Combined deduction for R&D activities in Finland

Accounting | 09.04.2023

by Mari Soininen

Starting from the tax year 2023, Finland has implemented a new tax incentive concerning research and development endeavours. The Law on Additional Deductions for Research and Development Expenses (1298/2022) entered into force on January 1, 2023. The law enables an additional deduction for R&D activities, or the so-called combined deduction, from wages and purchased services expenses as defined in the law.

This text provides a concise overview of the topic. For more detailed information, readers can refer to the Finnish Tax Administration's guideline titled 'Combined Deduction for Research and Development Activities'.

What does the combined deduction for research and development activities mean?

The combined deduction for R&D activities refers to the general and extra deduction of expenses related to research and development. The terms 'combined deduction' or 'additional deductions' encompass a collective and supplementary reduction in taxes specifically associated with R&D expenditures."

Components of the combined deduction:

1. General additional deduction:

• is 50% of the expenses qualifying for the combined deduction.
• has a tax-year-specific minimum amount of 5,000 euros and a maximum amount of 500,000 euros.
• can be applied for the first time in the tax year 2023.

2. Additional deduction based on the increase in research and development expenses:

• is 45% of the difference between all combined deduction-eligible expenses for the tax year and the previous tax year.
• does not have a minimum amount, but its tax-year-specific maximum amount is 500,000 euros.
• can be applied for the first time in the tax year 2024.

The research collaboration deduction differs from the combined deduction
It's important to note that in Finland, there is another additional deduction related to R&D activities in effect during the tax years 2021-2027, known as the research collaboration deduction. It varies from the combined deduction, for instance, in terms of the deduction amount and basis. For more information about the research collaboration deduction, you can refer to the Finnish Tax Administration's guideline titled 'Additional Deduction for Research and Development Activities during the Tax Years 2021-2027'.

Who is eligible for the combined deduction?

All domestic taxpayers engaged in business activities or agriculture are eligible to claim the combined deduction for expenses related to research and development activities as defined by the law. Eligibility is not dependent on the size or industry of the company.

Entities eligible for the combined deduction include, among others, limited liability companies, cooperatives, associations, foundations, general partnerships, limited partnerships, and joint ventures.

Foreign entities can also claim the combined deduction when they are generally taxable in Finland based on their actual place of management.

The deduction is calculated based on wages and purchased services expenses incurred for research and development activities.

The prerequisites for the combined deduction:

The deduction is applicable to R&D activities carried out by the taxpayer, which are directly related to their own business activities or agriculture.

What is seen as R&D activity?

Research and development activities refer to creative and systematic endeavours aimed at expanding knowledge or using existing knowledge for novel applications, resulting in something substantially new. Examples include the development or significant improvement of an entirely new product, service, process, or product/service concept.

However, it should be noted that general enhancements, streamlining, or improvements to operations typically do not meet the criteria. Similarly, the implementation of existing technology or systems, even if it involves routine customisations or modifications required for operations, is not considered research and development activities.

The definition of R&D activities can be refined based on types of research. According to Statistics Finland, the definition includes basic research, applied research, and development work, among others. Further information on the definition of research and development activities can be found on the Statistics Finland's website.

When does research and development activity relate to one's own business or agriculture?

The law requires R&D activity to be directly related to the taxpayer's own business or agriculture. This requirement is fulfilled, for example, when the purpose of R&D activity is to increase knowledge that serves the business or agriculture, or to use information to discover new applications that can be utilised. R&D activity can be connected to the taxpayer's existing or planned business or agriculture.

If a company provides R&D activities for another company's use, this activity does not qualify for the combined deduction in the tax assessment of the service provider. Within a group of companies, the deduction can only be claimed by the subsidiary whose business or agriculture is directly related to the conducted research and development activity.

How can expenses be deducted?

The additional deductions are based on the total amount of wages paid and expenses incurred for purchased R&D services. The general additional deduction is calculated based on the amount of expenses, while the additional deduction based on the increase in expenses is calculated based on the increase in the amount of expenses.

For the tax year's combined deduction, the basis is the expenses for which the obligation to pay has arisen during the tax year. For individuals engaged in agriculture and other taxpayers who are taxed based on the accrual basis, the basis for the combined deduction is the expenses that have been paid during the tax year.


Certain conditions must be met for wages to be included in the basis for additional deductions. Further information about the definition of wages as specified in the law can be found in the guideline provided by the Finnish Tax Administration.

The taxpayer must document the allocation of wages to R&D activities through a record of working hours or another reliable method to demonstrate that work time has been directed towards research and development activities as defined by the law.

Wages allocated to research and development activities include, among other things:

• Salaries based on the amount of work time spent on R&D activities.
• Portions of vacation pay allocated to the time spent on R&D activities.
• Performance bonuses or changes in salary level based on engagement in R&D activities

You cannot deduct, for example:

• Payroll-related costs.
• Benefits from stock issuances or stock options based on employment.
• Benefit from the interest advantage of an employment loan.
• Benefits from certain employer-paid insurance premiums.
• Reimbursements paid as compensation for costs incurred in performing the work

A private trader operating a profession or business, or an individual engaged in agriculture, cannot pay themselves wages. Additional deductions cannot be made based on the work contribution of such a taxpayer.

Purchased Services

When a taxpayer procures services from an external entity for their own R&D activities, such purchased services are also included in the basis for additional deductions. Practically, this definition can encompass expenses incurred from any source. However, the basis for these expenses must be services provided by external personnel that are directly related to the purchasing entity's R&D activities, as defined by the law.

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About Mari Soininen

Legal Advisor, Corporate Law and Taxation