New Finnish tax incentives spur R&D, employee engagement

The incentives became available under amendments introduced to the tax code in an attempt to accelerate economic recovery from the coronavirus pandemic by enabling companies to renew their operations. They are also in line with the national objective of raising research and development spending to a level equalling four per cent of gross domestic product by 2030.

“For the economy to recover and economies to return on a growth path, companies need to renew their operations during and after the pandemic,” stated Antti Aumo, the director of Invest in Finland, a division of Business Finland.

“R&D activities are a key component for this.”

The amendments make companies regardless of domicile eligible for a tax deduction of 150 per cent for the costs of research and development projects conducted in collaboration with universities and research institutes in 2021–2025. Companies can thus effectively claim a 50-per cent deduction in addition to the usual 100-per cent deduction for such costs.

The deduction is not regarded as state aid under EU rules.

Miika Wires, a client director at the Finnish Tax Administration, said the deduction raises incentives for research and development to an entirely new level in Finland. While such incentives are fairly common around the world, they are challenging to benchmark due to a high degree of variance.

“Compared to the other Nordics, Finland is doing very well, and the 50 per cent additional deduction is significant even on a global scale,” he noted.

Wires added that the application form is straightforward, making the entire concept easily understandable. The legislation is unique also in that it applies to a very wide range of businesses on equal terms.

“I guess this equality is a very Finnish way of doing things,” he remarked.

The Finnish legislation was also amended to re-define shares offered to employees by non-listed limited liability companies at at least market price as non-taxable benefits. The purpose of the amendment is to encourage companies to utilise their shares to commit employees to their craft and company value.

“[H]aving committed professionals in the company is vital, and ownership is a very effective way to secure that,” stated Aumo.

With Finland already sitting atop the COVID Economic Recovery Index, the initiatives should help the country to quickly resume and sustain economic growth while enhancing the appeal of the research and development environment.