EU's Tax Recommendation to strengthen (clean) industry

08/07/25

The European Commission released their recommendation on tax incentives aimed at supporting the transition to a climate-neutral and competitive industrial base in Europe, on 2 July 2025. As part of the Clean Industrial Deal, EU Member States are encouraged to adopt tax measures to help support investments in clean technologies and industrial sustainability more accessible. The recommendations are backed by a relaxation of the state aid, which was published a week before: the Clean Industrial Deal State aid Framework (CISAF). This initiative represents a step toward advancing green industry development in Europe.

What does this mean for your business?

With these recommendations, Member States can introduce tax measures for companies investing in sustainable technologies and industrial decarbonization. If Member States adopt the recommendations, organizations may be able to benefit from accelerated depreciation - or immediate expensing - of investment costs for renewable energy systems or energy-efficient machinery. Additionally, targeted tax credits may be available to reduce corporate income tax, subject to meeting specific conditions. These provisions can improve a company’s cash flow, facilitate investment, and lower financial barriers to adopting green technologies.

Businesses engaged in, or considering, investments in the production of clean technologies should assess these fiscal opportunities. The application of these incentives is subject to EU state aid regulations and project-specific caps. The European Commission widened the possibilities for member states to use tax incentives to accelerate growth in the European Union. It is up to the member states to implement such tax incentives and to make sure that budget is available. Member states proposed tax incentives will need to comply with the CISAF or GBER.

Whether the recommendations are implemented is up to the Member States.

The Recommendations

The European Commission’s recommendations highlight two main instruments:

Accelerated depreciation up to immediate expensing: Member States may allow companies to depreciate investments in clean technologies more quickly, or to fully expense them in the year of purchase or lease. This provides a faster tax deduction of investment costs, leading to lower tax burdens and improved liquidity, which may support sustainable investments. Where possible, accelerated depreciation should be accompanied by appropriate rules for carrying loses forward.

Targeted tax credits: Specific tax credits may be deducted from corporate income tax, making investments in areas such as clean technology production or industrial decarbonization projects more financially attractive. Member States are encouraged to make these credits refundable or offsettable against other domestic taxes where feasible. The refunding of tax credits must be in line with the provisions of Pillar 2 to secure effectiveness.

To ensure compliance with state aid regulations, Member States are required to implement these incentives within the framework of EU rules. For large-scale projects, maximum support levels and aid percentages are defined in the Clean Industrial Deal State Aid Framework (CISAF). For other, smaller incentives, existing exemption regimes, such as GBER, may apply.

The European Commission’s recommendation reflects the ongoing objective to prepare European industry for the 2050 climate targets. By providing fiscal measures, the intention is to facilitate investment in green industry across the EU.