Tax relief for foreign key personnel
- Sweden
- 06/04/2007
The tax relief legislation, which was proposed by business and industry, had been studied by the Government and Parliament for a number of years. There is similar legislation in several other EU nations.
Tax relief features
The main feature of Sweden’s tax relief legislation will provide a 25 percent reduction of taxable income of a foreign key person. This means that a key foreign individual’s income tax will be based on only 75 percent of his or her income.
The reduced tax applies to all salaries and “perks”, such as employers’ contributions to housing and living costs. The tax reduction also applies to stock options and other special compensation, provided it is offered by the Swedish employer.
The reduction will apply to the first three years of employment in Sweden. However, foreign key personnel may reside in Sweden up to five years.
Foreign key personnel will also be able to receive tax-exempt contributions from employers for moving to and from Sweden, holiday travel to a home country, and school fees for children.
All other taxation is the same as that of any other Swedish resident. This means, for example, that a foreign key person can apply for tax deductions for extra costs of living or for maintaining double residences, just as any Swedish taxpayer may.
Employers will receive a 25 percent reduction on the basis on which their social security contributions are calculated. Social security payments or any type to the foreign key persons will be based on the taxable income amount, that is, 75 percent of the total income.
Personnel covered
Foreign key personnel include executives, scientists, researchers, technicians, specialists and others. One main criteria for qualifying for the tax relief is that Swedes with the foreigner’s skills or talents are impossible or extremely difficult to recruit in Sweden.
The tax relief applies only to employees of a Swedish company or operation. The tax relief is not applicable to an employee assigned to Sweden by a foreign company that has no operations in Sweden. However, if a foreign key person is assigned to Sweden by a foreign company, and is paid by the foreign company’s Swedish subsidiary, he or she is eligible for tax relief on the amount paid by the Swedish subsidiary.
Foreign key personnel include executives and managers who hold vital positions in a company. These people would be responsible for a company’s general management and administration. Such personnel could be managers of a foreign-owned subsidiary.
Other key personnel include experts, engineers, scientists, research and development specialists, and others whose unique competence is unavailable or not readily available in Sweden. Examples of such personnel are experts working with advanced product development and applications of new technology.
Other key personnel could be specialists in rationalization, production, administration, logistics, marketing, engineering, finance and information and communication technologies.
The legislation does not limit the foreign key personnel to specific qualifications or positions, but provides some examples and guidelines. This means that tax authorities will have some leeway in deciding who may qualify.
Other prerequisites and conditions
Employers must be a Swedish company, either Swedish or foreign owned. Or the employer may be a foreign company that has a permanent establishment in Sweden.
Individuals qualifying for tax relief may not be Swedish citizens.
An individual who has been a resident in Sweden during any of the five years prior to the start of the assignment in Sweden cannot qualify for tax relief status, Individuals granted tax relief are not expected to reside in Sweden for more than five years.
Foreign key personnel may change jobs and employers during their stay in Sweden, but tax authorities will determine if the new employment qualifies for continued tax relief.
A foreign employee who is already working in Sweden for a foreign company will probably not be allowed to revise his or her contract to gain tax relief advantages. This is based on the legislation’s concept that tax relief will be granted when a job begins. However, the question has not been finalized since the legislation is so new.
Applications, reporting
Application for tax relief must be submitted by the employer or foreign person within three months of the start of employment. Applications are submitted to a special Research Tax Board (Forskarskattenämnden) within the National Tax Administration. Decisions by the Board can be appealed to county or national administrative courts.
Individuals, who believe they may qualify for tax relief status, and who have started work prior to 1 January 2001, may apply. Individuals starting work before 1 April 2001 must apply for tax relief status by 1 July 2001 at the latest.
Employers, in reporting income to tax authorities must include the key persons’ tax-free amounts. All other reporting by employers follows standard procedures.
Motivation
The Government says the tax relief legislation is similar to that already existing in several EU nations. Because of the limited time that foreign experts and others will remain in Sweden, they would not be able to receive full advantage of Sweden’s social welfare and pension schemes. This justifies a tax reduction.
The legislation creates additional incentives for companies to retain or establish top executive functions in Sweden, rather than moving abroad. Bringing foreign experts to Sweden and will also help strengthen Swedish technology, research and development. The tax relief will enable companies to offer foreign key personnel salaries and compensation competitive with European levels.
Tax relief in brief
- Applies to foreign experts, executives, scientists, researchers and others whose skills are difficult to find in Sweden.
- Income taxes are based on only 75 percent of income.
- A number of “perks (moving costs, children’s schooling, home travel, etc.) are tax exempt.
- Tax relief is granted for only three years.
- The employer must be Swedish company (Swedish or foreign owned).
- Swedish citizens cannot be granted tax relief.
- Tax relief legislation is effective as of 1 January 2001.
Source: Skatteverket
