As part of the process of preparing for the 2021 Swedish state budget, the Swedish Ministry of Finance (MoF) has issued several memorandums containing intended legislative amendments related to tax on employment income. The intended amendments relate to the following, which are further described below:
- Extended time of expert tax relief for certain foreign personnel
- Tax reduction on employment income
- Lower state tax
- Additional tax relief for individuals above 65 years old
Extended time of expert tax relief for certain foreign personnel
Foreign citizens carrying out particularly qualified tasks or receiving a monthly remuneration above a certain level may enjoy tax relief on their Swedish earned income. When granted the relief, only 75% of the earned employment income should be reported as taxable income. This further means that employers only pay the applicable employer contributions based on 75% of the remuneration given.
Currently, tax relief applies for up to a maximum of three years. However, the MoF has now proposed to prolong the applicable period to a maximum of five years. The purpose of the intended change is to make Sweden more competitive for skilled personnel. The proposition will bring the Swedish expert tax regime more in line with similar regimes in other European countries that have a longer periods of applicability, making Sweden more competitive.
The amendment is proposed to enter into force on 1 January 2021, and the amendment will then apply for stays in Sweden as from 1 June 2020. Applications that have already been filed and approved will need to be re-filed once the new legislation has been approved, in order for the longer tax relief period to apply.
Tax reduction on employment income
The MoF has proposed a general tax reduction for employment income; for which two alternatives have been suggested. The first alternative is a tax reduction of SEK 1,700 per year for individuals with a taxable employment income between SEK 40,000 and the cut-off point for state income tax (SEK 509,300 for income year 2020). The second alternative is a general tax reduction of SEK 1,300 without the limitation to the mentioned cut-off point.
The amendment is proposed to enter into force 1 January 2021 and would be applied as from income year 2021.
Changes to state income tax
The MoF has also proposed amendments concerning Swedish state tax. Employment income in Sweden is taxed according to a progressive tax rate. Income of up to SEK 509,300 (for income year 2020) is only subject to municipal taxes at a varying rate of 29-35% depending on where in Sweden you live. State tax of 20% is thereafter also paid on taxable employment income above the mentioned limit.
The MoF now presents two different alternatives in order to give tax relief. The first alternative is to increase the cut-off point for state income tax by SEK 6 000 (notwithstanding the annual increase based on the Consumer Price Index). The second alternative is to lower the state income tax rate from 20% to 19,5%.
The amendment is proposed to enter into force 1 January 2021 and would be applied as from income year 2021.
Changes to taxation of individuals over the age of 65
In addition to the abovementioned amendments, the MoF has proposed a change that would lead to further tax relief for individuals over the age of 65. Currently, employment income (including pension) is subject to a higher taxation for individuals over the age of 65; compared to younger individuals. In order to change this, they now propose a higher basic tax deduction for individuals who have turned 65 at the start of the income year, and who has employment income amounting to between approximately SEK 213,000 to SEK 1,418,000 per year.
What’s next?
The proposals are now open for consultation and comments amongst stake holders and government agencies. The deadline for comments and input from the respective recipient is 18 August 2020. Since the proposals are still in the very early stages of the legislative process, it remains to be seen what changes may be made before the government’s final legislative proposal is presented.
Please contact us if you require more information, advice or assistance.
Links to the propositions:
Authors:
- Sevim Güven – Partner – People Advisory Services – +46 72 230 95 20
- Marie Liebich – Director – People Advisory Services – +46 72 573 12 40
