News
Legal Changes 2021
The coming year will bring several significant changes to Swedish legislation – some brought about in reaction to the ongoing corvid-19 pandemic and some created by long-term agreements between the political parties represented in the Swedish parliament. The general trend for the coming year is for a slight lowering of taxes for a large portion of the corporate and private sectors, but the Swedish government is also taking measures to widen its tax base by eliminating certain preexisting loopholes.
The Swedish government is also looking to penalize activities which they deem to be harmful to the environment. Beyond the changes in vehicle taxation, which we will describe in greater detail below, the taxes on the industrial use of electricity and on industrial heating will undergo a small increase, and new taxes on textiles made through non-environmentally friendly methods are expected to be introduced during the coming year. In the longer term, the Swedish government is also planning to increase the taxation of the banking and finance sector.
Going forward, a guest worker's employment will fall under Swedish tax jurisdiction if either the legal employer or the end client (the "economic employer") is deemed to have a permanent establishment in Sweden, even if the total period during which they work in Sweden is 183 days or less. Assignments were a guest-worker works in Sweden for no more than 15 work days in a row are exempt from the new rules, as long as the same individual total workdays in Sweden have not exceeded 45 during the same calendar year. Remuneration given for such short assignments might, therefore, in some cases continue to fall outside Swedish tax jurisdiction on the same terms as before.
Even with the new legislation in force, there will be many situations in which the work performed by a foreign guest worker may be taxed differently than that of a Swedish national. The flat 25% SINK tax will continue to be available for individuals who are not classified as Swedish residents for reasons of not living in the country for more than 183 days in a given 12-month period. Sweden's tax treaties with other countries, and correctly issued certificates of social-insurance applicability ("A1s"), will also continue to be honoured. The Swedish government does, however, hope that the introduction of the economic employer concept will eliminate some of the worst abuses of the previous system.
If the work performed by a foreign worker in Sweden falls within Swedish jurisdiction in accordance with the new rules, the foreign employer would be obligated to have themselves register as a Swedish employer with Skatteverket (the Swedish Tax Authority) and conform to the Swedish rules for payroll tax withholding even if they, from a corporate income tax perspective, may still potentially lack a permanent establishment in Sweden. Furthermore, any Swedish end clients who have hired a foreign service provider for performing work in Sweden will be obligated to pay 30% of each amount invoiced by said service provider directly to the Skatteverket, unless the foreign entity can either show that they have been granted Swedish F-tax status or some other type of official decision determining their tax status. Swedish F-tax certification is applied for from Skatteverket and, though it does not by itself necessarily determine if a foreign enterprise will be regarded as permanently established in Sweden, it is a mutual recognition that the enterprise is carrying out business activities in Sweden, is currently in good standing, and that it will take responsibility for its Swedish tax liabilities (if any). Since an F-tax, in the longer term, can be seen as an indication of a permanent establishment, non-permanently established companies are often better served by instead applying to Skatteverket to have their foreign tax status recognized, which said authority can do by issuing a written decision to that effect.
If a Swedish end client withholds 30% on an invoice from a foreign service provider, those funds will be held by Skatteverket until the final Swedish tax liabilities of the foreign entity has been established for the relevant fiscal year. If the foreign entity is deemed to be outside Swedish corporate tax jurisdiction, then the funds will be paid out in the form of a tax refund. If taxes on the other hand are owed, these will be taken out of the withheld amount. The process of reclaiming withheld funds not needed for covering Swedish taxes can take time and may, in many cases, require the company to file a Swedish corporate income tax declaration.
The potential obligation to withhold 30% to cover taxes is the chief responsibility of the Swedish end client who is deemed to be the economic employer of guest workers. As we covered in our earlier article on posted workers there are, however, other obligations that may arise.
The total amount a given company group can save through the research and development deductions is currently by law limited to SEK 230,000 per month, but on April 1st, 2021, this limit will be raised to SEK 450,000 per month.
Despite the taxation of car benefits, the current Swedish government is of the opinion that the current tax system has made company cars too beneficial for employees, compared with purchasing a private car. The government is also of the opinion that some of the gasoline and diesel cars which have benefited from tax discounts due to their low emissions still emit too much carbon dioxide to make such discounts worthwhile from an environmental perspective.
On January 1st, 2021, the tax value of all types of company cars, regardless of fuel type, will therefore be increased, in most cases, by about 30%. Many car models will, at the same time, lose their emission-related tax discounts, which for certain high earning individuals can increase the tax costs for their company car by up to around SEK 5,000 per year. Since some employees have been forced to lower their business-related travels for reasons of the ongoing Corvid-19 pandemic, there will also be fewer who qualify for the 25% deduction in tax value mentioned above for the income year. This can, in turn, lead to an additional increase in tax costs of up to about SEK 10,000 per year for high earning employees.
The general emission-based vehicle tax on many car models, regardless of their ownership status, will also be raised on January 1st, but this change will typically be less noticeable than the increased taxation of company cars.
The total effect on affected individuals' tax situation can be significant and, since these costs relate to personal taxes, any compensation attempted by the employer would in itself be taxed as salary. Miljöpartiet (the Swedish Environmentalist Party), who has been instrumental in the making of these legislative changes, have publicly announced that they hope the changes in taxation will decrease the number of cars in general and the number of company cars in particular.
The governmental subsidies on hybrid cars and other low emission cars are, at the same time, lowered from SEK 60,000 per car to a maximum of SEK 45,000 per car. The exact size of the subsidy for such vehicles will be determined by their carbon dioxide emission.
The generous Swedish subsidies on environmentally friendly cars have resulted in large numbers of vehicles being bought in Sweden only to be immediately exported abroad. Additional legislative changes are expected in early 2021 to allow the Swedish government to reclaim tax subsidies given for a vehicle which is then exported within five years of being sold in Sweden.
Previously, the tax relief itself would only be valid for the first three years, even if the employment lasted for five years. From January 1st, 2021, the tax benefits of a granted Expert Tax Relief can be applied to the whole five-year period. For individuals with a preexisting approval for Expert Tax Relief, who began their stay in Sweden no earlier than June 1st, 2020, their three years of tax relief can be extended to five years if they or their Swedish employer file an extension application with Forskarskattenämnden no later than March 31st, 2021.
In its current form, Expert Tax Relief will, if applied for and granted, free 25% of the foreign expert's remuneration from Swedish personal income tax and employer social fees.
The tax reductions will, in most cases, be administrated and received directly by the service provider hired by the consumer to deliver and/or install the equipment, and will, therefore, from the consumer's point of view take the form of a price discount. The green tax reduction will cover 15% of the work and equipment cost for installing solar panels and 50% of the work and equipment cost for installing charging station(s) for electric cars or technology for storing produced energy, up to a maximum amount of SEK 50,000 per person and year. As with similar programs, no individual can benefit from a larger tax reduction than the sum they pay in Swedish income taxes during the same taxation year, and if a consumer misrepresents their eligibility for the tax reduction to a service provider, the latter may issue a new invoice to the consumer to cover the shortfall.
The capital gains tax on homes is lower than the 30% standard tax rate that applies to most other types of investments. It has, however, for many years been criticized for decreasing the mobility on the Swedish housing market, since it means that many older homeowners in particular cannot sell their existing home and expect to have sufficient funds left after taxes to buy a new home in the same price range.
In an attempt to alleviate these market effects, Sweden has for years allowed capital gain tax related to the sale of a tax payer's main domicile to be postponed, as long as the individual have owned it for at least one year and purchase a new home at the same price as the old or higher within Sweden no more than one year before, or one year after, the year in which the sale takes place. Partial tax postponements are, under certain conditions, also available for individuals who purchase a new home for less than the price they received for their old one. Taxes on capital gains that were postponed due to the purchase of a new home needs to be paid if said home is sold. In case of the taxpayer's death, the postponement of their capital gains tax might, in some cases, be passed on to their heirs together with the property.
Such postponed taxes have previously been subject to an annual interest, which in recent years has been decreased to only 0.5%. On January 1st, 2021, that interest will be entirely abolished, creating an effect similar to that of an interest-free loan from the Swedish government to the individual taxpayer.
In an effort not to penalize those who in recent years have sold their home with profit without postponing the tax, Skatteverket (the Swedish Tax Authority) will accept retroactive applications for the postponement of capital gains taxes related to homes sold as early as 2014. If granted, such a retroactive postponement will result in the paid taxes being returned to the taxpayer. Applications related to homes sold during the year 2014 must be submitted to Skatteverket no later than December 31st, 2020, while applications relating to later years will be accepted from January 1st, 2021, and until further notice.
The Swedish government is also looking to penalize activities which they deem to be harmful to the environment. Beyond the changes in vehicle taxation, which we will describe in greater detail below, the taxes on the industrial use of electricity and on industrial heating will undergo a small increase, and new taxes on textiles made through non-environmentally friendly methods are expected to be introduced during the coming year. In the longer term, the Swedish government is also planning to increase the taxation of the banking and finance sector.
Introduction of an Economic Employer Concept
The Swedish economy is, to a large degree, dependent on guest workers for filling temporary or lasting labor shortages within various professions. Some of these workers are legally employed by companies outside Sweden. If a guest worker without previous ties to Sweden worked in the country for no more than 183 days in a given 12-month period, and their employer lacked a permanent establishment in Sweden, there have, depending on the applicable tax treaties, been many cases where both the employee and the employer have fallen outside Swedish tax jurisdiction. Since Sweden has higher income taxes and employer social fees than many other countries, such situations have often given an unfair advantage both to the foreign companies who deploy workers in Sweden and to their Swedish end clients. As part of a continuous effort to level the playing field between Swedish and non-Swedish workers on the local labor market, Sweden will, on January 1st, 2021, introduce the concept of an "economic employer" for the purpose of establishing in what jurisdiction an employment should be taxed.Going forward, a guest worker's employment will fall under Swedish tax jurisdiction if either the legal employer or the end client (the "economic employer") is deemed to have a permanent establishment in Sweden, even if the total period during which they work in Sweden is 183 days or less. Assignments were a guest-worker works in Sweden for no more than 15 work days in a row are exempt from the new rules, as long as the same individual total workdays in Sweden have not exceeded 45 during the same calendar year. Remuneration given for such short assignments might, therefore, in some cases continue to fall outside Swedish tax jurisdiction on the same terms as before.
Even with the new legislation in force, there will be many situations in which the work performed by a foreign guest worker may be taxed differently than that of a Swedish national. The flat 25% SINK tax will continue to be available for individuals who are not classified as Swedish residents for reasons of not living in the country for more than 183 days in a given 12-month period. Sweden's tax treaties with other countries, and correctly issued certificates of social-insurance applicability ("A1s"), will also continue to be honoured. The Swedish government does, however, hope that the introduction of the economic employer concept will eliminate some of the worst abuses of the previous system.
If the work performed by a foreign worker in Sweden falls within Swedish jurisdiction in accordance with the new rules, the foreign employer would be obligated to have themselves register as a Swedish employer with Skatteverket (the Swedish Tax Authority) and conform to the Swedish rules for payroll tax withholding even if they, from a corporate income tax perspective, may still potentially lack a permanent establishment in Sweden. Furthermore, any Swedish end clients who have hired a foreign service provider for performing work in Sweden will be obligated to pay 30% of each amount invoiced by said service provider directly to the Skatteverket, unless the foreign entity can either show that they have been granted Swedish F-tax status or some other type of official decision determining their tax status. Swedish F-tax certification is applied for from Skatteverket and, though it does not by itself necessarily determine if a foreign enterprise will be regarded as permanently established in Sweden, it is a mutual recognition that the enterprise is carrying out business activities in Sweden, is currently in good standing, and that it will take responsibility for its Swedish tax liabilities (if any). Since an F-tax, in the longer term, can be seen as an indication of a permanent establishment, non-permanently established companies are often better served by instead applying to Skatteverket to have their foreign tax status recognized, which said authority can do by issuing a written decision to that effect.
If a Swedish end client withholds 30% on an invoice from a foreign service provider, those funds will be held by Skatteverket until the final Swedish tax liabilities of the foreign entity has been established for the relevant fiscal year. If the foreign entity is deemed to be outside Swedish corporate tax jurisdiction, then the funds will be paid out in the form of a tax refund. If taxes on the other hand are owed, these will be taken out of the withheld amount. The process of reclaiming withheld funds not needed for covering Swedish taxes can take time and may, in many cases, require the company to file a Swedish corporate income tax declaration.
The potential obligation to withhold 30% to cover taxes is the chief responsibility of the Swedish end client who is deemed to be the economic employer of guest workers. As we covered in our earlier article on posted workers there are, however, other obligations that may arise.
Lowered Corporate Income Tax
The Swedish government did, in 2018, announce an intention to progressively lower the Swedish income tax in the following years. In 2019, the corporate income tax was lowered from 22% to 21,4%, and on January 1st, 2021, the tax will be lowered once again to 20.6%.Lowered Income Tax
As part of the current Swedish government's agreement with their more liberalist parliamentarian allies, the Swedish parliament has begun a new program for lowering the Swedish personal income tax for employees, retirees, and the self-employed. From January 1st, 2021, the taxes will be lowered on a national level for anyone with a Swedish taxable annual income of SEK 40,000 or more. The largest tax reduction, which amounts to SEK 1,500 per year, will be received by individuals with an annual income of SEK 240,000 or more. The reform is, therefore, expected to have a positive effect for most of the Swedish full-time labor force, and further tax cuts are scheduled for the years 2022 and 2023. The visibility of this tax cut will, however, vary geographically since each Swedish municipality and region have their own local taxes, which might in some cases be raised on a local level at the same time as the taxes are lowered on the national level.Lowered Tax and Raised Pension for the Elderly
As another step in strengthening the financial positions of Sweden's older inhabitants, the Swedish Government will, on January 1st, 2021, introduce an additional tax cut for individuals over 65 years of age, in addition to the previously mentioned lowering of the general income taxes. The size of this tax cut will vary depending on income level, but it may decrease the taxes of individuals over 65 years of age by up to SEK 800 per year. At the same time, the Swedish public pensions paid to individuals who have retired, in part or in whole, will be raised by up to SEK 600 per month, on top of the usual annual cost-of-living increase.Expanded Social Fee Subsidies for Small Businesses
Sweden has, in recent years, had a temporary program through which small businesses are given a discount on the employer social fees for the first employee hired outside the business owner's immediate family. This discount lowers the social fees from the normal Swedish rate of 31.42% to 10.21% for up to 24 months. The Swedish government has now announced that this program will be made permanent on January 1st, 2021 and that the discount will, on July 1st, 2021, be expanded to also cover the second employee hired by a business.Increased Research and Development Deductions
Since 2014, employers subject to Swedish employer social fees can claim an employer social fee discount of up to 10 percentile units for staff members working with systematic research and development. This discount can, for example, lower the social fees from the normal rate of 31.42%, calculated on the gross remuneration, to 21.42%. However, though this discount can be combined with other social fee deductions, it can never bring the employer social fees down further than to a sum corresponding to 10.21% of the gross remuneration.The total amount a given company group can save through the research and development deductions is currently by law limited to SEK 230,000 per month, but on April 1st, 2021, this limit will be raised to SEK 450,000 per month.
Raised Taxes on Company Cars
In Sweden, the ability to use a company car for private travels (including travels between home and work) is a taxable benefit. The tax value of such a benefit depends on the year and make of the car, but tax discounts are also given to car types deemed to have an especially low impact on the environment. The tax value is furthermore diminished by 25% for anyone who uses their assigned company car for more than 30 000 km of business-related travels during the year.Despite the taxation of car benefits, the current Swedish government is of the opinion that the current tax system has made company cars too beneficial for employees, compared with purchasing a private car. The government is also of the opinion that some of the gasoline and diesel cars which have benefited from tax discounts due to their low emissions still emit too much carbon dioxide to make such discounts worthwhile from an environmental perspective.
On January 1st, 2021, the tax value of all types of company cars, regardless of fuel type, will therefore be increased, in most cases, by about 30%. Many car models will, at the same time, lose their emission-related tax discounts, which for certain high earning individuals can increase the tax costs for their company car by up to around SEK 5,000 per year. Since some employees have been forced to lower their business-related travels for reasons of the ongoing Corvid-19 pandemic, there will also be fewer who qualify for the 25% deduction in tax value mentioned above for the income year. This can, in turn, lead to an additional increase in tax costs of up to about SEK 10,000 per year for high earning employees.
The general emission-based vehicle tax on many car models, regardless of their ownership status, will also be raised on January 1st, but this change will typically be less noticeable than the increased taxation of company cars.
The total effect on affected individuals' tax situation can be significant and, since these costs relate to personal taxes, any compensation attempted by the employer would in itself be taxed as salary. Miljöpartiet (the Swedish Environmentalist Party), who has been instrumental in the making of these legislative changes, have publicly announced that they hope the changes in taxation will decrease the number of cars in general and the number of company cars in particular.
Raised Discounts on Electrical and Hydrogen Cars
As part of the car taxation reform mentioned above, the Swedish government will, on January 1st, 2021, raise the government-funded subsidy, the so-called klimatbonus (climate bonus), on the purchase of new cars wholly powered by electricity and/or hydrogen. This subsidy is raised from SEK 60,000 per car to SEK 70,000 per car.The governmental subsidies on hybrid cars and other low emission cars are, at the same time, lowered from SEK 60,000 per car to a maximum of SEK 45,000 per car. The exact size of the subsidy for such vehicles will be determined by their carbon dioxide emission.
The generous Swedish subsidies on environmentally friendly cars have resulted in large numbers of vehicles being bought in Sweden only to be immediately exported abroad. Additional legislative changes are expected in early 2021 to allow the Swedish government to reclaim tax subsidies given for a vehicle which is then exported within five years of being sold in Sweden.
Extended Expert Tax Relief
To encourage knowledge transfers from international experts, Sweden has since 2001 offered an Expert Tax Relief program benefiting certain types of foreign professionals and their Swedish employers. To qualify for Expert Tax Relief, an individual must either have a high gross salary (minimum SEK 95,200 per month during 2021) or be recognized as an established international expert, or as a key person for their employer, by Forskarskattenämnden (the Taxation of Research Workers Board). The foreign expert's employment and stay in Sweden must also, at the time of hire, be intended to last for no more than five years.Previously, the tax relief itself would only be valid for the first three years, even if the employment lasted for five years. From January 1st, 2021, the tax benefits of a granted Expert Tax Relief can be applied to the whole five-year period. For individuals with a preexisting approval for Expert Tax Relief, who began their stay in Sweden no earlier than June 1st, 2020, their three years of tax relief can be extended to five years if they or their Swedish employer file an extension application with Forskarskattenämnden no later than March 31st, 2021.
In its current form, Expert Tax Relief will, if applied for and granted, free 25% of the foreign expert's remuneration from Swedish personal income tax and employer social fees.
Lowered Employer Social Fees for Employing Young People
Young people without an established position on the labor market have for many encountered difficulties finding jobs in Sweden, especially during the ongoing corvid-19 pandemic. To encourage the employment of this group, the employer social fees will be temporarily lowered from 31.42% to 19.76% for employees who, at the start of the calendar year, has turned 18 years of age but not yet turned 23. This social fee discount will be in effect from April 1st, 2021, until March 31st, 2023.Raised Tax Reductions for Domestic Services
To create more blue-collar jobs, Sweden has since 2007 offered tax deductions for domestic services. Through this program, called RUT-reduction, the service provider receives part of their fee directly from the Swedish authorities, financed by the taxes the consumer pays during the year in which the service was provided. The RUT deduction covers 50% of the work (labor) cost up to a set limit, but it does not cover the cost of materials (if any). On January 1st, 2021, the maximum tax reduction that each individual can benefit from in a given year is increased, from SEK 50,000 to SEK 75,000.Green Tax Reductions
To help full-fill its environmental goals, the Swedish government has introduced a new category of tax reductions for private individuals who on their own personal property from January 1st, 2021 and onwards install solar panels, charging station(s) for electric cars, or technology for storing energy produced by the individuals own equipment.The tax reductions will, in most cases, be administrated and received directly by the service provider hired by the consumer to deliver and/or install the equipment, and will, therefore, from the consumer's point of view take the form of a price discount. The green tax reduction will cover 15% of the work and equipment cost for installing solar panels and 50% of the work and equipment cost for installing charging station(s) for electric cars or technology for storing produced energy, up to a maximum amount of SEK 50,000 per person and year. As with similar programs, no individual can benefit from a larger tax reduction than the sum they pay in Swedish income taxes during the same taxation year, and if a consumer misrepresents their eligibility for the tax reduction to a service provider, the latter may issue a new invoice to the consumer to cover the shortfall.
Abolishment of Interest on Postponed Capital Gains Taxes
When an individual sells a private home in Sweden, any capital gains they make, compared with what they have invested in the property, are subject to a housing capital gains tax of 22%. The tax rate is the same for both houses and apartments (with any investments made in improving the home treated as a deductible).The capital gains tax on homes is lower than the 30% standard tax rate that applies to most other types of investments. It has, however, for many years been criticized for decreasing the mobility on the Swedish housing market, since it means that many older homeowners in particular cannot sell their existing home and expect to have sufficient funds left after taxes to buy a new home in the same price range.
In an attempt to alleviate these market effects, Sweden has for years allowed capital gain tax related to the sale of a tax payer's main domicile to be postponed, as long as the individual have owned it for at least one year and purchase a new home at the same price as the old or higher within Sweden no more than one year before, or one year after, the year in which the sale takes place. Partial tax postponements are, under certain conditions, also available for individuals who purchase a new home for less than the price they received for their old one. Taxes on capital gains that were postponed due to the purchase of a new home needs to be paid if said home is sold. In case of the taxpayer's death, the postponement of their capital gains tax might, in some cases, be passed on to their heirs together with the property.
Such postponed taxes have previously been subject to an annual interest, which in recent years has been decreased to only 0.5%. On January 1st, 2021, that interest will be entirely abolished, creating an effect similar to that of an interest-free loan from the Swedish government to the individual taxpayer.
In an effort not to penalize those who in recent years have sold their home with profit without postponing the tax, Skatteverket (the Swedish Tax Authority) will accept retroactive applications for the postponement of capital gains taxes related to homes sold as early as 2014. If granted, such a retroactive postponement will result in the paid taxes being returned to the taxpayer. Applications related to homes sold during the year 2014 must be submitted to Skatteverket no later than December 31st, 2020, while applications relating to later years will be accepted from January 1st, 2021, and until further notice.