The Swedish Budget and Taxes in 2020
On 18 September 2019 the Swedish Government, together with the Centre Party and the Liberal Party, published the Budget Bill for 2020. Since the so-called “January agreement”, the four partnering parties have continued a co-operation regarding policies of substance. The draft budget presents legislative proposals and notices on upcoming bills. In this article, we summarize and comment on some of the most important tax changes that are to be expected, as well as how they may affect you and your business.
One year has passed since the last parliamentary election. The election was followed by a relatively turbulent Government formation where the Moderate Party and the Christian Democrats budget was voted through. A few months later, the current Government (the Social Democrats and the Green Party) signed the January agreement with the Centre Party and the Liberal Party with the aim to cooperate regarding policies of substance. Now, nine months later, the January agreement is still intact and on 18 September a joint autumn Budget Bill (hereafter referred to as the Budget Bill) was published for 2020.
On 18 September 2019, the Budget Bill was presented by Finance Minister Magdalena Andersson as a comprehensive agreement between the four parties. Among other things, the Budget Bill includes proposals to abolish a Swedish additional surtax on high-income earners (Sw. värnskatt), a so called green tax exchange, introduction of a special tax for banks from 2022 and reduced tax for pensioners.
In this article, we summarize and comment on some of the most important tax amendments that are expected, as well as how these can affect you and your business.
The green tax exchange
In the January agreement, the focus was to accomplish a green tax exchange, which means raising environmental taxes in exchange for lowering taxes on income and corporations. This is reflected in the Budget Bill 2020. Among other things, a tax reduction of SEK 1,650 is proposed for individuals living in the provinces of North Sweden and in the northwest of Svealand. The purpose is to provide regional incentives to make it more attractive for people to live and work in these parts of Sweden.
Tax on waste incineration
A new excise tax on waste incineration is proposed to enter into force on 1 April 2020. The tax is designed in accordance with a net tax model, which means that tax is to be collected for waste that is brought into a taxable facility. Deductions are going to be allowed for waste, substance or objects that have ceased to be waste and that have been removed from the plant. The proposed tax rate is SEK 125 per ton of waste and the person who conducts operations at a waste incineration or co-incineration plant should be liable to pay tax and also responsible for reporting and paying the tax. The Government intends to return in 2019 with a proposal regarding this tax.
Adjusted fuel tax
The Government believes that the carbon tax and energy tax levied on gasoline and diesel fuel should be lowered and intends to return with a concrete proposal during 2019. Changes to current tax rates are intended to enter into force from 1 January 2020.
Tax on plastic bags
Based on the EU Packaging Directive, a new tax levied on plastic bags is proposed to come into effect on 1 May 2020. The professional manufacturer, importing plastic bags intended for consumers in the trade to pack or carry goods will be subject to the proposed tax. The tax will amount to SEK 3 per plastic carrier. However, some smaller and thinner bags of a type that are mainly used in the grocery trade for consumers to be able to pack food in bulk is going to be subject to a lower tax rate. As with other excise taxation, the proposal requires a system of approved warehouse keepers for deferred tax.
Review of the possibility of increased taxation for foreign sellers regarding chemical tax
As of now, if certain requirements are met, sales from foreign sellers directly to Swedish consumers are exempted from chemical tax. When the chemical tax was introduced, the exemption was mainly motivated by the practical problems of implementing the tax. In light of the fact that the exemption has been criticized by several industry organizations and companies, a memorandum with proposals will be presented during 2019 describing how a change to the exemption can be formulated. According to the criticism, the exception constitutes unauthorized state aid and in this case foreign traders are taxed differently compared to Swedish ones.
Please refer to more news in the indirect tax area below.
Economic employer concept for temporary work in Sweden
Individuals sent to work in Sweden for temporary periods are assessed for tax based on the so-called 183 day rule. The assessment is based on current rules which look at who is regarded as the formal employer of the employee. From 1 January 2021, it is proposed that the assessment should be based on the so-called economic employer of the employee rather than the formal employer. To put it simply, that is the one who benefits from the person's work. The benefit may accrue to an employer other than the one with whom the person has a formal contract of employment.
This change affects the assessment of tax liability and is in line with how many other countries work to determine the tax liability of an individual in a particular country. The Budget Bill announces the amendment and in 2020 a legislative amendment is expected which will come into effect on 1 January 2021. For more detailed information, please read our article published on 6 September 2019.
Abolishment of the additional surtax on high-income earners
The Budget Bill proposes that an additional surtax on high-income earners (Sw. värnskatt) should be abolished from 1 January 2020. The estimated 345,000 people who have a taxable income exceeding SEK 700,000 will on average receive a lowered tax cost of SEK 17,700 per year. The amendment is proposed to enter into force on 1 January 2020.
Increased employment rate by introducing labour market entry deductions
In the spring Budget Bill, the four parties focused on reducing employers' contributions for the first employee of sole proprietors and for young people between 15 and 18 years. The Budget Bill continues on the same track, but now the parties are focusing on reducing employers' fees for people who, for various reasons, are far from the labour market. The so-called entry deduction is proposed to enter into force on 1 July 2020 and includes salaries paid after 30 June 2020. The deduction will be valid for the first 24 months of employment. The deduction means that the employer's contributions and the general payroll tax are reduced so that only the old-age pension contribution needs to be paid during the first 24 months of employment (for compensation up to SEK 23,500 per employee and month). The Budget Bill contains a notification on this and the Government is expected to submit a bill with legislative amendments in the spring of 2020.
Improved basic protection for pensioners
The parties of the January agreement have jointly put forward various proposals pertaining to people over 65 years. This includes, among other things, an increased amount of care for the elderly, reduced taxation and strengthened basic social security for people over 65 with so called guaranteed pension.
There have previously been increases in the basic tax deduction for those over 65 with low income. The Budget Bill now proposes that the basic deduction for people over 65 with a higher pension should also be increased in order to reduce the differences between salary and pension income. Furthermore, it is also proposed that the basic protection for pensioners should be increased. This would increase the level of guarantee pension as well as housing supplement. The amendments are proposed to apply from 1 January 2020.
Tax deferral in connection with sale of private property
Before the rules regarding a tax deferral of capital gains were temporarily abolished in 2016, an individual who made a profit from the sale of a home could apply for a deferral of taxation with a maximum of SEK 1,450,000 upon acquiring a new home. In order to increase mobility in the housing market a raise of the maximum deferral to SEK 3,000,000 is proposed from 1 July 2020 when the cap is due to be reintroduced. Furthermore, a standard interest amount will be levied on the deferred tax.
Bank tax from 2020 to finance the military
A bank tax is proposed to be introduced from 1 January 2022. The bank tax is intended to finance the Swedish military defense by SEK 5 billion annually from 2022. The Government will return with further information on the wording of the bank tax, and states that it will be compatible with the EU regulations on state aid.
Increased deductions for Research and Development
Under current legislation, a 10 percent-deduction of the employer’s contribution basis is allowed for employees working with systematic and qualified research and development. In order to further increase the possibilities and incentives of employing people working with research and development, the Budget Bill proposes to introduce further reductions of the basis for employer’s contributions from 1 April 2020. More details will be published in the memorandum to be presented during autumn 2019.
Competitive neutrality and actions to decrease welfare fraud
In the Budget Bill, the Government intends to decrease tax evasion and welfare fraud. Among other things, an increase to the yearly grants to the Enforcement Authority, the Swedish Economic Crime Authority, the Swedish Tax Agency and the Swedish Work Environment Authority to counter welfare frauds and rule violations in working life is proposed. It is also proposed that from 1 January 2020, electronic payment requirements for so called RUT and ROT deductions should apply, which are available when hiring someone to do repairs, conversion, cleaning and likewise, will be introduced.
Reduced tax on advertising
The Government is proposing a reduced tax rate, from 7.65 percent to 6.9 percent, on advertising. It is also proposed that the threshold for the liability to pay advertising tax is increased from SEK 60,000 to SEK 100,000 for one fiscal year. The amendments are proposed to enter into force on 1 January 2020 and the purpose of the proposal is to take another step towards abolishing the tax on advertising.
Review of Tax on Tobacco
Under the harmonized excise tax legislation in the EU, it is normally required that taxable smoking tobacco has been "cut or otherwise split, twisted or pressed into" and that it "can be smoked without further industrial processing". These criteria have been tried by the European Court of Justice but the Court's case law has been interpreted in different ways in the EU member states and the legal situation is thus considered unclear. This has, among other things, given rise to lengthy processes for deciding whether or not tobacco should be taxed and tobacco that has previously been classified as raw tobacco has now been classified as taxable smoking tobacco, which leads to a risk of double taxation. The Government has decided to review the issue and, if necessary, return with proposals for new measures.
Changes in VAT legislation regarding e-commerce
As a second step in the e-commerce package, it is proposed that the import VAT exemption on low value shipments should be abolished. The amendment is proposed to enter into force on 1 January 2021. Furthermore, businesses operating electronic interfaces such as marketplaces or platforms, will in certain situations be deemed the supplier of goods sold to customers in the EU. Consequently, they will have to collect and pay the VAT on these sales. The special arrangement for accounting and payment of VAT (Mini-One-Stop-Shop), which currently applies to electronic services is extended to apply to all services and to certain sales of goods. Finally, it is proposed that the current threshold for distance sales of goods from other EU member states is abolished. Instead, the EU common threshold for determining which member state has the right to tax electronic services should apply. The Government intends to submit a proposal for legislation in early 2020.
Staffing services in the healthcare sector
The Government announced that they intend to rapidly launch an investigation to review the possibilities of neutralizing the effects that have arisen as a result of recent legal developments where the hiring of health care personnel is subject to VAT.
Since January 2019, there has been some uncertainty regarding how and whether the January agreement between the Government, the Centre Party and the Liberal Party would last. As a result of this, there has also been uncertainty regarding upcoming tax policies and which amendments to expect. Retrospectively, during the past year, several political proposals have been published which have been permeated by the January agreement and its compromises. Hence, the Budget Bill does also contain compromises and agreements aimed at obtaining a state budget with a holistic approach. In some parts, it is clear that mutual agreements have overridden ideology. Reflecting on the proposal to introduce a bank tax from 2022, we can cautiously predict that the parties within the policy agreement intend to continue their political cooperation for some time to come.
The Budget Bill includes many changes regarding taxes to take into account for 2020 and beyond. As mentioned above, the Budget Bill is a clear continuation of the January agreement signed in January 2019. Among other things, the Budget Bill focuses on labour market policy measures and the implementation of the so-called green tax exchange where regional incentives are balanced with proposed taxes on for example waste incineration. Furthermore, the proposed bank tax was announced a few weeks prior to the Budget Bill, but is nevertheless one of the more unexpected proposals. We, as well as the financial sector, await clarification on how the bank tax will is to be designed and how it will be levied.
For questions about the Budget Bill and its impact, Deloitte is here for you and your company. Deloitte will follow the developments and will return with further articles on the subject.
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