Sweden To Reduce Tax For Start-Ups

by Ulrika Lomas, Tax-News.com, Brussels

13 September 2017

The Swedish Government has said that tax measures will be included in the forthcoming Budget to ease the tax burden on start-up enterprises and encourage entrepreneurship.

Under the proposals, the tax burden will be reduced for companies hiring their first employee, while less onerous tax rules will apply to remuneration in the form of stock options to help start-up firms struggling to meet prevailing wages to attract skilled workers.

The changes will mean that the employee will not be taxed when the employee stock option is exercised. Instead, taxation will occur when the share purchased by the employee using the stock option is sold. The proceeds would then be treated as a capital gain for tax purposes.

The Government said that revenues raised from a new environmental tax on air travel, also to be included in the upcoming Budget, will allow it to offer these tax cuts.

The Budget is due to be announced on September 20, and the improved tax conditions for small firms and start-ups are intended to be introduced in 2018.

Unfavorable tax rules were one of the major reasons why Swedish music streaming service Spotify has considered moving part of its business out of Sweden.

In an open letter published on Medium, the online publishing platform, Spotify co-founders Martin Lorentzon and Daniel Ek observed that certain aspects of Sweden's tax and regulatory environment make it very difficult for start-up companies to grow.

In particular, Lorentzon and Ek highlighted the punitive taxation of stock options in comparison to other countries like Germany and the United States, which they said makes it "impossible" for Swedish companies to reward employees with stock options. This is because stock options attract both income tax and social security levies, which are both high in Sweden.

"In the US, stock options are taxed to the employee as income from capital at a rate of 15-20 percent, in Germany the level is 25 percent. In Sweden it is considered today as income from employment and thus taxed at 70 percent," they wrote.

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