2017-11-15 13:59 Individbeskattning

News in Swedish budget bill 2018 and case law affecting individual taxation

On 20 September 2017, the Swedish government submitted its 2018 budget bill to the Swedish Parliament. The budget bill contains the government’s proposal for the 2018 national budget including proposal to certain tax legislations.

There are mainly three proposals that will have an impact on individuals; namely

  • the increased flat tax rate for Swedish non-residents, 
  • increased tax on endowment insurance and individual savings account (ISK) and 
  • limitation in threshold for state income tax will be withdrawn.

SINK-tax
In March 2017 the government proposed to raise the tax on employment income earned by Swedish non-residents (Sw: SINK-skatt) from 20% to 25%. The government refers to ‘public financial reasons’ as basis for the increase.

Individual savings account
Furthermore, the budget bill contains a proposal that the tax rate on savings on endowment insurance and individual savings account (type of tax wrapper, ISK) should be raised. As an example, savings that amount to SEK 100,000 will be taxed with SEK 75 more than prior year.

Lower threshold withdrawn
Tax on employment income is subject to municipal tax up to a certain threshold (29-31%). Income above the threshold is moreover subject to a state tax (20-31% + 20%). A proposal to lower the threshold has been presented earlier. However, this suggestion was questioned by the opposition parties and the government withdrew the limitation in present budget bill.

Another update from the bill concerns the withdrawn 3:12 rule (the rule contained raised tax for privately held companies). We continue to follow the discussions on our website where we update new information received. If the proposal is passed by the Parliament the amendments are expected to get in force 1 January 2018. The date for final decision is preliminary set to 22 November 2017.

Case law
According to a recent decision from the Supreme Administrative Court of Appeal (Sw: HFD) in Sweden directors’ fees should be taxed as employment income. As a result, directors’ fees can, unless certain requirements are met, no longer be reported as business activity (ability to invoice directors’ fees are limited). Agreements treating invoicing of directors’ fees concluded prior to 20 June 2017 are valid until the company’s next annual general meeting during 2018.

EY’s comments
Provided that the bill is passed by the opposition parties, non-resident individuals receiving salary from a Swedish entity will experience an increased tax rate of the flat tax (SINK-tax) during 2018.

The decision from HFD regarding limitation of invoicing directors’ fees will have a negative impact on board members whose work carried out for the board is currently invoiced through their business activity. In most cases, the compensation will now be taxed as employment income instead of income of business activity.

This commentary is presented by Global Mobility at the Tax Department in Stockholm at EY.

Contacts: Malin Hamnered and Sevim Güven