The Swedish budget and taxes in 2022
On 20 September, the government presented the budget bill for 2022. The budget bill includes proposals for measures to mitigate climate change, get more people employed, strengthen the welfare system and increase safety.
In the tax area, the bill contains, among other things, proposals for tax reductions on income and sickness compensation. In addition, several proposals are presented regarding capital ownership, climate change, certain excise duties and VAT. We have summarized and commented below on a selection of the most important tax law proposals that were presented in the budget bill.
Reinforced tax reduction for earned income
The government proposes that a strengthened tax reduction for, among other things, wage income, pensions, sickness benefits and unemployment insurance should be introduced to support the economic recovery after the pandemic. The proposed tax reduction is designed in such a way that it generally consists of a certain amount per person and year, and that there is a phasing in of the tax reduction for people with lower incomes up to a level corresponding to the income of the lowest full-time collective agreement wage.
According to the proposal, the proposed tax reduction will generally be made with SEK 2,820 per person and year. For people who have a fixed earned income between SEK 65,000 and SEK 265,000, the tax reduction should instead amount to 1.41 percent of the difference between the determined earned income and SEK 65,000.
The tax reduction is proposed to enter into force on 1 January 2022 and is applied for the first time for tax years beginning after 31 December 2021.
Reinforced tax reduction for sickness and activity compensation
The tax reduction for sickness compensation and activity compensation was introduced in 2018 with the aim of reducing the difference in taxation between sickness and activity compensation and employment income. This is something that the government wants to achieve since sickness compensation and activity compensation do not constitute such earned income that is included in the basis for the employment tax deduction.
The government considers that the tax relief for sickness benefits and activity benefits should be strengthened to eliminate the difference in the taxation of such benefits and of earned income. A strengthening of the tax reduction is expected to entail that people with sickness compensation and activity compensation receive a tax reduction of an average of SEK 10,000 per year.
The proposal has not yet been fully approved but is proposed to enter into force on 1 January 2022 and will be applied for the first time to sickness benefits and activity benefits paid after 31 December 2021.
Tax reduction for contributions to the unemployment fund
The government proposes that a tax reduction for the contribution to the unemployment fund should be introduced to facilitate and encourage more people to join the fund. According to the government, such a tax relief would encourage people to join and thus in the long run motivate more people to insure themselves against the economic consequences of unemployment. The tax reduction is proposed to amount to 25 percent of the expense paid during the year.
The tax reduction is proposed to be introduced on 1 July 2022.
Tax relief for bicycle benefit
The government proposes that a tax relief should be introduced for bicycles that the employer provides to its employees for private use. The purpose of the proposal is that better conditions for bicycle commuting have positive effects on both the environment and urban development as well as health. According to the government, it is necessary to introduce financial incentives, for example, to encourage commuters to choose a bicycle over a car for traveling to and from work.
The proposed tax relief for bicycles that the employer provides to its employees is designed in such a way that the benefit of the bicycle is not to be taken up for taxation to the extent that the value of the benefit amounts to a maximum of SEK 3,000 per tax year. The tax relief is proposed to be applied both in situations when employers provide bicycles for private use for a longer continuous period and more sporadically, for example within a shared bicycle pool.
The proposed tax relief is proposed to enter into force on 1 January 2022 and apply to benefits provided after 31 December 2021.
Changed reduction in the benefit value for environmentally friendly cars
When the value of a car benefit is calculated, the new car prices for an environmental car are currently reduced to a level that corresponds to the new car price for the closest comparable car without environmental technology. Since this provision was introduced, the number of environmentally adapted models has increased sharply.
The government proposes that the reduction of the benefit value for environmentally friendly cars should be simplified, partly because it often involves significant administrative handling for the Swedish Tax Agency and the car retailers, partly because the wording of the regulations means that employers and employees often have difficulty calculating the benefit value for new green cars.
The government's proposal means that the new car price for environmentally adapted cars, when calculating the benefit value, is reduced by a fixed amount based on the car's environmental technology. The size of the reduction should mainly be based on the average reduction made today for each vehicle type, but it is not proposed to exceed 50 percent of the car's new car-price. Furthermore, the reduction is only proposed to include electric cars, plug-in hybrid cars, gas cars and hydrogen cars, while electric hybrid cars and ethanol-powered cars are not proposed to be covered by the forthcoming proposal.
The government proposes that the amendment should enter into force on 1 July 2022 and apply to cars that become taxable under the Road Traffic Tax Act from that date.
Simplified rules on place of employment and tax-free compensation for temporary employment and assignments
The government proposes that the rules on place of employment and tax-free remuneration for temporary employment and assignments should be simplified. The background to the proposal is that the assessment of where an employee or contractor has his place of employment is of central importance for how cost compensation is to be taxed and reported. According to the government, today there is also a discrepancy in the application of the rules, as application takes place in different ways for different forms of employment and for different lengths of employment and assignments in another location.
The government's proposal means that the provisions are simplified in two ways. On the one hand, the proposal means that temporary employment and assignments elsewhere should in certain cases be equated with business trips in terms of the possibility of deducting increased living costs. Consequently, deductions may be made in the same way as for a business trip if the employment or assignment is intended to last for a maximum of one month and the distance between the home and the workplace is longer than 50 kilometers. On the other hand, the proposal means that anyone who is temporarily employed by a state authority to participate in an operation in a specific event in the form of an accident, crisis, war, or other similar situation in Sweden keeps their place of employment in their residence. The simplifications of the provisions mean that cost compensation for increased expenses that do not exceed the standard amounts will be exempt from taxation by the employee and from tax deductions and employer contributions by the employer, so-called silent set-off.
The government's proposal is proposed to enter into force on 1 January 2022 and is applied for the first time to cost compensation for work performed after 31 December 2021.
Extension of the rules on relief in the taxation of employee stock options
As of 2018, the benefit of the employee stock option shall not be included for taxation as work income if certain conditions are met. Instead, it shall be taxed as capital income only when the taxpayer sells the share that has been acquired through the exercise of the employee stock option.
According to the government, the opportunity for companies to recruit staff with key competencies is an important part of Sweden's long-term competitiveness. A simplification and extension of the rules on relief in the taxation of employee stock options may provide an opportunity to help young companies to recruit and retain qualified staff. According to the proposal, the rules should be extended to apply to companies where the average number of employees and partners working in the company is less than 150, instead of 50 according to current rules, and with a net turnover of no more than SEK 280 million, instead of SEK 80 million according to current rules. It is also proposed that the rules should be extended in such a way that they shall also include board members and deputy board members who are not employees of the company.
Furthermore, the rules are also proposed to be simplified in such a way that a stock option can be used for the acquisition of either a share or of a warrant that gives the right to acquire a share. Finally, it is proposed that an employee stock option may be issued by a company and give the right to a future acquisition of a share or a warrant in another company within the same group.
The proposal is not fully drafted, but the government considers that the new rules should enter into force on 1 January 2022 and be applied for the first time to an employee stock option acquired after 31 December 2021.
Reinforced reduction of employer contributions for 19–23-year olds during June-August 2022
The covid-19 pandemic has affected many of the industries in which young people work, both through the introduction of restrictions and behavioral changes, which has led to increased youth unemployment. To counteract these negative consequences while also improving opportunities for companies to retain and hire new staff, a temporary reduction in employer contributions for young people was introduced earlier this year during the period 1 January 2021–31 March 2023. The reduction meant that for people between 19–23 years only the retirement pension contribution and nine twentieths of the other employer contributions and the general salary contribution are paid for benefits up to SEK 25,000 per month.
Furthermore, the government proposes a strengthened reduction in employer contributions for persons between 19 and 23 years of age during the period June-August 2022. The reduction is proposed to be designed in the same way as the reduction that applied during June-August 2021 and means that only the retirement pension contribution of 10.21 percent must be paid on benefits paid to young people during these months. By already announcing the investment for the summer of 2022, employers can plan their activities accordingly in good time.
The government intends to present a proposal during 2022 which is proposed to enter into force on 1 June 2022 and be applied to compensation paid after 31 May 2022.
Tax on capital gains
Tax exemption on letting of personal assets
For the purpose of making it more advantageous to repair, rent or reuse existing products, a tax exemption is proposed for the letting of personal assets. The reform aims to promote a circular economy that is resource efficient, requires less energy and produces less emissions than producing new goods. The tax exemption shall be designed so that natural persons who rent out personal assets may make a deduction of SEK 20,000 from the net income.
The government intends to submit a proposal for tax-free letting of personal assets in 2021. The proposal is suggested to enter into force on 1 January 2022 and will be applied for the first time in tax years beginning after 31 December 2021.
A modernized withholding tax on dividends to foreigners
The government wants to replace the current dividend withholding tax act (Kupongskattelagen) with a new law on withholding tax on dividends. The current regulations will be adapted to EU law through the new law. The tax rate should as a starting point be the same as today, 30 percent. The new law proposes, among other things, to insert the procedural rules in the Tax Procedure Act (2011: 1244) and to extend the Tax Evasion Act (1995: 575) to also include withholding tax on dividends.
The government intends to present the proposal to the parliament during the year 2022 and it is proposed to be introduced in July 2023 and January 2024, respectively.
Limitation of the right to deduct deficits from previous years
The possibilities of utilizing previous years' deficits after a change of ownership are proposed to be limited if the deficits can be assumed to have constituted the predominant reason why the change of ownership has taken place. In a judgment from the Supreme Administrative Court (HFD 2021 ref. 33) concerning the application of the amount restriction (Sw. beloppsspärren) intended to prevent trading in loss-making companies, the Tax Evasion Act (1995: 575) was not considered applicable. The government believes that this shows a shortcoming in the legislation and that an expanded regulatory framework is required to prevent trading in deficit companies and to prevent the amount restriction from being circumvented.
The government intends to submit a proposal to the parliament during the year 2022 which is suggested to enter into force on 1 May 2022. However, according to the government, there are reasons to, based on the Instrument of Government (Sw. regeringsformen), apply the proposed rule from 11 June 2021 with respect to changes in ownership that take place after 10 June 2021.
Tax on consumption etc. – other excise duties
Tighter environmental control in the tax system for vehicles
In short, the tax system for vehicles means that vehicles with relatively low emissions are rewarded with a bonus, while vehicles with relatively high emissions pay a higher tax. The government proposes that the lower limit for when the increased amount of carbon dioxide is levied is reduced from 90 to 75 grams of carbon dioxide per kilometer. The higher limit should be lowered from 130 to 125 grams per kilometer. The proposal is part of the process of achieving the goal of zero net greenhouse gas emissions by the year 2045.
The government intends to submit a proposal in 2022 and that the proposal will enter into force on 1 June 2022.
GDP indexation of the waste incineration tax and tax on chemicals in certain electronics
The tax on waste incineration and the tax on chemicals in certain electronics should, in addition to the annual recalculation regarding the consumer price index, considering the gross domestic product, be calculated at two percentage points each.
The changes are proposed to enter into force no later than 1 November 2022 in order to be applicable on 1 January 2023.
Abolished advertising tax
The government proposes that the advertising tax should be abolished as of 1 January 2022. Discussions have been going on for several years about the abolition of the Tax on Advertisements Act (1972: 266). However, it has been established that there have been no financial preconditions for implementing this. The spread of covid-19 has not had any major financial consequences, not least for sports associations that have lost ticket revenues due to canceled events. For this reason, the government considers that it is justified to improve the associations' financial situation.
The government intends to submit a proposal in the autumn of 2021 and that the law is to be abolished as of 1 January 2022.
Increased tax on alcohol
The government proposes that the tax on alcohol is increased further. The reasons for this proposal include reducing the medical and social damage of alcohol, thereby contributing to the promotion of public health in society. According to the government, the tax on alcohol is an important policy tool since the demand for alcohol products tends to decease as the alcohol price increases. The most recent increase in the alcohol tax was implemented on 1 January 2017. However, this increase was relatively low, which was justified by the fact that an excessive tax increase could lead to an increase in unregistered alcohol consumption. Against this background, the government makes the assessment that there is a need for a further increase in the tax on alcohol.
The government intends to return to the parliament with a proposal for an increased alcohol tax, which should apply from 1 January 2024.
Increased tax on tobacco
The government is of the opinion that the tax on tobacco should be raised further. Similar to the proposal to increase the alcohol tax, an increase in the tobacco tax is justified by the societal goal of promoting public health. The relationship between tobacco prices and tobacco consumption implies that the total tobacco consumption tends to decrease when the price increases. In the WHO Framework Convention on Tobacco control it is also emphasized that price and taxation measures are important means for achieving a reduced tobacco consumption, particularly for young people. Moreover, from an international perspective, it is evident that Sweden has among the lowest cigarette prices in the EU relative to the purchasing power of its residents. Although potential effects on unregistered tobacco consumption must be taken into account, the government believes overall that there is a certain need and a certain scope for raising the tobacco tax further.
For this purpose, the government believes that there should be a limited increase in the tobacco tax from 1 January 2024.
A tax on chemicals in clothing and shoes will not be introduced
In the budget bill for 2021, the government assessed that a tax on chemicals in clothing and footwear should be introduced from 1 January 2022. The purpose of the tax was stated to be to reduce the presence or the risk of exposure and spread of environmentally and health hazardous substances from clothing and shoes. Nevertheless, the government considers that there are a number of practical problems with this proposal. Among other things, it is stated that the proposal entails difficulties with respect to private imports and that in the current economic situation it is not appropriate to introduce a tax on chemicals in clothing and footwear at the same time as a structural transformation is in progress in the clothing industry. The need for such a tax has also decreased as a result of new or planned rules that target the harmful substances covered by the proposal.
Considering the above, the government withdraws the previous announcement that a tax on chemicals in clothing and footwear should be introduced.
VAT exemption for certain purchases made by EU bodies due to covid-19.
Due to the covid-19 pandemic, the Council of the European Union has, by amending the VAT Directive, decided that purchases made by EU bodies for the purpose of dealing with the pandemic shall be exempt from VAT or entail the right to a refund of VAT. According to the directive, imports made by EU bodies for such purposes must also be excluded. The exemption and the right to a refund shall apply to EU bodies that donate the goods and services to third parties. In light of the fact that Swedish legislation needs to be changed in order for the directive to be implemented, the government considers that exemptions or the right to a refund of VAT should be introduced on purchases of goods and services made by EU bodies for the purpose of handling covid-19.
According to the government, the proposal should enter into force on 1 January 2022 but will be applied from 1 January 2021.
Increased registration threshold for VAT
According to the government, the current registration threshold of a turnover of SEK 30,000 per tax year should be increased to SEK 80,000 per tax year. The reason for the proposal is to simplify for smaller businesses by reducing the workload that the administration of VAT entails. Should the proposal be implemented, many small businesses with limited turnover would no longer need to be registered for and report VAT. In addition, the Swedish Tax Agency would no longer need to administer VAT returns and payment for these companies.
The government proposes that the increased registration threshold should enter into force on 1 July 2022.
Further reduced VAT on certain repairs
The government proposes that the VAT on repairs of bicycles, shoes, leather goods, clothing and household linen should be further reduced, from 12 percent to 6 percent. The proposal is motivated by the fact that repair and reuse of goods generally is better from an environmental perspective compared to the purchase of new goods. Therefore, by further reducing the tax rate, the government intends to strengthen the incentives to use products and raw materials in a more efficient and sustainable manner.
According to the government, the proposal should apply from 1 July 2022.
Other business taxes
Installment plan for temporary deferral with tax payments
In order to mitigate temporary liquidity problems that arose in companies as a result of the pandemic, the possibility of granting deferred tax payments was reintroduced in some cases on 30 March 2020. Considering that a large number of temporarily deferred tax payments are expected to end in the spring of 2022, the government proposes that the possibility of an installment plan for such deferrals shall be introduced. According to the government, this is an efficient way of facilitating the current situation for businesses by giving more room to regain normal profitability before the taxes and fees covered by the deferrals are to be paid in full.
The government intends to return to the parliament with a proposal in 2021 and the proposal is expected to enter into force before April 2022.
The government presents a comprehensive budget bill that is still characterized by support measures in connection to the pandemic, together with tax reductions for lower incomes and environmental initiatives. However, there is still a great uncertainty as to whether the budget has any support in the parliament. It is probably necessary for both the Centre Party (Sw. Centerpartiet) and the Left Party (Sw. Vänsterpartiet), with different ideological directions, to give their approval. This appears to be reflected in parts of the proposals. In addition, the political uncertainty is reinforced by the fact that Stefan Löfven has announced his resignation as Prime Minister and that we expect a new Social Democratic Prime Minister shortly.
As mentioned above, the budget bill includes enhanced tax credits for earned income, pensions and social security benefits. It is also proposed to extend the reduction in employer’s contributions for young people until next year and to abolish advertising tax, especially considering those sports organizers who have had major financial difficulties due to restrictions. The proposals are motivated by, among other things, the importance of strengthening the Swedish economy after the pandemic and are in many cases focused on industries that have been particularly vulnerable, such as the hotel and restaurant industry and the entertainment industry. Environmental initiatives are also visible this year, for example in the proposal on tax-free rental of personal assets and in the proposal to introduce tax reliefs for bicycle benefits at work. Regarding other indirect taxes, we particularly note that the government does not believe that a tax on chemicals in clothing and footwear should be introduced at this time. As an additional element of the environmental efforts made, it is proposed to reduce VAT from 12% to 6% on repairs on certain products to increase the reuse of goods instead of producing new goods.
It should also be noted that a change in the methodology of reduction of preferential value for environmentally friendly cars is to be expected by introducing a flat-rate amount to facilitate administration and increased predictability.
Deloitte has previously commented on the proposed stop-legislation regarding the introduction of an additional restriction on the right to utilize previous years’ deficits after changes in ownership. The legislation shall prevent the circumvention of the so-called amount restriction and the deficits of previous years shall not be deducted if, considering the circumstances, the deficits can be assumed to have been the predominant reason for the change in ownership. The proposal is designed in the same way as the rules of the Tax Evasion Act and risks giving rise to several assessment problems. Hence, this legislation might be problematic from the point of view of legal certainty.
Furthermore, a new withholding tax law is proposed to replace the Coupon Tax Act. While the modernization of the regulatory framework is welcomed by several consultation instances, the proposal has at the same time been criticized by several heavy-handed instances, both materially and because the investigation has been considered to be inadequate. However, the proposal, which was previously intended to enter into force as early as 2022, has been postponed and will be introduced in 2023 and 2024.
Except the increase in certain excise duties and index adjustments, the budget does not contain any substantial tax increases. Considering both parliamentary crises and an upcoming election year, this should be considered natural and it can be assumed that more significant changes are proposed in subsequent years.
As mentioned above, several of the proposals are in the processing phase. Deloitte follows the developments and returns with additional articles in relevant parts. If you have any questions about the budget bill and how it affects you or your company, you are warmly welcome to contact us.
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Associate | Business Tax