The government of Sweden is hoping to change its tax regulations governing share schemes for startups, The Local reported yesterday.
Currently, profits on employee stock options are taxed at up to 67%, making it difficult for startups to attract talent as these options are a common incentive offered to staff when a company is still in the early stages of development and raising capital.
Daniel Ek and Martin Lorenzton, co-founders of Sweden-based music streaming service Spotify, penned an open letter in April 2016 criticising the high tax rates and warned that it could prevent the country from becoming a startup leader.
That letter followed the release of the government’s findings into reviewing the rules, which have now been partially revised – a company is now considered a startup as long as it is less than ten years old, while employee shares would not count as taxable income but as capital gains due when the company achieves its exit.
Companies however must also have fewer than 50 staff and a net revenue or balance sheet total of no more than Skr80m ($8.5m).
Elisabeth Thand Ringqvist, chair of the Swedish Private Equity and Venture Capital Association, has criticised the government for those limitations, saying a limit of 250 would be more reasonable.
The government for its part said it chose the lower limit to make sure its proposal are accepted by the European Commission, which needs to sign off on the tax changes. If the country gains approval for its plans, they would become effective January 1 2018.