Sweden: Several novelties in the government's budget bill for 2024 affecting international corporations with businesses

In brief

Through the bill, the Swedish government proposes several changes in taxation, such as a changed tax for redemption shares, an expanded tax relief for experts and a raised VAT turnover threshold. At the same time, the Swedish government expects to return with a bill on top up tax for large groups as a result of the implementation of Pillar Two.

In more detail

Changed taxation on share redemptions 

The tax proposals include new legislation on income and withholding tax on share redemptions. The new legislation has its origin in a proposal from the Swedish Tax Agency and was subsequently adapted by the Ministry of Finance.

The proposal entails an acceleration of taxation whereby redemption of shares will be taxed as dividend upon disposal as opposed to the current legislation where redemptions of shares are taxed as a sale of which capital gains are levied. The proposal mainly aim to apply to situations when shares are issued, for the sole purpose of being redeemed, in connection to companies reducing its share capital through redemption or repurchase of shares. 

The proposal has been widely criticized as an acceleration of the taxable event in some cases will trigger tax regardless if the shareholder chooses to redeem the shares or not. The changes will apply to both limited and unlimited taxpayers and are proposed to enter into force on 1 January 2025 and apply to redemptions allocated to shareholders after 31 December 2024. 

Top up tax before the turn of the year

The Swedish government intends to submit a bill to the Swedish Parliament before the Top Up Tax Act is intended to enter into force on 1 January 2024. According to the government's list of bills for autumn 2023, the planned date for submitting the bill to the parliament is 19 October 2023. Before the government can present its bill, the Council on Legislation has to opine on the proposal. The proposal was shared with the Council on Legislation on 31 August 2023.

According to the government's calculations, the top up tax is expected to have an impact on the state's budget as early as 2024. Tax revenues are predicted to increase by SEK 0.5 billion in the coming year as a result of the Pillar Two implementation. 

Additional tax reliefs for foreign experts and other reliefs on personnel taxes 

An extended time limit for so-called tax relief for expert's is one of the legislative proposals in the 2024 budget bill. Foreign experts, researchers and other types of key personnel who are recruited to Swedish companies may currently be granted tax relief for up to five years. The government proposes to extend the duration to seven years from the entry into Sweden. The extended duration is proposed to apply to entries into Sweden after 31 March this year.

The government also wants to see changes regarding employer contributions. The existing reductions in employer contributions for 15–18-year-olds are proposed to be removed by the turn of the year. The government justifies the change by stating that the abolished differentiation makes the tax system more general and that more urgent measures need to be prioritized.

In addition, the government announces that it intends to present a bill on an amended calculation of the so-called R&D deduction before the turn of the year. 

The R&D deduction is applicable to companies that carry out qualified research and development activities. The forthcoming proposals should enter into force on 1 January 2024 and apply for the first time to remuneration paid after December 31, 2023.

Indirect taxes

The government proposes that the threshold for VAT reporting is to be increased from SEK 80,000 to SEK 120,000 per calendar year from 1 January 2025. The aim is to ease the conditions for the smallest of companies. 

Furthermore, the government intends to expand the scope of application of the above threshold to taxable persons who are established in EU countries other than Sweden. Correspondingly, the government intends that foreign companies established in Sweden, after applying to the Swedish Tax Agency, will be allowed to apply the Swedish turnover limit.

Several changes are also proposed on excise duty. For example, it is proposed to increase the tax on natural gravel, waste and games, while at the same time reducing the tax on petrol and diesel and on diesel in agriculture, forestry and aquaculture as of 1 January 2024. Moreover, a reduced energy tax on electricity for capturing carbon dioxide is proposed to be presented under 2024. Lastly, the government proposes that the tax on plastic bags be abolished from 1 November 2024.

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