Technically, all per diems are taxable from the first penny. At the same time, employees are entitled to a flat-rate deduction for increased living expenses related to business travel. And out of this "conflict of interest" the employee's right to deduct always wins. This means that employers can pay tax-free per diems.
However, for employers to be able to pay tax-free per diems, the following three requirements must be met:
Formally, there is no maximum amount of the allowance. However, the allowance is only tax-free up to a certain amount, which is governed by the flat-rate amount set by the Swedish Tax Agency.
The maximum tax-free amount for per diems varies depending on the extent of the trip:
Should the employer choose to pay a per diem that is higher than the flat rate, the part that exceeds the maximum amount is considered as ordinary pay and is therefore taxable. For example, let's say that in 2022 you receive a per diem of 300 SEK for a full-day business trip, then 240 SEK of the amount is tax-free and the remaining 60 SEK is taxable.
The amount of the tax-free allowance is determined not only by the flat-rate amounts but also by the extent of the journey. We mentioned earlier that a basic condition for tax-free allowances is that at least one overnight stay is made, but beyond that, allowances are usually divided into full-day, half-day and night allowances, which are regulated by different time periods.
In order to receive a full day's allowance, the mission must start before 12.00 on the day of departure or end after 19.00 on the day of return.
Based on the above logic, the business trip counts as a half-day when the departure time is after 12.00 or when the employee returns home before 19.00.
In addition to receiving a full-day or half-day allowance, employees may also receive a so-called night allowance from their employer. However, this is only if the employer has no actual accommodation costs for the employee (usually in the form of a hotel bill). Night allowances can therefore be paid, for example, when the employee spends the night with a relative or friend. Furthermore, the journey must also extend overnight between 00.00 and 06.00.
Let's take an example.
One employee goes on a business trip between Monday and Thursday. The employee leaves on Monday morning at 08.00 and returns on Thursday afternoon at 16.00. During his stay, the employee spends the night with his relative.
This means that in 2022 the employee can receive three full-day allowances of SEK 240 (Mon, Tue, Wed) and one half-day allowance of SEK 120 (Thurs). In addition, the employee can receive a night allowance for his three overnight stays of SEK 120 per night. This gives us 240*3 + 120*4 = 1200 SEK.
In some cases, the maximum tax-free amount of per diems may be lower. The reduction is mainly due to two reasons: time and free meals.In some cases, the maximum tax-free amount for per diems may be lower. The reduction is mainly due to two reasons: time and free meals.
If the business trip is of a longer duration and takes place at the same place of work, the maximum tax-free amount must be reduced after three months and again after two years.
After three months' stay in the same place, the full-day allowance is reduced by 30% of the original amount according to the rules of the Tax Agency. This means that in 2022, after three months of business travel in the same place, you can receive 240*70% = 168 SEK in tax-free per diem. For 2023, the reduced amount is DKK 182.
The main reason for reducing the allowance is the assumption that the cost of living decreases when you spend a longer time in the same place. On the other hand, the maximum tax-free amount of night allowance is not affected and remains the same regardless of the length of the mission, provided that the requirements for night allowance are met.
Thus, if the business trip has lasted more than two years in the same place of business, the maximum tax-free amount must be reduced once again. This time by 50% of the original amount. This means that after two years on a business trip in 2022, you as an employee can receive a tax-free full-day allowance of DKK 120, and in 2023 the same reduction amounts to DKK 130.
As an employee, having your meals paid for by your employer during a business trip is another reason that gives rise to a reduced maximum tax-free amount. This is because the employee has not actually incurred any increased cost of living (as they have not paid for the meals), which means that the tax-free allowance should be reduced.
The amount of the reduction depends on the number of meals paid for by the employer:
Consequently, the tax-free full-day allowance for an employee who has had meals reimbursed by his or her employer amounts to:
In addition to the reduction in the tax-free allowance when the employer provides meals, the employee will also be subject to preferential taxation on the meals, because free meals on duty are in most cases considered a taxable benefit. The exact value of the benefit is determined by the number of meals paid for by the employer:
To read more about benefit taxation, we recommend our article --> Benefit taxation, what is it and how does it work?
As we can see, there is a strong correlation between the taxation of benefits and the size of the allowance. Fortnox has produced the following table showing how this is related.
The fact that both the per diem is lower and the employee is taxed when the employer offers a meal can at first glance almost be perceived as unfair, as if the employee is taxed twice. This is also a common misconception among both employers and employees. But in the tax world, all this is in order. There is no double taxation.
Because, as we mentioned at the beginning, the allowance is there to cover the increased cost of living during a mission. It is important to remember that employees also have living expenses at home, so-called private living expenses. always have living expenses, even at home. And the allowance is not intended to cover the actual cost of living, but only the additional cost that often arises when travelling.
If the employer pays for the employee's meals during a business trip, this additional cost has never been incurred and there is therefore no need to cover any additional costs, since in practice there are no additional costs, which is why the subsistence allowance is reduced. In reality, the employee has only made a saving in his normal living costs, which he would have had whether he was at home or on business, which is why the subsistence allowance is imposed.
It's not about earning your per diem, about some kind of extra tax-free salary that you get just for being on a business trip. Consequently, it is quite correct that both the per diem is reduced and that a cost benefit is imposed on the employee when the employer pays for meals on a business trip, even if this may seem somewhat contradictory.
Dealing with per diems can create some headaches for the uninitiated. At Saldo we are experts in all things accounting and if there's one thing we're passionate about more than anything called finance, it's helping our clients run better, more successful businesses by offering the best advice in the business. We'll support you in both the small and the big. So, if you have questions about per diems, benefit taxation, or something else entirely, we're more than happy to bounce them off you.
Let us know and we'll take it from there.