SWEDEN Law and Practice Contributed by: Corinne Ekman, Mikael Nagy and Joacim Kanstedt, Gernandt & Danielsson Advokatbyrå KB
company, tax considerations, and the partici - pants (eg, founders or employees). The most typical instruments include the following. • Warrants ( teckningsoptioner ): Securities that are registered with the Swedish Companies Registration Office, giving holders the right to subscribe for new shares in the company at a later stage without requiring a new share issue at the time of exercise. • Share options: Similar to a warrant, but a more flexible instrument which is based on contractual rights (call or put option) entered into with existing shareholders, allowing the holder to acquire or sell already issued shares under predefined terms. • Synthetic options: Cash-settled instruments where the holder receives a payment, reflect - ing the value development of a share during a predetermined period, without granting any equity. • Employee stock options ( personaloptioner ): The employee stock option itself is not a security, however, it entitles the holder to pur - chase equity or equity-based instruments in the future at a predetermined price or other - wise on favourable terms, generally subject to continued employment and/or other condi - tions. • Qualified employee stock options ( kvalifi - cerade personaloptioner ): Participants are granted an employee stock option, exercis - able no earlier than three years and no later than ten years after grant of the option, and which meet certain other specific conditions, entailing that the employee will not be taxed on benefits when the qualified employee stock option is exercised. The purpose of the rules is to enable small, start-up and inno - vative companies with limited resources to recruit and retain key talent and thereby be
able to grow by ensuring taxation is made as income of capital. 5.3 Taxation of Instruments When determining the structure of an incentive pool in a Swedish company, certain tax consid - erations are key, particularly with respect to the timing of taxation and applicable tax rates. Equity-based instruments, such as shares and warrants, are generally treated as securities for Swedish tax purposes, provided that they are not subject to far-reaching restrictions (eg, non- transferability or forfeiture upon termination of employment which are not limited in time). If they are, there is a risk that the equity instrument is instead taxed as an employee stock option or deemed to have been acquired when the restric - tions lapse (typically upon disposal). If a security is acquired below fair market value, the difference between the acquisition price and the market value is taxed as employment income at progressive tax rates up to approximately 52% at the time of acquisition. Additionally, the employer is generally liable for employer social security contributions on the benefit at a rate of 31.42% (uncapped). A subsequent increase in value is typically taxed as capital income at a flat rate of 25% for unlisted shares or otherwise 30% for an individual (unless the closely held com - pany rules apply), and at 20.6% for a corporate investor if not tax exempt under the Swedish participation exemption regime (please refer to 4.2 Tax Treatment ). Benefits from employee stock options are nor - mally subject to employment taxation and social security contributions when exercised (ie, when the employee acquires the underlying shares). However, under the special rules for qualified employee stock options, no taxation arises for
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