Finland uses tax reform to attract foreign tech investment

Strategic tax move

With the planned rate cut, Finland is strategically positioning itself behind Ireland’s 12.5% tax rate. Finland regards Ireland as one of the leading non-Nordic competitors for foreign direct investment (FDI), particularly in the pivotal technology areas of financial technology (fintech), datacentres and innovation.

Finland’s planned budget reform will place its corporate tax rate noticeably below most larger European Union (EU) member states, but above or on par with Hungary (9%), Lithuania (16%), Romania (16%), Bulgaria (10%), Croatia (18%) and Cyprus (12.5%).

The corporate tax reform reflects Finland’s commitment to creating conditions that support high-growth, innovation-driven companies, said Kaija Laitinen, a senior advisor at the state agency Invest in Finland’s (IIF) market intelligence unit.

Noting that Finland is often perceived globally as a high-tax country, Laitinen said the Nordic state is offering an increasingly competitive and “forward-looking tax environment” for companies that value innovation, sustainability and growth.

“Finland ’s tax system includes several targeted incentives designed to support companies at every stage of growth. It’s about how the system encourages innovation and long-term success,” said Laitinen.

Finland’s four-party centre-right government, led by Petteri Orpo, hasn’t ruled out further cuts to the corporate tax rate as part of an economy rebuilding plan that is focused more heavily on driving new FDI initiatives to attract a higher share of available investment capital to Finland from international investors, including private equity groups, industrial groups and tech-biased pension funds.  

The government’s progressive tax policies are designed to boost the country’s attractiveness as both a Nordic and European destination for high-value technology investments and projects.

Underlying factors guiding the Finnish government tax reform are stubbornly low economic growth, impacted by global tariff wars, falling domestic industrial investment and the potential return to high unemployment.

Finland’s finance ministry is projecting gross domestic product (GDP) to rise by just under 1% in 2025 and 1.3% in 2026. The growth projections are conservatively cautious and influenced by geopolitical uncertainties linked to a possible worsening in trade and political tensions between the US and the EU.

Talent attraction

In a bid to grow talent in the technology sector, Finland plans to introduce tax-based incentives to retain and attract high-end foreign skills. Beginning in January 2026, the government is reducing tax on so-called foreign key employees (FKE) from 32% to 25%. The reform is being conducted under the Key Employees Act, which enables qualifying individual FKEs to benefit from a flat tax rate for up to seven years.

Under a new and separate government tech sector initiative, startups and scaleups of non-listed companies are able to offer shares to employees without triggering a taxable benefit, provided the subscription price matches the share’s net worth value (NWV). The NWV is based on the mathematical tax value of corporate shares held by employees.

“The scheme helps to attract and retain talent, and aligns employee interests with long-term success,” said Laitinen.

Technology companies conducting research and development (R&D) in Finland already gain an advantage from a permanent tax incentive that includes a 100% basic deduction and a possible additional 50% deduction on eligible R&D costs. The additional 50% deduction applies if R&D spending exceeds the amount spent in the previous financial year.

A so-called super 250% tax deduction is available to foreign-owned and indigenous companies in Finland. This tax offering directly relates to subcontracted R&D services from Finnish universities and technical research institutes.

Growth within the startups domain in Finland is projected to result in a threefold increase in domestic R&D investments to over €900m by 2028, according to Youssef Zad, the chief economist at the Finnish Startup Community (FSC).

Despite the seemingly rosy growth outlook, the FSC remains concerned about the possible negative impact Finland ’s sluggish economy could have on cooling growth in R&D investments.

The capital amount invested in R&D by FSC members climbed to €360m in 2024. The industry organisation expects the domestic R&D spend to rise to around €1.14bn by 2028.

“Startups often operate at the frontier of new technologies. As a result, the R&D phase comes early and at scale, long before product market fit,” said Zad.

The ambitious growth targets that Finnish startups have set for their R&D investments remain reliant on a healthy operating environment and a resurgent Finnish economy, added Zad.

Startup-directed investment capital rose sharply in Finland in 2024, with tech companies securing a total of €1.4bn in funding. This represents a 56% increase compared with 2023. Investments from international investor sources reached €957m 2024, up by 70% from 2023.

Funding initiatives and schemes launched by the Finnish government in 2024 and 2025 aim to raise national R&D spending to 4% of GDP by 2030. Of this, public R&D funding is forecast to account for around one-third of the total, with private investments making up the other two-thirds.

According to data from Statistics Finland, the country’s total R&D expenditure in 2023 was €8.4bn, corresponding to 3.1% of GDP. Of this, companies contributed €5.7bn.

Despite the ever-present risk of economic headwinds, Finland ’s standout education technology (edtech) sector continues to deliver strong growth and global expansion prospects. The sector, which employs over 2,000 workers, produced total revenue of €290m in 2023.

“Finland ’s edtech companies are not only scaling their solutions globally, they are also deeply committed to social impact and pedagogical quality. This combination of purpose and performance is what distinguishes the industry,” said Heini Karppinen, a senior advisor at Edtech Finland.

The stock of Finland’s FDI increased by €2.4bn to reach €83.5bn at year-end 2024, according to data from the Ministry of Economic Affairs and Employment (MEAE). Foreign-owned companies have become significant employers in Finland, accounting for the creation of 109,000 new jobs from 2010 to 2023.