Options Pay Laws Attacked in Sweden as Startups Call for Change

  • Spotify managing director among participants of protests
  • Gathering follows earlier warnings on taxes, housing shortages

It’s not every day you see business executives take to the streets in protest.

But that’s precisely what happened this week in Sweden, when managers from high tech companies including Spotify Ltd. gathered outside parliament to demand less taxes and more housing.

The "STHLM Tech Protest" may not have attracted oceanic crowds -- only a few dozen people, mostly people in their 20s and 30s from the local startup community, were present -- but their message was clear: Do nothing and Stockholm risks losing its status as a breeding ground for technical innovation.

“I hope politicians will take more proactive measures to change the conditions for tech startups,” one of the participants, Emil Robertsson of IT consulting firm Informator, said. “We have a situation with housing that’s difficult and its hard to attract specialists in terms of being able to pay them with options because of the tax rules.”

Spotify’s Nordic managing director, Jenny Hermansson, was among the protesters, who warned politicians that jobs could be lost to rival cities such as London or Berlin.

That would be bad news for the home of unicorns such as Skype and payments company Klarna. On a per capita basis, Sweden’s capital is the world’s second most prolific tech hub, with 6.3 billion-dollar companies per million people, compared to Silicon Valley’s 6.9.

At the heart of the issue are stock options -- a way to attract employees by offering them a share of the increase in the value of the startup as it develops rather than high salaries, which many new companies can’t afford. In Sweden, stock options are taxed as income from employment, at a rate as high as 67 percent. The government should instead look to the U.S., where the capital gains tax is only 15 to 20 percent, or to Germany, where the tax rate on such options is 25 percent, according to some protesters.

Unheeded Warnings

Wednesday’s gathering is a measure of the frustration that’s been growing in the local startup community.

In an open letter published on April 11, Spotify warned that the current tax rules “make it impossible with stock options in Sweden.”

While a review ordered by the government has proposed changes to the current system, it only covers companies with fewer than 50 employees, not larger firms such as Spotify. The proposal should therefore be binned, with the government taking a new stab at changing the system, the digital music provider said at the time.

The Spotify letter followed a September op-ed published in Dagens Industri, in which companies including iZettle, King and Northzone had called for Sweden to use a capital gains tax on stock options of between 20 and 30 percent.

Sean Percival, a partner at 500 Startups, said Sweden needs “to look to Silicon Valley to copy that model or at least make it a lot more fair.”

“It’s almost like it’s a curse now to give these options away, whereas in the Valley this is the biggest reward,” he said. “You can’t pay these people these large salaries when you’re a startup, that stock is really what incentives them and how you bring international people here.”

Mathias Sundin, a parliament member for the opposition Liberals, said failure to accommodate larger companies on the issue of stock options would pose serious repercussions.

"If we don’t adapt taxes and regulation, Berlin and London are here every week telling those companies to move,” Sundin said. “We have to realize other countries and cities are really pulling the companies to move. We from the political side have to adapt.”

Responding to the Spotify letter, Swedish Enterprise Minister Mikael Damberg warned that a complete overhaul of the stock options system would require years.

"You could do that, and scrap the proposal just like Spotify says, but then you need a new review that will take a few years and then you’ll be in the next mandate period before something happens,” Damberg told Dagens Industri newspaper.

More Houses

Taxation is not the only red flag, according to Sweden’s startups. An acute housing shortage in the capital is also making it difficult to attract employees. Housing prices have soared and those who cannot afford to buy often have to queue for more than a decade to get a rental apartment. According to Percival, the stress of finding housing is adding "unnecessary overhead to these companies."

Philipp Engelhard, chief technology officer at online research-discovery platform Loredge, moved to Stockholm from Germany about 18 months ago and said the housing market poses a challenge.

“It’s super hard here,” he said. “Stockholm is a good place to start a startup, but not to grow it.”

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