In the vast majority of workplaces, employees are offered some kind of benefit. But how are you taxed on your benefits, which benefits count as tax-free and how do you calculate the value of the benefit? Here we go through everything you need to know about benefit taxation and benefit values and list the most common tax-free benefits.
Let's start by explaining some concepts and relationships that are important to know in order to understand how benefit taxation works.
What is preferential taxation?
Benefit tax is the tax payable when employees receive non-cash benefits. Benefits tax therefore means that employees, beneficiaries, have to pay tax on the benefits they receive through work, which are taxable under the rules.
What is a benefit?
A benefit is defined by the Tax Agency as any form of remuneration, over and above the normal salary, which the employee receives for his or her work and which pays for a private cost of living. Some common examples of benefits are a work telephone, occupational health care, exercise and health care, and a company car.
In the vast majority of cases, benefits are taxable, which means that the employee has to pay tax on the benefit and the employer has to pay social security contributions, but there are also tax-free benefits (more on this below).
The taxable benefits are normally valued at their market value, which corresponds to the value that the employee would have had to pay for the benefit on his/her own in the locality. In this context, the market value is also referred to as the benefit price or benefit amount, which forms the basis for the calculation of the benefit value.
What is preferential value?
Benefit value can be equated to the savings that the employee makes by receiving a benefit through work compared to if the employee had paid for the benefit on their own.
How is the benefit value calculated?
In simple terms, the benefit value is calculated by subtracting the market value or the benefit price of a benefit from the amount paid by the employer for the same benefit. It is also this saving or difference that may become taxable.
In some cases, such as car and dietary benefits, the benefit value and thus the amount of benefit tax is instead determined on the basis of the Tax Agency's predetermined lump sums.
How is the benefit tax paid?
The benefit tax is paid by recording the specific benefit received by the employee on his/her salary statement, thus increasing the gross salary and, in turn, the employee's tax. Thus, although it is the employee who is taxed on the benefit, in practice it is the employer who pays the benefit tax on behalf of the employee.
How does a benefit become taxable?
In order for a benefit to be taxable, two requirements generally need to be met:
- The beneficiary must have accepted the benefit
- The beneficiary must have access to and use the benefit
But as with most rules, there are of course exceptions. One such exception is benefits for holiday homes. The right to use a holiday home through work can be assessed by the Tax Agency as a taxable benefit, regardless of whether the holiday home is used or not. At the same time, there are also some benefits that are tax-free under certain conditions.
Which benefits are tax-free?
The majority of employee benefits are taxable, but there are some benefits that are exempt from taxation, as long as certain requirements are met. Below we list some common examples of benefits and the requirements to be able to count them as tax-free.
Employee benefits, exercise and wellness
Exercise and other wellness treatments such as massages, as well as simple consumption of drinks and food that cannot be considered a full meal are three common examples of benefits that all fall under the umbrella of employee benefits. In order for personal care benefits to count as tax-free, they need to:
- Be offered to the entire workforce, regardless of employment conditions
- Goods of lesser value (5000 SEK in case of a fitness allowance)
- Not exchangeable for cash
When it comes to exercise and other health care, a distinction is also made between benefits in kind and health care allowances.
Health care allowance
The well-being allowance is a specified amount that the employee may dispose of and use himself, as long as it is spent on something that falls within the scope of well-being. The limit for the tax-free fitness allowance is DKK 5,000.
In-kind benefit means that the employer decides and directly pays for exercise or wellness activities. This is often the case when the activities are offered at the workplace or at another location that is partly or fully owned by the employer. There is no maximum amount for benefits in kind. However, they need to be of lesser value and of a simpler nature in order to qualify as tax-free. It is therefore a matter of individual assessment, but the rule of thumb for 'simple' activities is that activities requiring more expensive facilities, tools and equipment do not count as tax-free.
Computer, mobile phone and other electronic equipment
Electronic equipment such as computers or mobile phones fall under the privilege of work tools. In order for work equipment, irrespective of the type of goods or services, to qualify as tax-free, the goods or services must be:
- is essential for the performance of the employee's duties
- is of limited value to the employee (a judgment call); and
- cannot be easily separated from the benefit of the employment
In order for your computer or mobile phone, which you receive through your job and which you also use for private purposes outside the workplace, not to be subject to preferential taxation, it is therefore necessary first of all that your technical device is essential for you to be able to carry out your job. In addition, the subscription or the cost of the device must be paid for at a fixed rate and there must be no distinction between private and business use.
Work clothes and, in some cases, clothes that can also be worn privately are tax-free benefits if they are:
- adapted for a specific job, such as protective clothing, or
- Design for a specific service, such as a uniform
For more "ordinary" clothes that can also be used for private purposes to count as a tax-free benefit, the requirements are somewhat stricter. In this case, the garments need to:
- be mandatory to use in the service
- count as workwear, i.e. they are provided for use at work
- be appropriate to the post, i.e. they should be uniform for certain staff or have some other specific characteristic
- bear the employer's logo or name in a way that is significantly different from normal clothing.
The car benefit is probably the benefit people ask most about, and in most cases it is a taxed benefit where the value of the benefit is determined on the basis of the Tax Agency's predetermined lump sums. But the car benefit can also be tax-free, and to avoid paying benefit tax on your company car, it is necessary that it is used to a small extent, which is defined by the Tax Agency as:
- The car may be driven privately a maximum of 100 miles per year at
- max 10 occasions per year.
This is why it is important to keep clear and detailed driving records, as the driving record is the basis used to distinguish between private and business driving. It is worth noting that journeys to and from work are considered as private journeys.
The general rule is that gifts are taxable, but the exception that confirms the rule is Christmas gifts, anniversary gifts and commemorative gifts. These gifts count as tax-free benefits as long as they are directed to all employees or to a larger group of employees, and do not exceed the following monetary limits:
Christmas gifts: 500 kr incl. VAT. Administration and transport are not included in the amount.
Jubilee gifts: 1500 SEK incl. VAT. Anniversary gifts may only be given when the company celebrates 25 years, and every 25 years thereafter.
Memorial gifts: 15000 kr incl VAT. Memorial gifts may be made to permanent employees on reaching the age of 50 or more, to staff who have been employed for more than 20 years and to employees who leave the company. In addition, memorial gifts may be made only once, in addition to the termination of employment.
In the case of internal representation, free meals, which are otherwise taxed as a benefit, are a tax-free benefit. Common examples of internal representation are staff parties or conferences, but in its correct sense internal representation is defined as:
- Temporary and
- Short-term gatherings, lasting no more than one week
Training and conference travel
Training always counts as a tax-free benefit as long as it is relevant to the employee's work.
Benefits linked to a conference trip are also tax-free as long as the elements of pleasure and recreation do not play a more prominent role. An important rule of thumb here is that conference time should be at least 6 hours per day.
Employee discounts on goods or services from the company you work for or from another company belonging to the same group are considered a tax-free benefit if:
- the discount is aimed at the entire workforce
- the product or service is part of the regular offer
- the good or service cannot be exchanged for cash
- the good or service is not direct remuneration for work done
- the discount is not greater than the usual employee discount in the sector
- the discount does not exceed the maximum discount a consumer can obtain on commercial grounds.
Advice, support or help?
Remember that the rules on preferential taxation are always being updated, so the above information should be interpreted as an indication more than anything else. To ensure that you have the latest information, you should always consult your accountancy firm or read up on the Swedish Tax Agency.
We at Saldo are passionate about business advice and love all matters related to finance, big or small. Do you have questions about or want to discuss how to think about benefit taxation, or something else related to your business? Don't hesitate, ask away!
Please also read our other articles. There is a lot of useful information on everything to do with business administration.