In order to promote the net zero economy and accelerate the green transition, on 18 February 2025, the European Commission has approved a EUR 2.3 billion Finnish scheme to support investments in strategic sectors and to help industrial companies decarbonize their production processes. The scheme was approved under the State aid Temporary Crisis and Transition Framework adopted by the European Commission. Finland has introduced two parallel state aid schemes for large clean transition investments based on this Crisis and Transition Framework.
The grant-based direct aid for investments (hereinafter ‘Direct Aid’) that came into force in January this year, as well as the parallel investment tax credit (hereinafter ‘Tax Credit’) that has now come into force under this framework, are both partially targeted at similar investment projects. However, the targeting of these aids to the same individual project will be restricted by the EU’s state aid cumulation rules, which means that the accumulation of state aid must not result in exceeding the maximum aid amount or the maximum aid intensity as defined by applicable regulation.
The Temporary Crisis and Transition framework will end on December 31, 2025. The application period for Direct Aid in Finland has expired, but the Tax Credit can still be applied for until August 29, 2025.
The Commission has announced in the Clean Industrial Deal Communication its intention to simplify state aid rules by adopting a new Clean Industrial Deal State Aid Framework so it is more than likely that some kind of extension or new instruments will be adopted. In our view, alongside promoting the green transition, current increasing trade policy tensions will accelerate the need for new and effective state aid mechanisms in the EU.
Below is a brief description of both state aids and how they differ from one another.
Eligible projects
First of all, both the Direct Aid and the Tax Credit can be obtained for projects related to the decarbonisation of industrial production processes and energy efficiency measures. Eligible projects will detail measures that support the decarbonisation of industrial production processes by helping companies to reduce greenhouse gas emissions from their production processes by at least 40%or reduce their energy consumption by at least 20%.
Secondly, both the Direct Aid and the Tax Credit can be obtained for investments in strategic sectors for the transition to a climate-neutral economy. Such investments are considered to include the production of equipment and components essential for the transition to a climate-neutral economy, as well as the production or recovery of related critical raw materials necessary for the production of the equipment and components.
In addition to the aforementioned projects, the Tax Credit can also be granted for investments in the production of renewable energy and storage of energy. Investments eligible for the Tax Credit will include energy production from renewable sources, including the production of hydrogen and fuels based on renewable hydrogen. However, since the purpose of the Tax Credit is to stimulate investments that use electricity rather than those that produce it in support of a clean transition, investments in production of electricity are excluded from the scope of the Tax Credit. Therefore, Tax Credit cannot be granted, for example, for solar photovoltaic, onshore wind or offshore wind projects. In contrast, investments in the storage of electricity, such as BESS projects do qualify for the Tax Credit. Investment in the storage of heat, renewable hydrogen, biofuels, bioliquids, biogas, biomethane and biomass fuels also qualify for the Tax Credit.
The size of eligible projects and the amount of aid
Only large investments, with eligible investment costs of at least EUR 50M, are eligible for the Tax Credit. The Tax Credit will be amount to 20% of the costs approved as the basis for the credit, but no more than EUR 150M per company or group of companies. The full amount of the Tax Credit would therefore be obtained on projects with investment costs of EUR 750M. The company making the investment receives the credit as a deduction from its corporate income tax. It has been estimated that there will be approximately 15 to 30 large investment projects that will fulfil the criteria for the Tax Credit.
Direct Aid can be awarded to projects whose impacts, based on an overall assessment, are deemed as being significant for achieving Finland’s climate targets and industrial policy provisions, and which have eligible investment costs of at least EUR 30M. The amount of Direct Aid depends on the type of eligible investment in question and the granting of Direct Aid, and the amount of Direct Aid, are assessed by qualitatively comparing the impact of different projects based on more detailed criteria through an overall evaluation. A total of EUR400M has been allocated for Direct Aid in the 2025 supplementary budget.
Application for and use of aid
The application period for Direct Aid has expired, but the Tax Credit can be applied for until 29 August 2025 but can only be granted to new projects. The application for Tax Credit must be filed with Business Finland before the start of the work on the investment project. ‘Start of work’ means start of construction work or the first legally binding equipment agreement or any other agreement that makes the investment irrevocable. As a result of deadlines in the framework, the Tax Credit must be granted by 31 December 2025 at the latest.
The Tax Credit can be deducted from the company’s income tax as of tax for the financial year 2028 and the following 19 tax years. However, the Tax Credit can be deducted at the earliest in the tax year in which the investment is completed. For each tax year, the Tax Credit can be deducted by up to 10 percent of the total Tax Credit granted to the company. It should be noted that the use of the Tax Credit requires that the company makes a taxable profit, given that it will be deducted from the company’s income tax payment.
The Direct Aid is paid afterwards in one or more instalments based on the costs incurred. However, the final payment of the Direct Aid must be at least 20% , and the investment must be fully completed before the final payment is made.
The plant or equipment in respect of which the Direct Aid or Tax Credit is granted must be completed and in operation within 36 months of the date on which the aid is granted. If the 36-month time limit is not met, the Tax Credit will be reduced by 1/240th for each month over the time limit. In the case of the Direct Aid, exceeding the 36-month deadline will result in the final instalment of the Direct Aid, up to a maximum of 20 percent, not being paid to the beneficiary.
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