Sweden to abolish income tax on stock options for smaller start-ups

Move is designed to ward off a tech brain-drain to other cities

Sweden will from the start of next year eliminate income taxes on stock options at smaller start-up companies, meeting its vibrant tech community halfway to ward off a brain-drain to other cities such as London and Berlin.

The government received backing from the European Commission to stop taxing stock options as income at companies that are younger than 10 years, have fewer than 50 employees and revenue and a balance sheet of below 80 million kronor (€8.3 million).

Companies will be exempt from payroll levies on the options, which will be taxed as capital when they are sold. "Personal stock options can be used at an early stage to balance the risk when an employee joins a young and innovative company," Financial Markets Minister Per Bolund and Enterprise and Innovation Minister Mikael Damberg said in a statement.

The government, which proposed the new rules in December last year, has been under pressure to lower taxes amid protests from the local start-up community, which has helped spur companies such as Spotify Ltd. and Klarna AB. But the new rules have already been criticised as not going far enough since they only help the smallest companies and many of the larger companies have struggled to attract talent.


In an open letter published in April last year, Spotify warned that the current tax rules make stock options impossible in Sweden and argued that the proposal being pushed through now should be binned.