Several proposals to change tax rules affecting employers and employees

During the summer of 2023, the Swedish Government initiated a number of investigations regarding tax rules affecting employers and employees. A committee was assigned to review the reduction in employer contributions and the general payroll tax for individuals working in research or development (the R&D deduction) as well as the tax relief for foreign experts, researchers or other key personnel (the expert tax rules). Additionally, a special investigator was assigned to review how the rules for determining the location of the workplace and the rules on deductions for increased living costs can be clarified and modernised. The assignments were reported on 15 January this year. An extended assignment regarding the R&D deduction and the expert tax rules will also be reported on 19 January 2026. Setterwalls summarises the initial proposals from the reports, which are proposed to enter into force on 1 January 2026 and 1 January 2027 respectively, in the article below.

The R&D Deduction
The R&D tax deduction provides employers with the opportunity to reduce employer contributions on remuneration paid to employees engaged in research or development activities. This deduction was introduced just over 10 years ago.

• What is the purpose of the reduction? Facilitate companies with high financing costs to invest in research and development.
• When can R&D deduction be made? When calculating employer contributions and the general payroll tax, if the employer has paid taxable remuneration to an employee engaged in research and development
• What is research? Systematic and qualified work aimed at generating new knowledge for commercial purposes.
• What is development? Systematic and qualified work aimed at using research results to develop new products, services, or production processes, or significantly improve existing ones, for commercial purposes.
• What are the requirements for the deduction? The deduction can only be applied if the employee has worked on research or development for at least half and at least 15 hours of their actual working time during the calendar month.
• How large is the deduction? Employer contributions may be reduced by 20% of the contribution base, resulting in 11.42% in contributions instead of the full 31.42%.

According to the report, there are difficulties in applying the R&D tax deduction. Among other things, the definition of development in the rules is unclear. This makes it difficult to assess whether the conditions for deduction are met, and companies often need to submit extensive documentation to prove their right to deduction. The following proposals are made in the report:

• The requirement of 15 hours of R&D work per month should be removed.
• The definitions of research and development should be simplified and expanded: research should be defined as work aimed at generating new knowledge for commercial purposes, and development should be defined as work aimed at developing or improving products through new solutions to scientific or technological problems for commercial purposes.
• The Swedish Tax Agency should be able to request an opinion from another authority to assess whether certain work qualifies as research or development.

The proposals in the report will give companies increased incentives to make more types of R&D investments, and costs will be reduced, benefiting companies of various sizes and in different industries.

The changes regarding the R&D tax deduction are proposed to enter into force on 1 January 2026.

The Expert Tax Rules
The expert tax rules were introduced 25 years ago and stipulate that experts, researchers, and other key personnel, if certain conditions are met, only need to declare 75% of their remuneration for work in Sweden for taxation purposes.

• What is the purpose of the rules? Enable Swedish companies to compete for qualified employees.
• When can tax relief be applied? If the employee has a particularly qualified job (competence rule) or a particularly high salary (amount rule). The employer must be based in Sweden and the employee must not be a Swedish citizen or have been resident or permanently stayed in Sweden during the last 5 years. The stay in Sweden should be intended to last no more than 7 years.
• What are the requirements under the competence rule? An employee is entitled to tax relief if they work with specialised tasks (expert), qualified research or development tasks (researcher), or managerial tasks or other tasks that entail a key position in a company (key personnel). For experts and researchers, the work must be of such a specialised nature or at such a competence level that there are significant difficulties in recruiting within the country.
• What are the requirements under the amount rule? An employee is entitled to tax relief if the remuneration exceeds 1.5 price base amounts for the year the work commences, corresponding to a monthly salary of SEK 88,900 for 2025.
• How is the tax relief applied? The application for tax relief is made to the Taxation of Research Workers Board, which issues a decision.

According to the report, the expert tax rules are partially difficult to apply, especially with regard to the competence rule, which is vaguely formulated and unpredictable. The following comments and proposals are made in the report:

• The tax relief should be increased from 25% to 30% of the remuneration.
• The application period of 7 years from the date of commencement of residence in Sweden should be changed so that the rules may not be applied for more than a total of 7 years during the individual’s lifetime. Additionally, the requirement of intention to stay in Sweden for no more than 7 years should be removed.
• The competence rule should only apply to employees who are substantially engaged in research or development tasks, i.e., no longer include experts or key personnel. The competence requirements should also be clarified and lowered, and the requirement that there be significant recruitment difficulties in Sweden should be removed.
• The requirement that the employee must not be a Swedish citizen is removed, and the requirement that the person has not resided in Sweden should be increased to 10 years.
• The application deadline within 3 months after the work in Sweden commences should be extended to 6 months.
• A decision on tax relief should apply to an employee regardless of the employer.

The proposals in the report will improve companies’ opportunities to recruit and retain highly qualified employees and are primarily expected to benefit large and internationally active companies.

The changes regarding the expert tax rules are proposed to enter into force on 1 January 2026.

Location of the Workplace and Deductions for Increased Living Costs
The main rule under the current rules is that the workplace should be the location where the taxpaying individual performs the main part of their work, with exceptions for certain professional categories where the residence can constitute the workplace. The location of the workplace is significant for an employee’s eligibility to claim deductions for increased living costs, such as during a business trip.

The report proposes that the workplace should be determined for each employment or assignment individually. The location of the workplace should be based on the employer’s or client’s intention how the individual is to perform the work. If the intention is for the individual to perform the work at one and the same workplace, that location should be considered the workplace. If the intention is for the work to be performed at multiple workplaces or while in transit, the location of the workplace should be assessed in two stages:

1. The workplace should primarily be determined as the location where more than 50% of the work is performed.
2. Secondarily, the employer’s or client’s premises should be considered the workplace if the individual is generally required to visit the premises daily for work purposes.

If the workplace cannot be determined according to the proposed rules, it is proposed, for simplification purposes, that the residence should instead be considered the workplace.

The report also includes proposals regarding deductions for increased living costs. According to the report, the current rules are perceived as technically complicated. Therefore, it is proposed, among other things, that the so-called standard amount, which allows for a standardised deduction for increased living costs in cases of temporary work at another location or dual residence, should be reduced from three to two levels and that the reduction of the standard amount should be postponed from 3 to 6 months. It is also proposed that a cap for deductible accommodation costs of two price base amounts be introduced (currently, there is no monetary limit). Finally, it is proposed that the current distance requirement, where the distance between the place of residence and the workplace must be more than 50 kilometres for increased living costs due to temporary work at another location or dual residence to be deductible, be increased to more than 100 kilometres.

The changes in the report regarding the location of the workplace and deductions for increased living costs are proposed to enter into force on 1 January 2027.

What happens next?
Setterwalls is monitoring the various proposals, which will now be prepared by the Government and sent for circulation for comment before final proposals can be submitted to the Swedish Parliament. If you have any questions about how the proposals may affect your company, please contact Setterwalls’ tax experts for advice.

This article is of a general and informative nature and is not legal advice to be used as a basis for assessment in an individual case.