The New World of Foreign Direct Investment
1 . After more than a half century of increasingly liberalized world trade, there are signs of change. Do you see world trade patterns evolving in new and different directions? What does this mean for your country and your clients?
Finland has strived for a certain level of security of maintenance ever since the Second World War. More recently, the COVID-19 pandemic has affected supply chains in several different industries in Finland, particularly because of shortages in electrical components and medical devices, which created a need to evaluate and develop domestic manufacturing processes and self-sufficiency. Following the 2022 Russian invasion of Ukraine, and the resulting sanctions imposed by the West, there is an even greater focus on security of maintenance and supply. One of the key industries to consider is the energy sector.
Geopolitically, although export to Russia had not been as significant as before the collapse of the Soviet Union in the early 1990s, Finland had maintained economic ties to the East until the spring of 2022 (although declining from 2014 following Russia’s illegal annexation of Crimea). The other growing risk to global security and growth is China. Due to the current situation with COVID-19 and Chinese political instability, in connection with a growing conflict of interest between the East and the West, other growth areas and export opportunities need to be reviewed.
2 . Historically, foreign direct investment was embraced by governments as a way to strengthen domestic economies. Has your country’s government adopted an aggressive posture in regulating foreign investors?
Foreign direct investment (FDI) in Finland is generally welcomed. Finland is considered to be one of the most open economies amongst the Organisation for Economic Co-operation and Development (OECD) member countries. Stable economy, and society, strong institutions and low corruption levels are all attracting foreign investors to Finland. Finland has a strong reputation for economic stability (see https://www.investmentmonitor.ai/features/fdi-drivers-and-political-stability/) along with a business-friendly environment (see https://www.investmentmonitor.ai/global/fdi-drivers-and-barriers-in-the-business-environment), both enticing factors for foreign direct investment. The country has also become established as a sought-after destination for research, development and innovation (see https://www.investmentmonitor.ai/sponsored/how-finland-is-growing-its-status-as-a-world-leading-healthcare-innovation-hub/). In 2021, the Global Innovation Index (https://www.globalinnovationindex.org/Home), which ranks the most innovative countries in the world, ranked Finland seventh globally, and fifth in Europe, out of 126 economies.
However, FDI screening has increased significantly in recent years and has become more of a consideration for investors. The 2012 Act on the Monitoring of Foreign Corporate Acquisitions, 172/2012 (amended in 2014 and 2020) allows the Ministry of Employment and Economy (MEAE) to monitor and (if required) propose restrictions on the transfer of influence over key entities to foreign owners (see Question 3).
Further issues exist around an exceptional increase in the number of FDI filings, the limited state resources available to process the increasingly complex screening procedure (requiring more detailed information from the investor) along with there being no judicial deadline for the State to grant FDI approval. This has led to the completion of transactions being delayed.
Given the situation in Ukraine, the European Commission has also advised that Member States should ensure close cooperation between screening authorities and national financial institutions to identify transactions which might threaten EU-wide security, currently aimed at FDI originating from Russia and Belarus (but certainly not limited to those countries).
Since January 2020 direct acquisitions of real estate assets by foreign investors have also been subject to a screening process, particularly regarding property transactions close to strategic locations, where the State can exercise a pre-emption right (see Question 6).
3 . Are there specific sectors of your country’s economy or industries where foreign direct investment is barred or highly regulated?
Foreign investment is generally encouraged and welcomed in Finland. However, the Act on the Monitoring of Foreign Corporate Acquisitions 172/2012, allows the Ministry of Employment and Economy (MEAE) to monitor and, if in the national interest, propose restrictions on the transfer of influence over key entities to foreign investors.
Acquisitions in the defense sector (including defense equipment and dual-use products) and the security industries are always subject to mandatory screening and require prior approval.
Finland’s 2018 Government Decision on the Objectives of Security of Supply lists business sectors deemed to be part of the vital infrastructure necessary for a functioning society, and provides a comprehensive view of security of supply. With that in mind, in recent years, FDI screening in Finland has concentrated on critical industries such as technology, pharmaceuticals, healthcare and energy.
4 . The global supply chain has been collapsing worldwide since 2020. How has this impacted businesses in your country and what steps has your country’s government taken to respond?
Finland has experienced shortages in many industries, particularly involving the supply of electrical components and medical devices. This has created a need to evaluate and develop domestic manufacturing processes and self-sufficiency.
5 . In M&A transactions as well as joint ventures in your country, what are the most critical issues foreign investors must evaluate prior to contemplating a transaction?
No specific issues.
6 . What is the best strategy for acquiring interests in real estate or other tangible property in your country? Is this more difficult for foreign investors?
The strategy for acquiring interests in real estate in Finland is similar to other EU or Nordic countries.
However, from 1 January 2020 and regulated by the Act on Permission Requirements in Certain Real Estate Acquisitions, 470/2019, foreign purchasers of real estate in Finland have been subject to a screening process.
Non-EU or EEA entities and citizens as well as EU or EEA entities, in which a non-EU or EEA natural person or entity holds at least 10% of the total voting rights or exercises equivalent actual control, need a permit from the Ministry of Defence in order to acquire real estate in mainland Finland (to ensure any purchase would not threaten national security). However, the Ministry of Defence has reviewed hundreds of applications between 2020 and 2022 and none have been rejected (although the existence of the screening rules has been a useful deterrent to unsuitable investors). In June 2022, the Finnish Government published a draft legislative proposal allowing the Ministry of Defence powers to request further information regarding potential purchasers and their funds, following principles in the Screening Regulation (Regulation (EU) 2019/452).
Additionally, the Finnish State has been granted (by the Act on the State’s Right of Pre-emption in Certain Areas, 469/2019) a pre-emption right to acquire real estate assets located within a certain distance of areas designated to or serving the Finnish Defence Forces or Border Guard. To date, this pre-emption right has only been exercised in two instances (for property close to an air base and a military base), and, according to media, both potential investors had links to Russia (both decisions are pending appeal).
7 . What laws or regulations exist in your country to protect data exchange and privacy, and is the protection of intellectual property challenging for foreign investors?
In Finland, data privacy is protected by several different laws. The General Data Protection Regulation (GDPR) is a general law, but in addition, national special legislation must be considered, especially with regard to electronic communication and employee protection. Processing of electronic communication is regulated in the Information Society Act (917/2013) and the processing of employees’ personal data is regulated in the Act on the Protection of Privacy in Working Life (759/2004). In these cases, the processing basis is basically the voluntary consent of the party.
There is also other sector-specific special legislation, such as the processing of patient data.
Regarding intellectual property rights, there is no such special regulation in Finland that would cause major challenges for foreign investors.
8 . Describe the most common legal structures used by foreign investors when doing business in your country.
Limited company (Oy/Ab) is the most used, or listed limited companies (public) (Oyj/Abp). A limited company can be established alone or with other shareholders and is suitable for all types of business operation. A shareholder’s voting power, profit and liability is dependent on their number of shares.
Every new limited liability company should file a start-up notification with the Finnish Trade Register (PRH) and the Finnish Tax Administration. Limited liability companies are established through registration (see https://www.prh.fi/en/kaupparekisteri/yrityksen_perustaminen/osakeyhtio.html).
9 . What are the most attractive opportunities for foreign investors in your country at this time?
In 2022, the government announced significant tax incentives for foreign investors to conduct research and development (R&D) activities in Finland. Corporation tax of 20% (the lowest in the Nordic region) along with the new tax legislation offering a 150% tax deduction on joint R&D projects conducted between 2021 and 2025, makes this area of investment extremely attractive.
In addition, with the aim of providing funding and network support to businesses operating in the healthcare and well-being industries, Business Finland has introduced the Smart Life Finland programme, (see https://www.businessfinland.fi/en/for-finnish-customers/services/programs/smart-life-finland).
The ease of doing business in Finland, along with these generous incentives, will continue to attract significant levels of FDI in the future.
10 . Do specific laws or mechanisms exist in your country to protect foreign direct investors?
No specific laws exist.