How can the tax system strengthen start-ups and SMEs?

On December 3, the Karl-Adam Bonnier Foundation hosted a roundtable discussion on how the tax system can be designed to better support the development of start-ups and small and medium-sized enterprises. Since the major tax reform of 1991, the system has grown increasingly complex through various deductions, excise duties, and differentiated VAT rates. The discussion therefore focused on the principles that should guide future tax reforms to strengthen entrepreneurship, innovation, and economic growth.

The evening’s keynote speakers were Hans Peter Larsson, Head of Tax at the Institute for the Accountancy Profession in Sweden (FAR), and Patrick Krassén, Head of Policy at Företagarna. The discussion was moderated by Thomas Malmer.

Lower Taxes on Labor and an Expanded Stock Option Scheme

Hans Peter highlighted that Sweden’s tax system has evolved significantly over the past 30 years through a series of incremental reforms, such as the abolition of inheritance, gift, and wealth taxes, reduced corporate and labor income taxes, and improvements to the 3:12 rules. He argued that a major tax overhaul is neither realistic nor desirable, but that continued targeted reforms remain necessary.

Although Sweden now has a more dynamic venture capital landscape by international standards, Hans Peter emphasized that the current stock option system still does not work well, particularly compared with Anglo-Saxon countries, where options have played a crucial role in sharing value creation with employees. He argued that today’s limits for qualifying employee stock options, such as the thresholds of 150 employees and SEK 280 million in total assets, are too restrictive and need to be raised. He also highlighted long-standing uncertainty around the taxation of venture capital owners, warning that this could push key individuals and capital out of Sweden. Furthermore, he advocated for a reduction, or eventually the removal, of the state income tax on labor, as well as a simplification and modernization of VAT and excise taxes to safeguard Sweden’s competitiveness and growth.

Taxation of Small Businesses – Incentives and Obstacles

Patrick Krassén underscored that small businesses form the backbone of job creation in Sweden. Despite accounting for around 80 percent of new jobs, they face significant administrative and tax-related challenges. He raised issues concerning financing, rules for depreciation, interest deductions, and investor tax credits, and noted that current regulations often favor certain business structures over others.

Patrick pointed to international examples where small businesses benefit from preferential tax treatment—such as lower corporate tax rates for small firms in France and Portugal, and enhanced R&D deductions in the Netherlands. He called for a clearer, more growth-oriented agenda in Swedish tax policy, particularly to attract and retain innovative companies.

Discussion: Choices for the Future

During the discussion, several challenges were highlighted including issues related to the current R&D tax credit. Innovative companies are today being denied the credit despite substantial research efforts. Participants also discussed the difficulties startups face in recruiting international talent when they cannot meet the salary requirement for work permits. They also emphasized the crucial role of stock options in attracting talent during the early stages when salary levels are low. Concerns were also raised that Sweden risks losing high-growth companies in sectors such as life science, where international competition for both capital and expertise is intense. Participants called for a more strategic approach to ownership structures, particularly at a time when private equity and short-term ownership models are gaining ground.

The roundtable discussion highlighted that, although Sweden remains strong in an international context, there is considerable potential to further enhance the competitiveness of both start-ups and small businesses. A recurring theme in the discussion was the need for a simpler, more growth-oriented tax system, one that better supports entrepreneurs, attracts talent, and encourages growing companies to stay in Sweden. One step in that direction could be lowering, or even abolishing, the state income tax on labor.