and development environment now and in the future.
04 March 2021
As the post-COVID economic recovery begins, the pace of the rebound is likely to vary between countries and reflect the success of their COVID strategies. Placed first in the Covid Economic Recovery Index, a global ranking of 122 countries based upon demonstrated levels of resilience and potential for economic recovery, Finland’s successful COVID strategy can positively impact existing and potential investors.
For countries to recover and economies to return on a growth path, it is essential to support and enable companies’ research and development projects. The Finnish government's most recent measures are new tax-based incentives that came into force in January 2021, aiming to boost the R&D activities and employee commitment of companies operating in Finland.
"For the economy to recover, companies need to renew their operations during and after the pandemic, and R&D activities are a key component for this. The newly established tax laws facilitate companies' innovation projects by bringing tax relief to joint R&D efforts and also aim to strengthen the commitment of their skilled workforces through a tax-free share system,” says Antti Aumo, Head of Invest in Finland at Finland’s trade, investment, travel promotion and innovation funding organization Business Finland.
A super-deduction to boost joint R&D projects
The Nordics are often mistakenly considered expensive countries to do business in terms of tax rates, wages and living costs. In fact, Finland’s 20% corporation tax rate is the lowest in the Nordics and one of the lowest in the EU.
The new law further enhances Finland's tax-friendly business environment, offering companies a 150% tax deduction for joint R&D projects during 2021-2025. This means that companies get an additional tax deduction of 50% (on top of the usual 100% deduction) on the costs of research and innovation projects carried out in collaboration with universities and research institutes. The new 150% super-deduction is available for all companies operating in Finland, both domestic and international, and does not constitute state aid under EU rules.
The new tax deduction takes Finland to a whole new level when it comes to incentives, according to Miika Wires, Client Director at the Finnish Tax Administration.
"Many countries around the world have some R&D incentives, but they vary greatly, making them rather challenging to benchmark. Compared to the other Nordics, Finland is doing very well, and the new 50% additional deduction is significant even on a global scale," says Wires.
"The incentive form is very straightforward, making the concept easily understandable – which cannot be said of tax processes in many other countries. The new law is also unique in targeting a very wide range of businesses and business types on equal terms. I guess this equality is a very Finnish way of doing things."
The new incentives benefit all companies already operating in Finland and are also available to new international companies that set up business in the country. The incentives strengthen Finland's position as an attractive R&D&I location that offers competitive advantages and a business environment that you can't find anywhere else.
The deductions are in line with the Finnish government’s goals, set already in 2019, to raise the share of R&D of Gross Domestic Product (GDP) to four percent by 2030.
The previous tax renewal was implemented back in January 2020 and focused on machinery. The law enables businesses to annually deduct up to 50% (instead of 25%) of the tax carrying value of newly acquired machinery or equipment. The temporary double depreciation rule is valid in tax years 2020-2023.
New share-based incentive enables employee commitment
Another business-friendly improvement to Finland's Income Tax Law is the new provision on non-listed companies' personnel offerings, which also entered into force in January 2021. The new incentive encourages share-based committing of employees but unlike in many other countries, the incentive is not limited to start-ups only, but applies to all non-listed companies.
In practice, this means that when non-listed limited liability companies issue shares to employees in Finland, the subscription price may be lower than the shares' market value. However, if the subscription price is at least equal to the share's mathematical value, an individual employee who buys such shares will not be treated as having received a taxable benefit.
“The aim of the employee share issue is to engage employees in increasing the value of the company's share. Moreover, having committed professionals in the company is vital, and ownership is a very efficient way to secure that,” says Aumo.
Finland is a home for innovation and research
Finland's knowledge-based economy has a strong track record in high technology and R&D&I, including the highest number of digital startups per capita in the world. In terms of foreign direct investment, Finland has long attracted international companies, especially in the manufacturing, ICT, real estate, financial services, wholesale and retail sectors. Leading health tech companies like GE Healthcare and Perkin Elmer have established their R&D operations in Finland over the past years. One of the most recent arrivals in the tech industry include Microsoft, which will open a new development center focusing on imaging technologies in Tampere, Finland - home of one of the leading imaging technology clusters in the world. Additionally, the American hi-tech powerhouse Silicon Labs established a R&D center in Finland, featuring some of the best Bluetooth know-how in the world.
Finland offers a unique talent pool and a highly attractive business environment for international companies – now further enhanced by the new tax incentives.
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PR & Media Manager, Business Finland
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