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   Defence sector investments and acquisitions – key facts about the Finnish FDI regulation

   Foreign corporate acquisitions are screened in 24 EU Member States, but the scope of screening and application thresholds vary by country. Transactions in the defence sector are strongly linked to national security and geopolitical interests, and in addition to foreign investments, in some countries FDI regulation also covers intra-group and domestic transactions. Foreign investments in the Finnish defence sector may require prior approval by the Ministry of Economic Affairs and Employment, and minority investments (at least a 10% stake or a corresponding influence) are also subject to screening. Failure to file an application or a delay in doing so may lead to fines or even the cancellation of the transaction. The effective execution of a transaction requires careful planning and assessment of the FDI process to ensure that the planned transaction proceeds smoothly with minimal risks. This will be further emphasised with the upcoming regulatory changes. In Finland, there is no statutory time limit for the FDI process for defence industry companies, which means that the process may have a significant impact on the transaction’s completion schedule. EU and NATO countries are ramping up their defence budgets amidst geopolitical uncertainty, and the defence industry is experiencing strong growth. Investments in defence sector companies are on the rise, and at the same time, investments in defence and security-related companies are under increasing scrutiny across Europe. The discussions around data centre projects are a good example of politicians’ interest in foreign players: on the one hand, Finland welcomes foreign investments, but on the other, foreign-policy and geopolitical risks are assessed more carefully. The Finnish defence industry and cybersecurity know-how as well as Finland’s central location as a NATO country may increase interest in defence sector investments in Finland and boost the number of foreign investors. Correspondingly, Finnish companies in the defence sector may seek growth through expanding internationally, for example through acquisitions and joint ventures. Finland and other EU countries actively screen foreign investments in order to ensure national defence and security. Finland has a long history of screening acquisitions in the defence sector, and the current Act on the Screening of Foreign Corporate Acquisitions ( the FDI Act ) has been in force since 2012. It was amended in 2020 as a result of the EU Foreign Direct Investment (FDI) Screening Regulation ((EU) 2019/452), and further amendments are expected in the coming years. FDI screening in the defence sector in Finland When it comes to acquisitions and investments, it is good to keep in mind that foreign investments in certain defence sector companies are subject to screening under the FDI Act. Transactions that fall under the scope of the FDI Act require prior approval from the Ministry of Economic Affairs and Employment (MEAE). In other sectors, such as the security sector, only investments from outside the EU/EFTA are subject to screening under the FDI Act. Traditional defence sector companies that serve military national defence can be attractive investment targets, as can companies specialised in dual-use technologies that offer solutions for both the civilian and military sectors. Solutions related to AI, cybersecurity, satellite communications and security of energy supply may attract an increasing amount of foreign investments in the future, and correspondingly, the screening of these sectors is tightening. This reflects the expansion of the security concept from traditional defence to technology and security of supply. FDI regulation and its impact on foreign investors and Finnish defence companies planning to expand internationally When planning investments or acquisitions in the defence sector, it is important to keep in mind that EU countries have varying approaches to companies that have relevance in national defence and national security. FDI regulation can therefore affect the growth of companies such as technology-intensive businesses even within the single internal market if the authorities take a strict stance on foreign investments. At the same time, foreign capital injections and consolidation could stimulate technological development and enable significant business growth, thereby ensuring EU security. Balancing these interests plays a key part in FDI processes as well. 24 EU countries currently screen foreign corporate acquisitions, but they approach the matter with great variation – there are big differences even between the Nordic countries. For example, in some countries, the screening is focused on transactions by foreign investors in the defence industry, while in others it also includes transactions between domestic companies or within a same group. Finland has a positive attitude towards foreign investments, but the investor’s domicile and owners also play a role in the assessment, especially in the defence sector. The MEAE has the power to prohibit the implementation of an investment if it is necessary due to a key national interest, and the power to impose conditions on the implementation. Other Nordic authorities have similar powers, and such conditions have been imposed in a number of cases. The latest example is a Chinese operator’s project, which was prohibited in Sweden after a lengthy investigation. As a result of the authority decision, the operator cannot go ahead with the planned battery anode material production site. Minority investments and the ownership structure of a listed company may also trigger the need for an FDI process With respect to investors, it should be noted that even a minority investment by a foreign investor may require an FDI process. In many EU countries, Finland included, the acquisition of as little as a 10% stake or a corresponding actual influence (e.g. board seats or veto rights under the shareholders’ agreement) in a defence sector company requires authority approval. This means that private equity investments, including minority investments, may be subject to screening. Companies focusing on defence technology or dual-use products in particular should take FDI requirements into account at an early stage in the negotiations and carefully assess the need for an FDI process in advance. This applies both to situations in which a Finnish defence sector company is raising capital (including minority investments) from abroad and expanding to other countries through acquisitions. Failure to file a notification or a delay in doing so can lead to significant consequences, including fines – not only in Finland, but also in other jurisdictions. It is also important to note that the authorities can intervene in the transaction afterwards and, in the worst-case scenario, order the transaction to be cancelled. Foreign acquisition screening may delay investments It is characteristic of the Finnish FDI process with respect to investments in the defence sector that there is no statutory time limit for the FDI process. This may cause delays to the implementation of the investment. In 2024, the average handling time was 58 days. This means that when the investor or buyer is a foreign entity, investments in the Finnish defence industry can be delayed due to the FDI process. For growth companies in particular, the possible extension of the process can be a critical bottleneck, as the need for financing is often acute and the growth expectations are linked to available capital. Therefore, it is important for growth companies as well to assess their business operations and potential investors from an FDI perspective early on and plan their next steps accordingly. Upcoming changes in the coming years In Finland, a reform of the FDI Act is being prepared with the goal of expanding screening. Earlier this year, the MEAE published an assessment memorandum with 15 development areas to be reviewed nationally and in light of the updates to the EU FDI Screening Regulation. The list of potential amendments includes the following: Expanding foreign acquisition screening to include critical technologies (AI, semiconductors, quantum technologies etc.) and greenfield investments in critical infrastructure in particular. Extending mandatory screening beyond defence sector transactions to transactions in critical infrastructure, such as energy, transport and cybersecurity. Reviewing the current filing thresholds (acquisition of at least 10%, 33.3% or 50% of a company) to potentially introduce additional thresholds. It would be ideal if, when preparing the amendments to the FDI Act, the legislators would also set a clear time limit for the length of the FDI process. This would clarify the completion timeline of foreign investments and provide predictability for both foreign investors and the companies involved in the transactions. The upcoming changes to the Finnish FDI Act and the update to the EU FDI Screening Regulation show that the regulatory framework is constantly evolving, and being up to date is more important than ever before. It is also worth noting that the European Commission has recommended that EU countries should preliminarily screen outbound investments into non-EU countries with respect to strategically important and high-risk technologies (AI, semiconductors and quantum technologies). The goal of this preliminary screening is to determine whether the exit of such technologies from the EU should be regulated and screened more closely in case it could jeopardise the security of the EU. This could happen, for example, if the technology falls into the wrong hands in the event the technology would be used in countries where the boundaries between civil and military activities are blurred and the technology or know-how could be used in military activities. This screening could also have an effect on acquisitions and joint ventures of Finnish companies abroad. Careful preparation is crucial, and geopolitical impacts require extensive expertise Defence sector transactions require much more than just typical assessment of the business of the company. They are increasingly linked to national security, technological dependency and strategic interests. While it may be difficult to predict how things will develop, it is clear that defence sector transactions will require increasingly diverse expertise and careful preparation. The upcoming regulatory changes could complicate investments, especially from non-EU investors.

   Published: 9.7.2025

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   Administrative Court ruling: the Profit Tax Act targeting electricity companies is in conflict with EU law

   The Helsinki Administrative Court ruled that the key provisions of the act imposing a temporary profit tax on electricity companies were unenforceable, as they must be deemed to be in conflict with EU law. The decision can be seen as a landmark precedent that emphasises the diligence required of legislators also in situations where an act is intended to be a temporary measure to address needs during times of crisis. The Administrative Court’s decision is not yet final. The Court assessed an urgently prepared act that faced criticism for non-compliance already during legislative drafting The Profit Tax Act (363/2023) entered into force in March 2023 following a rushed consultation and preparation process. It was applied as a temporary – and partly retroactive – provision to companies in the electricity and fossil fuel sectors, introducing an additional profit tax on their electricity businesses for the 2023 tax year. The Profit Tax Act is based on Council Regulation (EU) 2022/1854, which was adopted on 6 October 2022 as an exceptional emergency intervention during the energy crisis following Russia’s war of aggression. The Regulation required Member States to collect market revenues exceeding a ‘revenue cap’ of EUR 180/MWh from certain electricity producers. The primary objective of the Regulation was to redistribute exceptionally high electricity market revenues to consumers and mitigate the harmful effects of increased electricity prices. The intention behind the EU-level regulation was to respond to the energy crisis with coordinated measures that applied to all Member States, thus avoiding measures taken by individual Member States that could further burden EU industry and consumers. The Regulation was implemented into Finnish legislation by the Profit Tax Act. During legislative drafting, national legislators deemed that the Regulation left Member States enough leeway to implement the emergency measures in ways other than a model based directly on the market revenue cap of EUR 180/MWh laid down in the Regulation. The Profit Tax Act provides for a 30% profit tax, which is levied on companies in addition to the annual income tax on the profit of the company’s electricity business that exceeds a 10% profit threshold calculated on the basis of the imputed return on equity for the previous financial year. The Helsinki Administrative Court deemed that the national legislator did not have the authority to replace the mandatory market revenue cap laid down in Regulation (EU) 2022/1854 with a tax mechanism that is fundamentally different in structure. The Administrative Court ruled that since the amount and calculation of the profit tax differ from the revenue cap mechanism laid down in the Regulation in terms of both content and application period, the provisions in question cannot be deemed compatible with the Regulation. Major discrepancies between the Regulation and the Act The provisions of the national Profit Tax Act differ significantly from the EU Regulation. These differences include the following: Profit basis vs revenue cap: In Finland, the profit tax was based on the profit of the electricity business and the equity of the previous financial year, whereas the Regulation was based on a specific market revenue cap of EUR 180/MWh. Period of application: The Profit Tax Act applied to the entire tax year 2023, even though the Regulation only applied from 1 December 2022 to 30 June 2023. The nature of the tax: The profit tax was not deemed to target only surplus profits. The tax mechanism could also extend to regular market revenue of companies, such as the revenue of electricity providers that had already hedged the price risk of their power generation in the long term. The Regulation’s precedence obliges the non-application of national law EU regulations are directly applicable in all Member States. While they may leave some national leeway, national courts are obliged to hold inapplicable any national provisions that conflict with EU law. The Administrative Court deemed that the Profit Tax Act deviates significantly from the objectives of the Regulation and exceeds the scope of national discretion. According to the Administrative Court, the Finnish Profit Tax Act cannot be interpreted in a way that is consistent with the Regulation , and the key provisions concerning tax determination must therefore be held inapplicable. Landmark precedent on the relationship between EU and national law The Administrative Court’s decision forms a significant precedent on the relationship between EU law and national tax legislation. The decision renders the Profit Tax Act practically irrelevant, since the Administrative Court ruled that the provisions on the amount and calculation of the tax must be disregarded. To our knowledge, no Finnish national law has been found to be contrary to EU law to the same extent and therefore unenforceable. According to the Administrative Court’s decision, the Regulation’s objective was to address only exceptionally high electricity market revenues, whereas regulation under the Profit Tax Act was based on a completely different model. Already during the legislative drafting process, the Constitutional Law Committee and the Economic Affairs Committee noted that the national Profit Tax Act law deviated significantly from the mechanisms and objectives of the Regulation. The Finance Committee stated in its comment that the Regulation was exceptionally loosely drafted, leaving the national legislator with some discretion to deviate from the Regulation’s main implementation method. The Administrative Court’s decision highlights the importance of careful legislative work and emphasises how crucial it is to ensure that EU law – particularly directly enforceable EU regulations – is correctly implemented into national legislation. Careful legislative work is especially important in tax legislation, to ensure that the tax collection criteria meet the requirements under EU law. The decision is not yet final, as the Tax Recipients’ Legal Services Unit may request leave to appeal the decision from the Supreme Administrative Court. If the case is taken to the Supreme Administrative Court, it is possible that the Court will request a preliminary ruling from the Court of Justice of the European Union. At this stage, the Administrative Court did not find it necessary to request a preliminary ruling. Our experts are happy to help if you wish to discuss electricity sector taxation or the practical ramifications of this decision in more detail.

   Published: 25.6.2025