Innovation Funding Incentives: Finland

Finland has consistently ranked as one of the world’s most innovative countries, largely due to a well-structured and comprehensive system of funding incentives that support research, development, and entrepreneurship. The nation’s strategic commitment to boosting R&D investment and fostering a robust innovation ecosystem is reflected in its diverse range of public and private funding mechanisms. This report will outline the primary innovation funding incentives available in Finland and their collective impact on the country’s vibrant innovation landscape.

Key Funding Incentives

1 | R&D Tax Incentives

Finland offers a multi-layered approach to R&D tax incentives, designed to encourage both in-house R&D and collaborative research.

Combined R&D Deduction (Permanent): As of January 2023, a new law introduced a permanent combined deduction for R&D activities. This consists of a general additional deduction of 50% on salary and service purchase expenses related to a company’s own R&D. There’s also an added additional deduction of 45% based on the increase in R&D expenses compared to the previous tax year. Both deductions have a maximum amount of EUR 500,000 per tax year.

R&D Cooperation Deduction (Temporary): A temporary law, valid until 2027, allows for an additional deduction of 150% on subcontracting costs related to R&D projects carried out in collaboration with universities and research institutes. This deduction applies to invoices from eligible research organisations, with a maximum annual cap of EUR 500,000.

Capital Expenditures: Finnish tax law allows for an immediate write-off of capital expenditures for R&D, or companies can

choose to take tax depreciation over five years.

Impact: These incentives aim to significantly reduce the effective cost of R&D, encouraging companies to invest more in innovation and fostering stronger ties between industry and academia. The goal is to strengthen Finland’s position as an R&D leader and reach an R&D investment target of 4% of GDP by 2030.

2 | Business Finland Funding

Business Finland, the national innovation funding agency, is a central pillar of support for Finnish companies, offering a wide range of grants, loans, and services.

Innovation Funding: Business Finland provides various instruments tailored to company size, maturity, and financial capability. This includes grants and low-interest loans for R&D projects that develop new products, services, processes, or business models. Projects typically range from EUR 100,000 to several million euros.

Innovation Voucher: A popular entry-level funding option, the Innovation Voucher provides EUR 6,000 to SMEs for purchasing expert services related to innovation.

Tempo Funding: Following the Innovation Voucher, Tempo funding offers a grant of EUR 60,000 (covering 75% of project costs) for planning international growth, market studies, product refinement, and testing abroad.

Young Innovative Company (YIC) Funding: This programme is designed for companies with high growth potential aiming for global scaling. It typically involves multiple phases of funding, combining grants (e.g., EUR 500,000) and loans (e.g., EUR 750,000).

Ecosystem and Partnership Funding: Business Finland actively supports the creation and development of innovation ecosystems by funding projects that bring together companies, research organisations, and other stakeholders in strategically selected sectors and markets. This includes initiatives for immersive digital life (VR/AR/XR/metaverse) and strategic partnerships in areas like hydrogen and batteries.

Internationalisation Services: Beyond direct funding, Business Finland offers extensive advisory services and a global network to help Finnish companies enter new international markets.

Impact: Business Finland plays a crucial role in accelerating innovative ideas, fostering international growth, and leveraging private sector R&D spending to meet national innovation goals.

3 | Other Public and EU-Level Support

Finland benefits from various other public funding sources and actively participates in European Union programmes.

ELY Centres (Centres for Economic Development, Transport and the Environment): These regional offices provide business aid, including funding for investment and development projects, especially for SMEs in regional development areas. They also channel EU funds for enhancing competitiveness, know-how, and the operating environment of SMEs.

Finnvera: As a state-owned financing company, Finnvera provides loans and guarantees for businesses, including low-interest startup loans and growth financing, to ease access to capital.

Start-up Grants: Employment and Economic Development Offices (TE Offices) award start-up grants to new entrepreneurs to ensure income during the initial phase of business operations, promoting new business and employment.

European Union Structural Funds: Finland participates in EU programmes like “Innovation and Skills in Finland 2021–2027,” which supports innovation, competence development, and inclusion, with a significant portion allocated to climate action.

Horizon Europe: Finnish companies and research institutions are active participants in Horizon Europe, including the EIC Accelerator for breakthrough innovations and the EIC Pathfinder for visionary research.

Venture Capital Landscape

Finland’s venture capital (VC) ecosystem is vibrant and growing, demonstrating resilience even amid global economic fluctuations.

Growth and Focus: Finland’s VC market has shown notable growth, particularly in deep tech (AI, nanoelectronics, quantum computing), IT, gaming, healthtech, and climatetech. International investors contribute a significant portion of VC funding in Finland.

Key Players: Leading Finnish VC firms include Lifeline Ventures, Inventure, Icebreaker, and Voima Ventures, often serving as initial investors in early-stage companies. State-owned Tesi (Finnish Industry Investment) also plays a vital role by investing directly and through private equity funds, supporting high-growth and internationalisation efforts.

Impact: The collaborative and open nature of Finland’s startup ecosystem, combined with strong government backing and a dynamic VC landscape, attracts talent and investment, positioning Finland as a leading hub for innovation in Europe.

Conclusion

Finland’s comprehensive approach to innovation funding, encompassing generous R&D tax incentives, a diverse array of national grants through Business Finland, and robust participation in EU programmes, creates a highly conducive environment for research, development, and entrepreneurship. This multi-faceted public support, complemented by a resilient and growing venture capital landscape, effectively de-risks innovative ventures and provides crucial capital for businesses to scale. This integrated strategy is fundamental to Finland’s continued success in fostering technological advancement and maintaining its competitive edge in the global economy.