Proposal for new rules for R&D deductions and expert tax relief

The R&D deduction

The R&D deduction was introduced on 1 January 2014 as a tax incentive for companies carrying on qualified R&D activities in order to promote research and development in Sweden. The deduction is aimed at making it easier for companies to invest in R&D, which is considered to bring about positive external socio-economic effects.

In June 2023, the government decided to appoint a special investigator to review and evaluate the R&D deduction, as well as tax relief for foreign experts, researchers or other key persons (referred to as the “expert tax rules”).

The interim report contains a proposal to simplify and broaden the definitions of research and development to include more types of R&D work and to reduce companies’ costs for carrying out R&D deductions. Under the proposal, this would apply from 1 January 2026.

The background to the proposal is the fact that companies and the Swedish Tax Agency have found the rules difficult to interpret and apply. One constant criticism is that neither the rules themselves nor the Swedish Tax Agency’s application of the rules conform to the way in which research and development is actually carried on in the business sector. The companies have stated, among other things, that the Swedish Tax Agency imposes stringent, burdensome requirements for documentation of R&D work, for example, even on high-tech companies whose success is clearly dependent on innovation. Many companies have also found it difficult to discuss R&D work with the Swedish Tax Agency which, according to these companies, is partly due to the fact that the administrators at the Agency lack sufficient technical expertise.

The requirement for research and development work to be systematic is removed.

This requirement existed previously to ensure that deductions are only carried out for work that conforms to a certain plan or method. However, the requirement has proved to be problematic and limiting for many companies and in particular for smaller companies, which do not always have the ability to document their work in a detailed way.

By removing the requirement for systematics, it will be possible for companies to qualify for deductions even if their work does not conform to a strict plan or method.

This is particularly relevant for innovative small businesses that often work according to a “trial and error” approach that would not previously have qualified for deductions.

The requirement for research and development work to be qualified is removed.

The requirement for the work to be qualified has proved to be misleading and has caused difficulties when assessing whether work is qualified. The report considers it important for the R&D deduction to only include work that directly contributes to research, but the word “qualified” indicates that a certain amount of experience or training is required, which is not the intention.

It is already clearly presumed that work on support or ancillary functions is not included in the R&D deduction, even without an explicit requirement for qualified work. The term “research” already means work to produce new knowledge, which makes the requirement superfluous. Removing the requirement for qualified work simplifies the rules, which could reduce companies’ administration costs and increase the returns on the deduction.

The report contains a proposal to abolish the requirement for 15 hours’ R&D work a month.

Removing the 15-hour requirement will allow companies to also include employees who contribute to R&D projects on a more sporadic or less extensive basis. This could be particularly relevant for small and medium-sized companies whose employees often have a number of different duties. It is also estimated that this will reduce the heavy administrative burden on companies, which may lead to cost savings.

Smaller companies, which may perhaps not be able to afford to allocate employees to R&D work full-time, can now also benefit from the deduction. This creates a more level playing field between small and large companies.

Lindahl’s comments

We at Lindahl have acted as a representative in a large number of tax proceedings concerning the R&D deduction and we agree with the criticism of the current regulations highlighted in the report. We therefore welcome the proposed changes to the rules in the report on R&D deductions. Even though the Swedish Tax Agency is still the public authority that will assess whether R&D deductions should be granted, there is a proposal that the Swedish Tax Agency should cooperate with other public authorities when assessing companies’ activities. If technically knowledgeable people assist the Swedish Tax Agency in the assessment, it should, as we see it, help to enable more companies to benefit from the deduction.

By simplifying the rules, reducing the administrative burden on companies and increasing flexibility, the changes proposed in the report open up the way for more companies, and particularly small and medium-sized companies, to invest in research and development.

We look forward to supporting our clients in maximising their opportunities under the new, more inclusive rules.

Expert tax

The expert tax rules were introduced in 2001 and mean that a person who meets certain conditions is only taxed on 75 per cent of their remuneration for work in Sweden. The conditions include a stipulation that the person must either have a particularly highly-qualified job (the competence rule) or a particularly high salary (the amount rule) and that certain formal requirements are met. The regulations are aimed at attracting and retaining key international expertise in order to promote research and development in Sweden.

The interim report proposes the following amendments to the expert tax rules to apply to work in Sweden commencing from 1 January 2026.

Increase in the tax-free portion

Under the proposals, the tax-free portion of remuneration for work in Sweden would be increased from 25 per cent to 30 per cent in order to increase the competitiveness of the rules in an international comparison.

Clarified and simplified competence rule

In future, the competence rule should only apply to persons whose work is substantially related to research or development and who have a doctorate or equivalent experience that is important for the work in Sweden. At the same time, the report proposes abolishing the requirement that there must be significant difficulties in recruiting within Sweden.

The competence rule should also be restricted so it no longer includes key persons or specialists who do not work in R&D.

Adjustment of the amount rule

From 1 January 2025, monthly remuneration of one and a half price base amounts, which corresponds to SEK 88,200 for 2025, is required in accordance with the alternative amount rule. There is now a proposal that the remuneration requirement should instead be based on the income base amount, which means that it conforms to the trajectory of incomes in society rather than changes in prices. The proposed remuneration requirement is one and one-tenth income base amounts, which corresponds to SEK 88,660 for 2025.

Changes to formal requirements

At present, expert tax relief only applies to persons who are not Swedish citizens and who intend to stay in Sweden for at least seven years. The report proposes that these requirements be removed. At the same time, it proposes that the period for which the employee may not have been resident or staying in Sweden permanently be extended from five to ten years in order to prevent abuse of the regulations.

Tax relief regardless of the payer           

There are situations in which the salary is paid by someone other than the employer in Sweden. One example in the report is when a person who is temporarily on loan from a foreign group company wants part of their salary paid in to a bank account in their home country for practical reasons. Another example is when the employee receives a payment from an incentive scheme at a previous employer in the same group. It is considered to be unclear whether payments from parties other than the employer stated in the decision by Forskarskattenämnden [the Taxation of Research Workers Board] are covered by expert tax relief under the current rules.

Despite this, the report considers it to be stated with sufficient clarity in the current rules that payments for work or for expenses due to the stay in Sweden can be included in the expert tax relief even though they are made by someone other than the employer specified in the decision by the Taxation of Research Workers Board. The investigator is therefore of the opinion that no change is necessary in this regard.

Greater flexibility and split application time

Expert tax relief will continue to be applicable for a period of seven years, though the proposals state that it should be possible for this period to be divided into several different periods during a person’s lifetime to allow greater flexibility for people who return to Sweden on several occasions.

The deadline for applications

Currently, applications for expert tax relief must be submitted to the Taxation of Research Workers Board within three months from the start of the work in Sweden. The report proposes extending this period to six months.

Lindahl’s comments

At Lindahl, we take a positive view of the proposal, which entails simplifications in the regulations and clearer predictability. The proposed changes make it easier for both employers and international workers to navigate the rules, which creates incentives for recruitment and employment. Even though there is no proposal to change the definition of payer, the investigator emphasises that even in the case of a split salary arrangement, it should be possible for the entire salary to be covered by expert tax relief if the Swedish employer bears the cost.

This type of change strengthens Sweden’s competitiveness in attracting and retaining international expertise, which is crucial for the research, innovation and development carried on by many of our clients and partners. We therefore welcome these steps towards more effective, user-friendly regulations.