Sweden Improves Tax Regime For Expatriates (A Little)

Ulrika Lomas, Tax-News.com, Brussels

21 March 2001

Sweden has recently improved its tax regime for foreign experts and key individuals working temporarily in the country. It is well-known that Sweden has one of the most oppressive personal tax regimes in the world, with the state spending over 60% of gross national product, so Swedish companies naturally find it difficult to recruit and pay foreigners when their expertise is needed on a semi-permanent basis within the country. The result is that companies are increasingly reluctant to base R & D or other specialist corporate departments in Sweden.

The new rules allow 25% of salary paid to a qualifying person, plus some benefits, to be exempt from Swedish taxes and social charges. Capital losses are allowed against income to a certain extent for these individuals, and reimbursement of specific expenditures related to the expatriate's role are also exempt from tax. This exemption applies to travelling costs and childrens' tuition fees.

Individuals covered by the new regime include 'foreign experts, scientists and other key individuals', and they must not have been resident in Sweden during the five years preceding an application for the new status. The reliefs will apply during a 3-year period, and if it is intended that an individual will remain in Sweden for more than 5 years then no exemptions will be granted.

An application must be made within 3 months of arrival in Sweden, although there are some transitional provisions that help people who arrived in Sweden in the last months of 2000.

The existing regime, which gave lesser benefits, will continue to apply to those who qualify for it; but they can apply to switch to the new regime if they want to.

Needless to say, there are plenty of conditions attaching to the new reliefs, notably that the employer must be a tax-paying Swedish entity. Also of course, Swedish tax-resident individuals are subject to taxation of their world-wide income, and for most well-off foreign individuals this is a far more expensive problem than the rate of taxation on local income. While the OECD lives, there is presumably no chance that Sweden will follow US Congressman Dick Armey's advice and switch to a territorial basis of taxation.

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