A review of the Swedish expert tax legislation is in motion, which, if the legislative proposal is implemented, could lead to changes that reinforce the original intent of the legislation – to make Sweden more attractive to international expertise and, in the long run, strengthen the country’s competitiveness. KPMG Sweden is looking forward to the day the review is published.
Summary of the proposed changes to Sweden’s expert tax
The Swedish government has recently proposed lowering the compensation threshold for expert tax from twice the price base amount to one and a half times the price base amount. The new threshold is expected to correspond to a monthly salary of approximately SEK88,200 in 2025.
This change would allow a larger group of highly skilled individuals to qualify for expert tax, a shift that could have significant implications for Swedish companies looking to recruit international talent that may otherwise be difficult to bring in. The tax relief enables companies to attract and retain highly qualified foreign workers by offering more competitive reimbursement while reducing their payroll costs.
In practice, expert tax allows foreign researchers or other key personnel temporarily working in Sweden to be taxed on only 75% of their income. Since January 2024, the time limit for expert tax has been extended from five to seven years.
The new legislation is proposed to be implemented on January 1 2025, and will apply to work commenced after December 31 2024. The date may be something to keep in mind when planning postings to Sweden, given, of course, the size of the compensation package of the employee.
With the reduced compensation threshold, it will become more advantageous than ever for Swedish companies to recruit international talent. By offering tax relief, companies can position themselves as attractive employers on the global stage, thereby strengthening their, and Sweden’s, competitiveness.
While we wait for a review of the lower compensation threshold to kick in, we are also waiting for clarification of how the concept of ‘employer’ should be interpreted in relation to expert tax when a foreign employer pays compensation, and the employee works in Sweden for a Swedish group company. Under current case law, the employer must be based in Sweden or be a foreign company with a permanent establishment in Sweden to benefit from the expert tax ruling.
The salary for a non-Swedish employer is considered when assessing if the remuneration meets the threshold for expert tax (provided, of course, that it is paid for work carried out in Sweden for a Swedish group entity). The Swedish Tax Agency, however, applies a strict interpretation of the employer concept, recognising only that the expert tax ruling is applied on remuneration paid by a Swedish company (or a Swedish branch of a non-Swedish entity). Claims to apply the expert tax ruling to remuneration paid by non-Swedish employers are generally declined, even though the costs ultimately fall to the Swedish company.
Administrative court ruling suggests change regarding compensation payments and expert tax
In a now-appealed court ruling from an administrative court in Sweden, the court found that the question of who paid out the compensation was irrelevant and incompatible with the purpose of the legislation, being to promote Swedish companies specifically and the Swedish economy in general by utilising foreign expertise. Therefore, the method of payment should not, on its own, be a barrier to using expert tax relief. Instead, the decisive factor should be that the compensation constituted a cost for the Swedish employer’s operations.
The administrative court’s ruling indicates that a change might finally be on the horizon, moving in the exact direction KPMG Sweden has been advocating for in the development of legislation and legal practice. The case is under appeal and cannot be relied upon yet; however, should the administrative court’s decision hold up in the higher court, it would mean that expert tax could be applied regardless of how the compensation is structured, provided that the employee works for a Swedish company and the Swedish company bears the costs.
Companies intending to recruit foreign specialists, whose compensation is paid by a foreign employer, are advised to seek professional guidance to ensure compliance with the current regulations.
