NSO

You can definitely grant non-qualified stock options (NSO) to local residents working as employees of an Employer of Record (EoR) in Sweden.

Here's how taxation would work:

• There’s no taxation at the time of grant.  

• When the grantee exercises the stock options, the difference between the fair market value (FMV) of the shares at the time of exercise and the exercise price would be taxed as salary income, taxed at progressive income tax rates. (Employer) social security contributions will also apply. The EoR will be responsible for reporting and withholding taxes from the grantee’s salary.  

• At the time of sale of the shares, the difference between the sale price and the FMV of the shares at the time of exercise would be taxed as capital gains (taxed at a flat 25% tax rate). No social security contributions would apply.  

Since capital gains - applicable when the grantee sells the shares - are less heavily taxed compared to salary income - applicable when the grantee exercises the stock options -, it may make sense to allow grantees to “early exercise” (i.e. allow them to exercise stock options that have not vested yet). The company should discuss it first with its lawyers as there are some potential administrative complexities to take into account when granting early exercise.  

There are some tax advantages for stock options, but unfortunately these tax advantages are only applicable when the stock options are granted to employees of a local subsidiary or branch, and not when employees work via an Employer of Record (EoR).

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