Finland is looking to boost companies’ R&D efforts with unprecedented incentives. A new tax law will take effect on 1 January 2021 with the stated aim of bringing tax relief to Research & Development activities during 2021-2025. Companies that are conducting some sort of R&D activity with a genuine research organization meet the criteria for the tax deduction. This is a brand new tax deduction which does not constitute state aid under EU’s definitions.
What all this means in practice is that there is an additional tax deduction a company can now make for its R&D costs, if the actual R&D work is performed by a subcontracted party (university/research institute etc). The "bonus" deduction is 50% on top of the existing deduction which is 100% – bringing the total deduction to whopping 150% and richly earning the designation "super-deduction".
The minimum threshold for tax deductible costs per fiscal year is EUR 10,000 and the maximum limit is one million euro, meaning that the actual additional tax deduction is between EUR 5,000-500,000 per fiscal year.
The super-deduction is available for all companies operating in Finland, both domestic and international.
The new law is the most recent example of Prime Minister Sanna Marin's Government's commitment to elevate R&D pursuits in the country. The 2019 Government Agenda lists – as one specific goal – the raising of the share of R&D of Gross Domestic Product (GDP) to four percent by 2030.
Furthermore, Finland adopted a National Roadmap for Research, Development and Innovation (RDI) in April 2020 to improve the global attractiveness of the Finnish RDI environment and encourage businesses to invest more in RDI in Finland. In the Roadmap, the Government maintains that high-quality competence is "the backdrop for creating innovation activities which are internationally competitive and which promote the renewal of society".
Client Director Miika Wires from Corporate Taxation Unit (Steering and Development) at Finnish Tax Administration says that many countries around the world have some kind of R&D incentives. However, there is big variation in the form of incentives between different countries which makes benchmarking a bit challenging.
"I would say that in comparing Finland to, for example, the other Nordic countries, we are doing very well in this regard – and also, in the big picture we are going strong: the new 50 % additional deduction is a relatively high 'super-deduction' percentage. There is a deduction of up to 150% in total of these costs," says Wires.
In addition, according to Wires Finland has "packaged" the super deduction in a relatively straightforward and simple incentive form that makes the whole concept easy enough to understand. He says that easy comprehension of the tax deduction language is not exactly the norm in many, many countries.
"In fact, in some cases the language can be difficult to understand even by a tax professional."
Wires also notes that the new law targets a very wide range of businesses on equal terms. "I think that this factor reflects Finnish equality quite well – as well as Finnish values in general," he adds.
Furthermore, what is noteworthy in the new super-deduction is also the possibility to carry forward and deduct the costs during the following 10 years in a loss-making situation.
Kaija Laitinen, Senior Advisor, Global Insight at Invest in Finland, comments that the Government is focusing its attention on the right issue with the new tax deduction.
"The state is helping out companies – also international players operating in Finland – to seek renewal through R&D activities. In this present Covid situation, this is very important," says Laitinen.
"When you boost your R&D, that's a key to finding new innovations, and, ultimately, securing worthwhile competitive edge."