Innovation Funding Incentives in Sweden

Sweden consistently ranks among the world’s most innovative nations, a reputation built on a strong foundation of robust public funding, attractive tax incentives, and a mature venture capital ecosystem. The Swedish government is committed to fostering research and development (R&D) and supporting a dynamic environment for entrepreneurship, aiming to drive sustainable growth and address global challenges through technological advancement. This report will outline the primary innovation funding mechanisms available in Sweden and their collective impact on the nation’s vibrant innovation landscape.

Key Funding Incentives

1 | R&D Tax Deduction

Sweden offers a significant R&D tax deduction that directly lowers employers’ monthly labour costs for personnel engaged in R&D activities.

• Mechanism: Employers can reduce their employer contributions on salaries paid to employees working with R&D. The deduction is typically 20% of the salary, up to a certain limit per month per employee, and an overall annual limit per group. This reduces the effective cost of R&D personnel for companies.

• Eligibility: The R&D activities must be systematic and qualified research and development, aimed at generating new knowledge or developing new or substantially improved products, services, or production processes. Software development, including AI, cloud infrastructure, and cybersecurity, increasingly qualifies. Proposed changes for 2026 aim to simplify and broaden the definition of R&D, making it more accessible, particularly for smaller companies.

• Impact: This incentive directly lowers the financial burden of R&D activities, encouraging businesses of all sizes to invest in innovation and retain skilled R&D talent.

2 | Vinnova Innovation Grants

Vinnova, the Swedish Innovation Agency, is a crucial public entity responsible for allocating state funding for research and development. It aims to foster efficient and innovative Swedish systems across technology, transportation, communication, and labour.

Mechanism: Vinnova offers various grant programmes tailored to different business fields and stages of innovation. Funding amounts vary by project, typically ranging from SEK 500,000 up to SEK 20 million or more for larger initiatives.

Focus Areas: Vinnova’s programmes align with global sustainability goals and national priorities, supporting R&D, product development, and commercialisation in areas such as green technology, digital transformation, life sciences, and emerging technologies like 6G. It funds 17 strategic innovation programmes in collaboration with other agencies.

Collaboration: Vinnova actively promotes collaboration between companies, academia, and research institutions, often requiring project collaboration to qualify for funding.

Impact: Vinnova is instrumental in driving innovation for sustainable growth, providing vital support for companies and organisations to experiment, test new ideas, and bring innovative solutions to market.

3 | ALMI Funding Programmes

ALMI is a state-owned company that provides financing (loans and venture capital) and business development support to small and medium-sized enterprises (SMEs) in Sweden, with a particular focus on early-stage innovation.

Startup Loans: ALMI offers startup loans, providing initial funding to early-stage startups with innovative business ideas, often without requiring collateral. Loan amounts can be up to SEK 3 million.

Venture Capital: ALMI Invest, the venture capital arm of ALMI, is Sweden’s most active early-stage investor. It invests in scalable business concepts across sectors like Tech, Life Science, Industry, and Cleantech, including a dedicated GreenTech fund focused on CO2-reducing innovations. Investment amounts typically range from SEK 1-10 million per company, with larger investments for GreenTech companies.

Business Development: In addition to financing, ALMI provides guidance and support in business development, helping companies to mature and scale.

Impact: ALMI plays a critical role in bridging the funding gap for early-stage companies and SMEs, supporting their development and preparing them for further private venture capital investment.

4 | Expert Tax Relief (Expertskatt)

Sweden has a tax relief scheme aimed at attracting top international talent to work in Sweden.

• Mechanism: Foreign citizens with specific work assignments, education levels, or salary levels can receive a tax relief on a portion of their Swedish income. Recent changes have lowered the monthly salary threshold and extended the tax relief period (e.g., up to seven years). Proposed changes for 2026 aim to simplify eligibility criteria, potentially including Swedish citizens who have resided abroad for an extended period.

• Impact: This incentive makes Sweden a more attractive destination for highly skilled international professionals, thereby strengthening the country’s R&D capabilities and overall innovation capacity.

5 | European Union (EU) Funds

As an EU Member State, Sweden extensively utilises various EU structural funds and innovation programmes.

European Regional Development Fund (ERDF): Funds innovative projects at regional levels, supporting R&D, digital transformation, and SME growth across Sweden.

Horizon Europe (EIC Accelerator, Pathfinder, Transition): Swedish startups and researchers actively participate in these highly competitive programmes, securing grants and equity investments for high-impact innovations and breakthrough research.

Eurostars: Provides funding for international R&D projects led by SMEs, fostering cross-border collaboration for commercialisation.

Impact: EU funds provide a significant financial backbone for innovation, promoting international collaboration and aligning national priorities with broader European goals.

6 | Venture Capital Landscape

Sweden boasts a robust and mature venture capital (VC) ecosystem, positioning it as the Nordic region’s most active and dynamic market.

Growth and Focus: Despite global fluctuations, Swedish startups continue to attract substantial VC investment, particularly in traditional verticals like fintech, healthtech, and SaaS, as well as emerging industries such as AI, deep tech, and sustainability. Sweden ranks among the top European countries for VC investment per capita.

Key Players: The landscape includes a mix of established VC firms (e.g., managing significant funds), new funds focused on impact and deep tech investing, and a growing number of investors with higher risk tolerance.

Impact: A thriving VC landscape, coupled with strong public funding initiatives, provides essential growth capital, enabling Swedish startups to scale globally and contribute to the country’s reputation as a “unicorn factory.”

Conclusion

Sweden’s comprehensive approach to innovation funding is characterised by its effective R&D tax deduction, a wide array of grants and loans from Vinnova and ALMI, and strategic support for attracting global talent. This multi-faceted public support, significantly amplified by extensive EU funds and a robust venture capital landscape, effectively reduces financial barriers and risks for innovative businesses. This integrated strategy is fundamental to Sweden’s continued success in fostering technological advancement, driving sustainable growth, and maintaining its position as a global innovation leader.