The Swedish Budget and Taxes in 2021
On 21 September 2020 the government presented the Budget Bill for 2021. The bill is based on an agreement between the government parties, the Centre Party and the Liberal party. The bill aims to create a “green restart package” for the Swedish economy and to carry out reforms in order to solve societal issues in the long term.
The Swedish economy, as well as the world economy in general, has been very negatively affected in 2020 and the government believes it will take many years before the economy recovers. In view of this, it is stated that an expansive finance policy is necessary in the coming years, leading to proposed reforms of around SEK 105 billion for 2021 and approximately SEK 85 billion for 2022.
In the tax area, the bill contains proposals which are focused mainly on tax reductions of earned income and reduction of costs for employers. In addition to these proposals, some measures concerning individual taxation, green actions, taxes on motor vehicles as well as some selective other taxes are being presented. Below we summarize and comment on a selection of the most important fiscal changes, and how they will affect you and your business.
FISCAL MEASURES DUE TO COVID-19
Temporary tax reduction on earned income
The government has proposed that a temporary tax reduction on earned income should be implemented to manage increased labour costs due to the pandemic. The tax reduction is intended to function as compensation for increased labour costs and to work as an economic stimulus.
The proposed tax reduction is firstly directed at low-income earners and should be completely phased out for income that amounts to a maximum of SEK 50,000 a month.
The tax reduction has been proposed to apply during 2021 and 2022. The form of the tax reduction is yet to be determined. The upcoming proposition has been proposed to enter into force during 2021.
Temporary expansion regarding reduction of the employer contributions for first employee
On 1 January 2017, a temporary reduction of employer social security contributions was introduced, also known as the growth subsidy (“växa-stödet”) for sole traders who hire their first employee. The government is now proposing that the growth subsidy is temporarily extended to cover businesses with no employees that employ one or two additional people as well as businesses with one employee that employ one additional person.
The proposed reduction will apply to all employments from 1 July 2021 to 31 December 2022 and is proposed to enter into force on 2 July 2021.
Temporary tax reduction in order to stimulate new investment
In order to stimulate new investment, a proposal has been made by the government to implement a temporary tax reduction related to business activity. The tax reduction is calculated on the value of equipment acquired between 1 January and 31 December 2021, equivalent to 3,9 percent of the cost of acquisition. The proposal covers all natural persons and legal entities who report business activity and partnership income. The equipment covered by the proposal includes machinery and other tangible equipment, designated for permanent use, which is acquired during the year of 2021 as well as possessed for a certain amount of time. There will also be an additional opportunity to benefit from available tax reductions the following year if not fully utilised during 2022. Tax reductions will not apply on transactions within a community of interests.
The proposal has been suggested to enter into force on 1 January 2022.
Temporary reduction of employer contributions for persons between 19 and 23 years of age
The government proposes measures in the form of a temporary reduction of employer social security contributions for people between 19 and 23 years of age. The proposition is aimed at supporting some of the groups of people that have lost their jobs following the pandemic, and at the same time improve the possibility for businesses to retain and hire new employees. The proposition means a lowering of the fee from 31,42 percent to 19,73 percent, applied to that part of the renumeration that amounts to a total of SEK 25,000 per calendar month.
The proposal has been suggested to enter into force on 1 April 2021 and the proposal is expected to apply until 31 March 2023.
Tax reduction on earned income for natural persons
The January agreement focused strongly on so called green tax reform, meaning an increase of environmental taxes and a lowering of taxes on employment and entrepreneurship. The government has in the Budget Bill, proposed an implementation of a tax reduction for natural persons with earned income. As a general rule, the tax reduction should amount to SEK 1,500 per person per year and should include all income from employment, that is, both earned income and income derived from social insurance benefits where the emphasis is on low and medium income. Examples that have been mentioned are pensions and parental allowance, as well as income from business activity for sole proprietorship and partnership. The tax reduction will however, not be applied to capital income. The government hope that the tax reduction will serve as an incentive for people to enter full-time jobs.
The government intends to come back with a proposal during 2020 that will enter into force on 1 January 2021.
Reduced tax for people over age 65
Pension income does not entail the right to an employment tax deduction since pension income is not included in the concept of earned income which forms the basis of the employment tax deduction. As a consequence, pension income within certain income ranges has been more heavily taxed than salary. The government proposes an increase of the basic tax deduction in certain cases for individuals that have turned 65 years old by the beginning of the fiscal year. This will help eliminate the difference in taxation created by the employment tax deduction.
The amendments are proposed to apply as of 1 January 2021.
The RUT deduction is expanded and the maximum amount for RUT and ROT deductions increases (Adjustments to RUT and ROT)
An expansion of the RUT-deduction as well as an increase of the maximum amount for RUT and ROT deductions has been proposed.
The proposal is for RUT deductions to be extended to include: clothing- and textile care performed at a laundry facility as well as transportation in connection to this, relocation of furniture and movable property and installation and dismantling of such items, removal of movable property aimed at promoting recycling, transportation of household goods to and from storage and such.
The maximum amount for total RUT and ROT deductions is suggested to increase from SEK 50,000 to SEK 75,000 per person per year. The ROT deduction alone may constitute a maximum of SEK 50,000 per person per year.
Extension of the time limit for expert taxation
Expert taxation was previously introduced in order to strengthen Sweden’s competitiveness in the international job market. This currently provides tax relief for experts, scientists and other key management personnel for the first three years of their time-limited stay in Sweden. The Budget Bill contains a proposal for this tax relief to be extended to at most five years, from the first day of the individual’s stay in Sweden.
The extended time limit has been proposed to apply from 1 January 2021 and will apply on all stays initiated after 31 May 2020.
The proposal will most likely mean that submitted applications for expert taxation concerning stays that started after 31 May 2020 will have to be re-submitted in order to ensure that they are covered by the new five-year extension.
The deduction of employer contributions for people working in research or development strengthens further
In 2014 a tax incentive was implemented for people working in research or development. This allowed a deduction of 10 percent of the contribution basis when calculating employer social security contributions. A new proposal has been presented, strengthening this possibility further.
The proposal means a cut in the former working time conditions required to qualify for the incentive, which would entail that the employee would have to devote their time to research or development for at least half of the working hours instead of at least three quarters of their time.
The highest combined deduction of employer contributions for all people working in research or development on behalf of the employer that will pay the contribution will be raised from SEK 450,000 to SEK 600,000 per month.
The amendments are proposed to apply as of 1 July 2021.
Removal of standard income charge on deferred capital gains from sale of residence
Postponement of capital gains tax when selling a residence is today subject to an interest charge based on a yearly standard income that is subject to tax. The proposal suggests that people who sell a private residential property or a condominium and have a deferral amount do not have to be taxed on such a standard income.
Removal of this standard income is motivated by an expected increase in housing for sale as well as creating more turnover in the housing market from people who currently have large capital gains postponed and subject to interest.
This change is proposed to enter into force on 1 January 2021 and be applied for the first time for the fiscal year starting after 31 December 2020. .
The calculation of the benefit value of free food is adjusted
A change in the calculation of the benefit value of free food is expected to enter into force on 1 January 2021 and means that the benefit value of free food for one whole day should be calculated to an amount equivalent to 0,52 percent of the price base amount.
ADDITIONAL “GREEN” ACTIONS
Tax deduction for installation of green energy sources
Private persons can today receive government support for a one-time contribution to installation of all types of network-connected solar cell systems. Following the increase in applications for government support the applications have, in monetary terms, exceeded the allocated funds. This has meant that the applications have taken longer to process. For that reason, it is suggested that the government support should be replaced by a tax deduction applicable to state tax, municipal tax, state property tax and the municipal property fee.
The tax deduction will be given in accordance with the invoice model (equivalent to ROT/RUT), meaning that a private person buying installation of green energy sources only pays part of the cost to the installation company. The outstanding amount consists of a tax relief for the buyer and will be credited to the buyer as a preliminary tax reduction when the corresponding amount is paid to the installation company.
The government hopes for this change to encourage installation of green energy sources.
Increase of the exemption from energy taxes on self-produced electricity
As a step in the objectives set out by parliament to accomplish 100 percent renewable electricity production by the year of 2040 there has been a proposal to increase tax exemptions for the self-production of electricity in smaller factories. Further, the tax reduction, comprised of deductions on renewable electricity, should be extended into a complete tax exemption with a corresponding increase of the effect-limits. The effect-limit that applies on electricity manufactured by wind and waves should for example be raised from 125 kilowatt to 250 kilowatt.
The coming proposal has been suggested to enter into force by 1 July 2021.
Proposal regarding tax on chemicals in clothes and shoes
An introduction of taxes on chemicals in clothing and shoes has been suggested following the investigation “Tax on fashion” (“Skatt på modet”) (SOU 2020:20). A base rate will apply to all clothes and shoes with a higher tax rate applicable to certain types of goods. A potential deduction for goods containing no substances harmful to the environment or people’s health will also be introduced. Anyone who professionally manufactures taxable goods in Sweden or professionally introduce or receives goods from another EU-country will be liable to pay tax for the goods. The party liable to pay taxes on imported goods will be the party that would have been liable to pay customs duties. Also, distance sales to Sweden from other EU-countries will be covered by this tax.
The government has proposed that this tax on harmful chemicals enter into force on 1 January 2022.
TAXES ON MOTOR VEHICLES
A proposed adjustment in the standardized method of calculating the value of car benefits
The standardized method of calculating the value of car benefits aims to reflect the costs of possessing a private car. The government deems that the tax system favours company cars compared to various goods and services because the value of the benefit clearly falls below the corresponding private costs. This results in car benefits being more beneficial from a tax point of view than cash salary. A proposal has for that reason been made by the government to adjust the standardized method of calculating the value of car benefits for the purpose of better reflecting the market value. The adjustment has been proposed to be executed through an adjustment of the interest-related amount and the price-related amount in the calculation.
The proposed date this proposition will enter into force has been set to 1 July 2021 and will apply on all cars that are taxable from that date according to the Road Traffic Tax Act (Vägtrafikskattelagen). The government intends to come back with a more specific proposal during spring 2021.
Strengthened and simplified environmental management in the bonus-malus-system
Some measures were presented in the January agreement to reward light vehicles as part of cutting down greenhouse gas emissions. The bonus-malus-system is an action to achieve the goal to have reduced greenhouse gas emissions on domestic transportations by 70 % in 2030 compared to the year 2010 and to achieve zero net greenhouse gas emissions by no later than 2045.
To strengthen the environmental management and the funding of the system, the government thinks the malus should be enhanced. That should be accomplished by, among other things, an increase of the amounts that are included in the calculation of the elevated amount of carbon dioxide and a lowering of the limits for when the amounts are being withdrawn. Other than that, there has been a proposal that the bonus amount given to vehicles releasing zero grams of carbon dioxide should be increased from SEK 60,000 to SEK 70,000 as an incentive to buy zero-emission vehicles.
This is proposed to enter into force on 1 April 2021
OTHER SELECTED TAXES
Acutely toxic e-liquids, alcohol and tobacco
The exemption from taxation of acutely toxic products changes in that it no longer covers some types of e-liquids used in e-cigarettes. The reason these toxic products were previously exempt was that the products could not legally be sold to consumers. The government can however not ignore the fact that consumers today, based on the harmonized rules within the EU, can legally obtain these types of products and for that reason there is no basis for exempting the products from taxation.
These changes have been proposed to enter into force on 1 January 2021.
Further, an increase in the selective tax on alcohol and tobacco (in relation to the budget for 2023) has been announced, as well as an implementation of a tax on such tobacco products which currently are not covered by the selective tax on tobacco (1 July 2021).
Proposal of a reverse charge mechanism for sale of certain goods
It has been proposed that a reverse charge mechanism for VAT will be implemented on sales between taxable persons of mobile phones, integrated circuit devices, game consoles, tablets and laptops. The reason for the proposal is to prevent substantial VAT fraud which would result in large tax losses. Reverse charge will only be applicable to invoices where the taxable amount exceeds SEK 100,000.
The proposal has been suggested to enter into force on 1 April 2021.
OTHER BUSINESS TAXES
Regulations concerning the adjustment of restricted tax losses carried forward (koncernbidragsspärrade underskott) and deductions for negative net interest income
The new tax rules regarding the business sector and the limitations in deductions of interest expenses that were implemented on 1 January 2019 as well as the follow up changes on the regulation combined with the restricted tax losses carried forward rule enabled a tax situation where acquired losses were not deductible within the group in relation to the business’ self-made profits. Since this approach undermines the purpose of the restricted tax losses carried forward rule, an adjustment of the new rules has been proposed.
The adjustment will mean that businesses which are not able to completely or partially deduct the current year’s interest expenses because of the interest deduction limitation rule, in some cases will be able to adjust their deductions for prior years based on the denied interest deductions. The deductions for restricted tax losses carried forward and the interest deductions will also, under certain conditions, be adjusted at the same time.
These changes have been proposed to enter into force on 1 January 2021.
Increased bank tax
In last year’s Budget Bill, the government announced that taxes from the finance sector should increase with SEK 5 billion from 2022. An increase of an additional SEK 1 billion from 2023 has now been proposed. The increase is based on the costs to the community that could arise in case of a financial crisis.
The government will come back to the parliament with a proposal.
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Deloitte has previously commented on the political agreement between the government, the Centre Party and the Liberal Party. The compromises and agreements which have been seen in the policies during the year continue to be present in this fall’s Budget Bill. The bill is also influenced by the effects of Covid-19, where focus is placed on measures aiming to strengthen the recovery of the Swedish economy.
As has been described above, the bill contains several proposed tax cuts. Concerns have been raised regarding the effectiveness of some of the proposals, for example where lowered income tax is meant to increase incentives to work, while enhanced basic deductions for people aged above 65 years as well as lower taxes on income based renumeration from social security, may have the opposite effect. The alleged positive effect on a community basis attributable to the reduced employer contributions for young people has been frequently debated since the proposal was presented, and as of today, the support in parliament is likely not strong enough for the proposal to be accepted.
From a business tax perspective, the proposed tax reduction for investments is especially interesting. Businesses planning on investing in tangible equipment could possibly benefit from looking at the option of carrying out these plans during 2021. Businesses with employees working in R&D should also consider the possible reduction of employer contributions, both according to previous legislation as well as the new increase of the rules that is proposed to enter into force during 2021.
With regards to indirect taxes, we are expecting further debate regarding some of the proposals, for example the chemical taxation on clothing and shoes as well as the reverse charge mechanism for mobile phones, etc.
Several of the proposals are, as described above, still in the consultation phase. Deloitte is following the development and will provide additional articles on the subject. For questions about the Budget Bill and its impact, Deloitte is here for you and your company.