Finland

Corporate - Tax credits and incentives

Last reviewed - 31 December 2021

Foreign tax credit

The principal method of avoiding double taxation is the credit method, although the exemption method is still applied in a few older treaties. Foreign tax can be credited against taxes payable in Finland on the same income over the same period on a pro-rata basis. The credit is given for taxes paid to a foreign state and covered by the relevant double tax treaty (DTT). The maximum credit is the lesser of either the amount of the foreign tax or an amount equal to the Finnish tax payable on the income from a foreign state. This maximum is calculated on a source-by-source basis. Unused credit of foreign tax paid may be carried forward for five years on an income basket basis.

Research and development (R&D) activities

R&D related costs may be deducted annually, or they can be capitalised.

Additional deductibility on certain R&D subcontracting costs

A new law, according to which entities can make an additional 50% deduction on R&D subcontracting costs during tax years 2021-2025, entered into force on 1 January 2021. The law was amended to triple the deduction on R&D costs incurred in 2022-2027. The 150% deduction can first be used in taxation of 2022. The previous additional deduction of 50% applies in taxation of 2021.

The minimum amount for this additional deduction during a fiscal year is EUR 5,000 and the maximum amount is EUR 500,000.

In order for these costs to be deductible, the costs must be based on cooperation in R&D activities between the taxpayer and a research organisation. The additional deduction must also be based on subcontracting invoices that make reference to a contract between the taxpayer and the research organisation that has been signed on 1 January 2021 or thereafter. Additional deduction is not granted to the extent the entity has received direct financial support form the State of Finland or other public subsidies for its R&D activity. 

There are also certain requirements that the research organisation has to meet in order for the taxpayer to receive the additional deduction. The deduction can be granted only on payments to research organisations that:

  • operate in the European Economic Area
  • are a unit of a university or a research institute whose main goal is to conduct fundamental research, industrial research, or experimental development, or disseminate research results through education, publishing, or transfers of technology, and
  • further invest any profits to other research activities, dissemination of the results, or education.

This definition is intended to be consistent with the definition of a 'research and knowledge-dissemination' organisation in Article 2 (83) of European Commission Regulation (EU) 651/2014 of 17 June 2014.