R&D Tax Incentives in Sweden: Proposals, Structure, and Open Issues

On 19 January 2026, the Ministry of Finance published the final report of the Government Inquiry Tax Incentives for Research and Development (SOU 2026:1). The inquiry proposes a new income tax–based incentive aimed at increasing private investment in research and development (R&D), with potential application from 2027. 

With an estimated annual fiscal impact of approximately SEK 8 billion, the proposals signal a clear policy ambition to strengthen Sweden’s competitiveness and long-term capacity for innovation by improving the tax framework for companies engaged in R&D. 

Background and Rationale of R&D Tax Incentives  

This report forms the final part of a government-appointed inquiry into tax incentives for research and development, following an initial review and an interim report published in 2025. The inquiry has examined both the current R&D deduction and possible new income tax-based incentive models. 

The final report is presented in a context of increasing global competition for R&D investment, rapid technological change, and ongoing geopolitical uncertainty. Against this background, the inquiry concludes that Sweden needs to regularly review and adjust its regulatory and tax framework in order to remain an attractive location for research and knowledge-intensive activities. 

Tax incentives are described as an important complement to public funding and grant programmes, particularly as a means of encouraging private R&D investment that might otherwise be delayed or carried out in jurisdictions offering more favourable tax conditions. 

Two Alternative Tax Incentive Models in Sweden 

The inquiry presents two alternative income tax–based incentive models, both proposed to apply from 2027 and to be claimed through the corporate income tax return. The inquiry does not recommend one model over the other but instead highlights the strengths and limitations of each approach. 

Extended deduction for R&D salary costs 

Under the first alternative, companies would be entitled to deduct 300% of qualifying R&D salary costs. This consists of the ordinary 100% deduction under current tax rules plus an additional 200% incentive deduction. 

For companies subject to Swedish corporate income tax, the effective tax relief is estimated at approximately 41.2% of the relevant salary costs. The model builds on existing tax structures and is administratively straightforward, but primarily benefits companies with taxable profits and may reduce EBITDA, which may be relevant in the context of financing structures and interest deduction limitations. 

Refundable R&D tax credit 

The second alternative is a refundable tax credit equal to 20% of qualifying R&D salary costs. If the credit cannot be fully offset against corporate income tax, the remaining amount would be paid out in cash. 

This model allows companies without taxable profits to benefit immediately and does not affect EBITDA. It is also more commonly used internationally, which may improve predictability for multinational groups. At the same time, refundable credits typically require more robust control mechanisms to manage the risk of misuse. 

Scope of Eligible Salary Costs for R&D employees 

Under both models, the incentive base is strictly limited to salary costs for employees engaged in R&D activities. Other expenditures, such as equipment, materials, externally purchased services, or investments in tools and technologies are explicitly excluded. 

The inquiry motivates this narrow scope by noting that salary costs generally represent the dominant cost component in R&D-intensive activities. Limiting the incentive base to salaries is intended to increase predictability, simplify administration, and reduce compliance and control burdens for both companies and the tax authorities. 

Interaction with the Existing R&D Deduction 

The inquiry does not propose abolishing the current payroll-based R&D deduction relating to employers’ social security contributions. The existing system therefore remains in force under current law. 

The proposed income tax–based incentives rely on the same legal definition of research and development as the current deduction, with the intention of allowing combined application and ensuring continuity for companies already applying the rules. 

Until any new legislation is enacted, the current R&D deduction remains fully applicable. 

Assessment of R&D Activities – Continuity and Challenges 

No changes are proposed to how research and development is defined or assessed. As a result, the practical evaluation of whether activities qualify as R&D would remain unchanged. 

While this provides legal continuity, it also means that the interpretative challenges experienced by many companies today are likely to persist. In practice, this places continued importance on clear documentation and well-structured processes demonstrating how R&D activities meet the legal criteria. Without clearer guidance or changes in administrative practice, a new incentive built on the same definition risks inheriting existing uncertainty, which may limit its practical effectiveness. 

Financing of the proposed R&D tax incentive and Open Issues 

The financing of the proposed R&D tax incentive is addressed as part of the inquiry. Once fully implemented, the incentive is estimated to reduce public revenues by slightly more than SEK 8 billion per year, in addition to limited increases in administrative costs. 

To offset this impact, the inquiry proposes a combination of measures, including reduced appropriations for direct R&D grants, tighter interest deduction limitations for companies through a reduction of the EBITDA-based deduction cap from 30% to 20%, and the removal of interest deductibility for certain types of private loans. Taken together, these measures are intended to broadly offset the fiscal cost of the incentive. 

Several aspects of the proposal will require further clarification as the legislative process continues. In particular, questions remain as to how eligibility criteria will be applied in practice, how the proposed incentive will interact with other forms of public support, such as grants, and how consistency and predictability in application will be ensured once the rules are implemented.

Expatriate Tax Advisor’s view on the R&D proposal in Sweden 

SOU 2026:1 represents a constructive and forward-looking step in the continued development of Sweden’s R&D tax framework. The proposal demonstrates a clear intention to strengthen incentives for private investment while maintaining continuity with the existing system. 

At the same time, the effectiveness of the reform will depend on how remaining issues particularly around R&D qualification, interaction with other tax rules, and financing are addressed during the legislative process. Clear and predictable application will be essential if the reform is to deliver on its ambition to support innovation and long-term growth. 

Until any new rules are enacted, companies should continue to apply the current R&D deduction regime meaning that the practical evaluation of whether activities qualify as R&D remains unchanged. 

While this provides legal continuity, it also means that the interpretative challenges experienced by many companies today are likely to persist. In practice, this places continued importance on clear documentation and well-structured processes demonstrating how R&D activities meet the legal criteria. 

Businesses with significant R&D activities may also wish to begin assessing how the proposed changes from 2027 could affect their longer-term tax position and investment strategies.