2021 will bring several significant changes to Swedish legislation. Some in reaction to the ongoing COVID-19 pandemic, others resulting from the long-term agreements between the political parties in the Swedish parliament.
The following is a list of the legislation we will examine closely:
- The Swedish Migration Rules for United Kingdom(UK) Citizens After Brexit
- The introduction of an Economic Employer Concept
- Raised Taxes on Company Cars
- Lowered Corporate Income Tax
- Lowered Income Tax
- Extended Expert Tax Relief
Swedish Migration Rules for UK Citizens After Brexit
On December 31st, 2020, the Brexit transition period officially ends. UK citizens will no longer possess the same rights to live and work in Sweden as held by the remaining EU states’ citizens.
After the transition period, UK citizens will, according to the latest official statements, not require a visa for stays in Sweden of up to 90 days, but they will no longer be exempt from the travel ban which the Swedish government has introduced for reasons of the ongoing covid-19 pandemic.
After January 1st, 2021, it will, therefore, as a rule, not be possible for UK citizens without a previously established Swedish residence to enter Sweden until the travel ban is lifted.
What is required if a UK citizen wants to stay/work in Sweden for longer than 90 days?
To be exempted from the travel ban after the end of the transition period or to stay in Sweden for longer than 90 days, UK citizens need to obtain a Swedish residency permit from Migrationsverket, the Swedish Migration Agency.
To work in Sweden, they would need to obtain a Swedish work permit. The Swedish travel ban’s current end date has been set to March 31st, 2021, but may be extended.
What is required of UK citizens who currently live and work in Sweden?
To limit the impact of Brexit for UK citizens who took up residence in Sweden before the transition period ended, the Swedish government has introduced a separate type of residence permit for this group.
Applications for this new permit type, Residence Status for British Citizens, can be filed with Migrationsverket from December 1st, 2020, until September 30th, 2021.
Individuals who qualify for the Residence Status for British Citizens can continue to live and work in Sweden on the same terms as before.
If granted, the residency status provides a continued Swedish right-of-residence. It may be retained indefinitely as long as the individual continues to fulfill the requirements and applies to have the permit renewed every five years.
To qualify for the Swedish Residence Status for British Citizens, an individual must fulfill all the following requirements:
- Be a UK citizen or a family member (or former family member) of a UK citizen.
- Have resided legally in Sweden before the end of the transition period per the requirements of the European freedom of movement. A UK citizen had possessed a legal right of residence in Sweden if they, before the end of the transition period, had settled in Sweden to work as an employee or self-employed, to study at a school or university in Sweden, or if they have settled in Sweden with sufficient funds to support themselves.
- A UK citizen can also have taken up legal residence in Sweden as a family member of an individual who, in turn, had a legal right of residence.
- Will continue to live in Sweden after the end of the transition period while fulfilling one or more of the grounds for an EU right-of-residence listed above.
- Will apply for the Residence Status no later than September 30th, 2021.
Introduction of an Economic Employer Concept
To a large degree, the Swedish economy is dependent on guest workers for filling temporary or lasting labor shortages within various professions. Some of these workers are legally employed by companies outside of Sweden.
How was a guest worker treated before the introduction of this new concept?
Historically, if a guest worker without previous ties to Sweden worked in the country for 183 days or less, within 12 months and their employer lacked a permanent establishment in Sweden, and depending on the applicable tax treaties, there were times where both the employee and the employer fell outside Swedish tax jurisdiction. Since Sweden has higher income taxes and employer social fees than many other countries, such situations gave an unfair advantage to foreign companies deploying workers in Sweden and 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, from January 1st, 2021, introduce the concept of an “economic employer” to establish in what jurisdiction an employment is taxed.
How will a guest worker be treated from January 1st, 2021?
From now on, 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 where a guest employee works in Sweden for no more than 15 workdays in a row are exempt from the new rules, as long as the same individual’s total workdays in Sweden do not exceed 45 during the same calendar year. Remuneration paid for these short assignments might, 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 honored.
- The Swedish government does 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 per 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.
- Any Swedish end clients who have hired a foreign service provider to perform work in Sweden will be obligated to pay 30% of each amount invoiced by the 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 the 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, is an indication of a permanent establishment, non-permanently established companies are often better served by applying to Skatteverket to have their foreign tax status recognized, which they could do by issuing a written decision to that effect.
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.
Despite the taxation of car benefits, the current Swedish government believes that the current tax system makes company cars too beneficial for employees, compared with purchasing a private car. The government also feels that some gasoline and diesel cars that 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.
From 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%. At the same time, many car models will 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.
Lowered Corporate Income Tax
From January 1st, 2021, the Swedish income tax will drop to 20.6%.
Lowered Income Tax
From January 1st, 2021, taxes will be reduced 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.
Further tax cuts are scheduled for the years 2022 and 2023.
Extended Expert Tax Relief
To encourage knowledge transfers from international experts, Sweden has 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), be recognized as an established international expert, or as a key person for their employer, per Forskarskattenämnden, the Taxation of Research Workers Board.
The foreign expert’s employment and stay in Sweden must also, be intended to last for less than 5 years at the time of hire.
Previously, the tax relief itself would only be valid for the first 3 years, even if the employment lasted for 5 years.
From January 1st, 2021, the tax benefits of a granted Expert Tax Relief can be applied to the whole 5 years.
For individuals with a pre-existing approval for Expert Tax Relief, who began their stay in Sweden no earlier than June 1st, 2020, their 3 years of tax relief can be extended to 5 years if they or their Swedish employer file an extension application with the Forskarskattenämnde before 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 without an established position on the labor market has resulted in many finding it hard to get a job in Sweden, especially during the COVID-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, have turned 18 but are under 23. This social fee discount will be in effect from April 1st, 2021, until March 31st, 2023.