Sweden: Innovation Incentives Overview

General overview of the innovation incentives

R&D incentives granted on social security charges are currently the only incentives provided.

Types of tax incentives offered

Are there specific industries that qualify or are there reliefs that require a particular industry focus?

There is no specific industry focus, but there are certain eligibility requirements to be granted the incentive.

Do you have to apply for incentives prior to conducting the research or claiming the benefit?

No. They can also be claimed retrospectively by following a specific process.

Are there specific documentation or reporting requirements for claiming incentives?

Yes, there needs to be a clear record of evidence for the work and the connection to commercial research, as well as timesheets, etc.

Benefit available in terms of R&D spend

From the 1 July 2023, the deduction from employer contributions for all personnel working on an eligible R&D project cannot exceed SEK 1,500,000 per calendar month.

However, there is also a deduction from the general payroll tax of 10% (maximum SEK 1,564,129). The total possible deduction is therefore SEK 3,064,129 per month (1,500,000 + 1,564,129).

The above-mentioned limits are calculated per group.

Claim deadline
It should be made in the normal PAYE reporting process, but can be also applied for five years retroactively. 

Qualification criteria for claiming R&D tax incentives

The R&D tax incentive is only available to corporate entities. No, there are no such requirements. However, the limit of a group of companies’ total monthly deductions is SEK 3,064,129.

Types of activities that qualify as R&D

What are the criteria that define activities that qualify as R&D, and who determines the criteria?

To qualify for deductions, the R&D activities must be classed as systematic and qualified research and development. Research must consist of generating new knowledge (knowledge not previously known). Development must consist of developing new (not previously existing) or substantially improved (change leading to substantial improvement of, for example, use, production or provision) products, services, or production processes. 

Development must also be based on the use of research results. For the work to be systematic, it must investigate, implement or follow up on facts according to a specific method or plan. For the work to be eligible, it has to consist of actual research or development. 

The criteria are set in Swedish legislation, but it is the Swedish Tax Agency which determines if the criteria are met.

Do the R&D activities have to be performed within the country to qualify? If not, is there a distinction made between the country where the claimant company is resident, EU countries, and non-EU countries?

There is no requirement for the work to be performed in Sweden. It can be undertaken abroad, for example during a business trip or secondment. There are no other distinctions for where the work is conducted as long as they are part of the Swedish social security system, i.e. employer contributions are made in Sweden.

Does the intellectual property need to reside in the country granting the incentives or in the company claiming the incentives?

No, there is no such requirement.

Does the tax authority have to review the resultant developments to allow a deduction or credit?

There is no such requirement. However, the R&D activity has to be proven. Documents provided as proof can vary but can, for example, consist of planning material, project descriptions, staffing memos or research reports.

Types of expenditure that qualify for R&D

Expenditure is only measured on salary.

The cash / tax benefit of making an R&D claim

Are the incentives temporary or permanent?

Permanent, as long as the business activity remains the same. The qualification requirements also state that the employee must spend 50% or more, and at least 15 hours per week, of their working time on the qualified R&D activity. As long as the qualified work continues, the deduction can be made.

How is the benefit obtained?

As a deduction.

Are the incentives incremental in nature or volume-based?

The incentives are based on the employers’ contributions and a maximum of 10% of the general payroll tax. Maximum monthly deduction is SEK 3,064,129 per month (1,500,000 + 1,564,129).

Are there general rules for estimating the value of the incentives?

Maximum deduction is SEK 1,500,000 of the employers’ contributions and 10% (maximum 1,564,129 SEK) of the general payroll tax. 

Process for making an R&D claim

We prepare detailed working reports/manuals for each R&D employee, outlining the R&D nature of their work. To be classified as research, it has to lead to new knowledge. The work also has to be systematic, i.e., it should investigate, implement or follow up facts according to a certain method.

Limitations on the amount of R&D tax incentives that can be used each year

Is there a cap on the maximum level of benefit that can be received per year, per company, or for all the qualifying taxpayers together?

The maximum benefit per company or group per month is SEK 3,064,129, totalling a yearly maximum of SEK 36,769,548. There is no cap for all qualifying taxpayers together.

Are tax credits refundable?

If a deduction is wrongfully made or wrongfully approved, it can result in the recipient having to “refund” the deduction and pay the full amount. Such a scenario could also have other consequences depending on the reason for the wrongful deduction.

Can surplus incentives be carried back or forward and used in years other than the origination years?

No, the deduction must be made in the same year as the cost occurs. However, a company that has met the requirements earlier but has not utilised the R&D deduction can get a refund by a retroactive deduction. This is made by requesting reconsideration by the Swedish tax authority. In this way, the company may change their earlier tax reports and get a refund of employer contributions.

Are there any other types of limitations?

No.

Are the R&D costs deductible when deriving taxable income?

No, the R&D costs are not deductible. Costs for R&D are not required to be capitalised for tax purposes.

Other points in relation to the R&D regime

A requirement for the R&D deduction is that the R&D activity must be conducted for commercial purposes.