Sweden | New tax-advantaged employee share options

Written on 17 Jan 2018

The Swedish government has set out new rules for small and early-stage companies to promote the recruitment and retention of key employees.

The new rules are intended to reduce the tax burden for both the employee and the employer. Employees holding the new share options will, if the requirements under these new rules are satisfied and structured correctly, be subject to capital gains tax rather than income tax. In addition, no social security charges will be payable by the employing entity in respect of the options. The new rules are in many ways comparable to the Enterprise Management Incentive (EMI) regime in the UK.

In order for options to qualify under the new rules, several requirements need to be fulfilled. In summary:

  • the company must have no more than 50 employees; revenue of no more than SEK 80 million; and must have operated its business for less than ten years. Like EMI, certain types of companies are excluded from the scope of the rules, such as banks and financial companies, insurance companies and real estate companies.
  • to attract the beneficial tax treatment, the options must not be exercised prior to the third anniversary of the option grant date and must be exercised within ten years from date of the option issue date (the vesting period).
  • the total value of all options granted by the company must not exceed SEK 75 million and the value of each employee’s options must not exceed SEK 3 million.
  • the option holder must be employed by the issuing company during the initial three years of the vesting period and the option holder’s working hours must on average be at least 30 hours per week. In addition, the option holder must receive a salary from the company amounting to minimum 13 income base amounts (SEK 812,500, based on the 2018 income base amount) during the three-year period and the option holder (and their connected persons) must not hold a material interest (broadly, 5% of the votes and share capital) in the company.

The new rules entered into force on 1 January 2018 and apply to options granted after 31 December 2017.