Tax Guide for US Expats Living and Working in Sweden
Who Is Liable For Income Taxes in Sweden
Residents are subject to Swedish taxes on their worldwide income. Nonresident individuals are taxed on salary earned from work performed in Sweden, on certain pensions and on income derived from a permanent establishment in Sweden.
Individuals who are present in Sweden for six months or more and regularly stay overnight are generally considered resident for tax purposes.
Income subject to tax. The taxation of various types of income is described below. For a table outlining the taxability of income items.
Employment income. Income from employment includes wage and salary income, directors’ fees, pensions, fringe benefits and most allowances. Special valuation rules apply to housing and car benefits. Education allowances provided by employers to their employees’ children are taxable for income tax and social security purposes unless they are exempt under the foreign key personnel rules (see below).
The granting of cost allowances is a taxable benefit but, under certain circumstances, a standard amount may be deducted for private extra living costs if the employee is temporarily working in Sweden. The deduction equals SEK 105 per day for the first 30 days.
Salary and other benefits received by residents from employment abroad (except for employment on Swedish ships or on Swedish, Danish or Norwegian airplanes) may be exempt if either of the following conditions applies:
- The employment abroad lasts for at least six months, and the income is taxed in the country of employment.
- The employment abroad lasts for 12 months or longer in one country and no tax has been paid under the legislation or administrative practice of that country.
An additional condition for both of the above alternatives is that visits to Sweden are restricted to an average of 6 days per month of the assignment period (for example, 42 days for 7 months), up to a maximum of 72 days during an employment year.
Employment income is taxed on a cash basis when the income is available to the employee. As a result, taxation occurs when the income becomes available and not when it is actually received or earned.
Salary income and other comparable benefits received by a non-resident for employment or received as commission for activities performed in Sweden from an entity other than the Swedish state or a Swedish municipality is exempt from tax if all of the following conditions apply:
- The recipient has been in Sweden for less than 183 days during a 12-month period.
- The remuneration is paid by, or on behalf of, an employer not having a residence in Sweden.
- The remuneration is not an expense of a permanent establishment in Sweden owned by the employer.
Foreign key personnel, who are experts and scientists with knowledge and skills that are scarce in Sweden, may benefit from an expatriate tax regime. Expatriates may take advantage of the tax regime only if their applications are approved. The regime applies to individuals whose periods of assignment will not exceed five years, and tax relief may be granted for only the first three years. An individual who has resided in Sweden at any time during the five years preceding the calendar year when the assignment starts is not entitled to tax relief under this regime. Furthermore, tax relief may be granted only if the individual’s remuneration is paid by a Swedish company, branch or permanent establishment. The tax regime exempts the following remuneration from Swedish income tax and social security contributions:
- Twenty-five percent of salary and benefits
- Travel expenses to and from Sweden
- Travel expenses (two return tickets to the home country for the individual and family members annually)
- Children’s school fees
To qualify for the expatriate tax regime, an application must be filed with the Research Tax Committee (Forskarskattenämnden) in Stockholm within three months after the beginning date of the assignment.
Self-employment and business income. Self-employment income of residents is considered business income and is taxed at the same rates applicable to employment income. Taxable business income is computed under the rules of sound accounting practices. Accounting profit and taxable income are the same, in principle, although the tax law prescribes several adjustments to arrive at taxable income.
Directors’ fees. Regardless of where the services are performed, directors’ fees and similar remuneration paid to nonresident members or deputy members of Swedish boards or similar bodies are treated as salary income and are subject to a 25% final withholding tax, with no deductions allowed.
Investment income. Dividend income from Swedish and foreign shares, net interest income and income from rental activities are taxed as income from capital at a flat 30% rate. However, if such income is earned in connection with the operation of a business, it is taxed at the rates applicable to business income. Royalties are taxed as business income.
Nonresidents are not subject to tax on interest received from Swedish bank accounts or on capital gains derived on sales of property, other than real estate and certain shares and securities described below. Unless a relevant tax treaty stipulates otherwise, dividends paid by a Swedish company to a nonresident are subject to withholding tax at a rate of 30%.
Nonresidents are subject to tax on income and capital gains derived from real property located in Sweden. The effective tax rate on such gains is approximately 22% of the gain.
Taxation of employer-provided stock options. Taxable income derived from a stock option incentive plan is generally taxed at the time the option is exercised. Effective from January 2009, employees who are resident in Sweden at the time of exercise are subject to tax on 100% of the stock option income, regardless of whether the options were fully or partially vested before the individual moved to Sweden. If double taxation occurs, the individual may be entitled to a foreign tax credit or tax exemption, depending on the applicable tax treaty. The value of the benefit is the spread credited to the employee on the date of exercise. The taxable benefit is treated as ordinary employment income. The benefit is also subject to social security contributions.
Income tax must be withheld by the employer by the time the benefit is received by the employee. The tax must be deducted from the employee’s normal salary and forwarded to the tax authorities as normal withholding on salary.
Capital gains and losses. Capital gains are treated as investment income and are taxed at a rate of 30%. Residents are liable to tax on capital gains on both Swedish and foreign shares. Non residents are taxed on capital gains on Swedish shares if they were tax resident in Sweden at any time during the 10 calendar years immediately preceding the year in which the transaction occurred. Tax treaties often shorten the 10-year period.
A substantial portion of capital losses, which varies depending on the underlying asset, may be deducted against capital gains and investment income. Capital gains derived from the disposal of business assets, other than real estate, are taxed at the ordinary rates.
Capital gains derived from transfers of business real estate are taxed at a rate of 30%, which is the standard rate for capital gains and investment income. Certain capital gains realized on transfers of nonbusiness assets, however, are taxed at the separate rates described below.
Capital gains realized on transfers of Swedish and foreign shares are taxed at a rate of 30%.
Residents are subject to tax on 22/33 of the capital gains on disposals of private homes located in Sweden or abroad. Consequently, gains derived from the sale of a primary residence are taxed at a rate of approximately 22%. A substantial portion of capital losses, which varies depending on the asset generating the loss, may be deducted against capital gains and investment income.
Deductions
Deductible expenses. The principal deductions allowed are interest expense, expenses for travel between home and work and for business, payments for pension insurance premiums, and alimony payments. Interest expenses may be deducted from investment income. If the expenses exceed investment income, 30% of the expenses up to SEK 100,000 may be credited against taxes payable. For expenses exceeding SEK 100,000, the percentage of the tax credit is reduced to 21%.
Under certain conditions, travel costs between home and work that exceed SEK 9,000 are deductible. The amount deductible if using a private automobile is SEK 1.85 for each kilometer traveled. An employee is also entitled to a deduction of SEK 1.85 for each kilometer traveled in a private automobile to carry out the employer’s business. Pension insurance premiums and pension savings account payments are generally deductible. The maximum annual deduction is limited to SEK 12,000 unless the individual’s employer does not offer an occupational pension plan. In such circumstances, further deductions may be possible. Only annuity schemes with a pension payment period of at least five years are recognized for tax purposes.
Alimony paid to a former spouse is deductible, subject to certain limitations.
Personal deductions. A basic deduction is allowed for both local and state purposes. For 2011, the amount of the basic local and state deduction ranges from a minimum of SEK 12,600 to a maximum of SEK 33,000. However, this does not imply that all income in excess of SEK 12,600 is taxed because, under other measures, no tax is payable if total income does not exceed SEK 18,200 (for 2011). Accordingly, up to this low level of income, the personal deduction does not apply. Beyond an income level of SEK 18,200 the personal deduction supersedes the exemption rule and it gradually increases up to an income in the bracket of SEK 116,400 to SEK 133,600. Thereafter, it is reduced to reach the lower limit of SEK 12,600 at an income of SEK 336,700.
Business deductions. For expenses to be deductible, they must be included in the financial accounts. In principle, all expenses incurred to obtain, secure and maintain business income are deductible. Exceptions are made for certain items, including penalties, fines, objects of art, expensive entertainment, and wine and liquor.
Social security taxes for self-employed individuals, as described in Section C, are deductible in the same year they accrue at the rates of 25% for active business income and 20% for passive business income.
Credits. Employee social security contributions described in Section C are credited against income taxes in the year paid. Because the tax authorities automatically subtract this credit when computing individuals’ final tax assessments, taxpayers receive this credit without claiming it on their returns.
A tax credit applies to income from employment or self-employment. This tax credit is calculated on the basis of the eligible income. Depending on the amount of income and the amount of local tax, the annual amount of the credit ranges from approximately SEK 100 at a very low income level to approximately SEK 20,800. The latter is reached at an income of SEK 335,000. For individuals age 65 and older, the credit is somewhat higher and can reach a maximum of SEK 30,000.
A tax credit is granted for expenses with respect to so-called house hold or housekeeping services. Such services include cleaning, childcare in the home, cooking, laundry and garden maintenance as well as personal care and assistance to handicapped or elderly members of the household. The tax credit is granted against tax payable and calculated as 50% of actual costs up to an annual maximum limit of SEK 100,000. As a result, the maximum annual tax credit is SEK 50,000.
Under a bill recently passed by the Swedish parliament, the above tax credit is also available for certain maintenance and repair costs on the taxpayer’s home or summer house if the taxpayer owns his or her home or summer house. The credit is granted only for labor costs and the costs must be substantiated by invoices. The home or summer house must be located within the European Union (EU)/European Economic Area (EEA).
Relief for losses. Losses resulting from business activities or earned income may be carried forward indefinitely and offset against the same categories of income in future years.
B. Other taxes
Net wealth tax. The net wealth tax was abolished, effective from 1 January 2007.
Inheritance and gift taxes. The inheritance and gift taxes were abolished, effective from 1 January 2005.
C. Social security
Employers. Social security taxes are levied on salaries, wages and the assessed value of benefits in kind and are paid primarily by the employer (however, see Employees). Payments are made to several programs, including general sickness insurance, basic old-age pension insurance and supplementary pension insurance. Contributions to these various programs are assessed and administered by a single authority. For 2011, the total average rate for most employers is 31.42%.
For employees under age 26 at the beginning of the income year, the rate of social security taxes is reduced to 15.49%.
If the individual was born between 1938 and 1944 (both years inclusive), the rate is 10.21%. For employees born in 1937 or earlier, no social security tax is payable.
Employees. Resident employees are subject to social security contributions at a rate of 7% for pension insurance on income from employment of up to 8.07 income base units. In 2011, one income base unit equals SEK 52,100. As a result, the ceiling for the calculation of contributions is now SEK 420,447 and, accordingly, the capped contribution is SEK 29,400. This pension insurance contribution is fully creditable against tax.
Certain expatriates may apply to qualify for an exemption of certain remuneration from Swedish social security contributions (see Section A).
The employee social security contributions described above are credited against income taxes in the year paid. For details, see Section A.
Self-employed individuals. Self-employed individuals are subject to social security taxes on their net taxable profit. For 2011, after deducting the cost of social security taxes, the nominal tax rate is 28.97% for income from a business actively conducted by an individual. For self-employed individuals born in 1985 or a later year, the rate is reduced to 14.88%. In addition, the rate is 10.21% for individuals born between 1938 and 1945 (both years inclusive). The rate is 0% for individuals born in 1937 or earlier. For other business income, the rate is 24.26%.
Totalization agreements. To provide relief from double social security taxes and to assure benefit coverage, Sweden has entered into totalization agreements with various countries, including EU/EEA countries. Some of the totalization agreements apply only to certain parts of the social security taxes. The following is a list of the totalization agreement countries.
Austria
Germany
Norway
Belgium
Greece
Poland
Bosnia-Herzegovina
Hungary
Portugal
Iceland
Quebec
Canada
Ireland
Serbia
Cape Verde
Israel
Montenegro
Chile
Italy
Slovak Republic
Croatia
Latvia
Slovenia
Cyprus
Liechtenstein
Spain
Czech Republic
Lithuania
Switzerland
Denmark
Luxembourg
Turkey
Estonia
Malta
United Kingdom
Finland
Morocco
United States
France
Netherlands
Double tax relief and tax treaties
Double tax relief is provided by allowing taxpayers to credit foreign taxes paid or to deduct foreign taxes paid as an expense. If a credit is elected, a three-year carry-forward is available. The credit is limited to the lesser of foreign taxes actually paid or the Swedish tax payable on all foreign-source income. Sweden has entered into double tax treaties with many countries.
Most of the treaties follow the Organization for Economic Cooperation and Development (OECD) model. In general, the treaties provide that a credit may be taken for foreign taxes paid in the other treaty country to the extent of Swedish taxes imposed on the same income. Under Sweden’s unilateral tax credit system, however, a credit may also be taken against Swedish tax imposed on other foreign-source income.
Sweden has entered into double tax treaties with the following countries.
Albania
Iceland (b)
Philippines
Argentina
India
Poland
Australia
Indonesia
Portugal
Austria
Ireland
Romania
Bangladesh
Israel
Russian Federation
Barbados
Italy
Singapore
Belarus
Jamaica
South Africa
Belgium
Japan
Spain
Bolivia
Kazakhstan
Sri Lanka
Botswana
Kenya
Switzerland
Brazil
Korea (South)
Taiwan
Bulgaria
Latvia
Tanzania
Canada
Lithuania
Thailand
Chile
Luxembourg
Trinidad
China (a)
Macedonia
Tobago
Cyprus
Malaysia
Tunisia
Czechoslovakia (c)
Malta
Turkey
Denmark (b)
Mauritius
Ukraine
Egypt
Mexico
USSR (c)
Estonia
Morocco
United Kingdom
Faroe Islands (b)
Namibia
United States
Finland (b)
Netherlands
Venezuela
France
New Zealand
Vietnam
Gambia
Norway (b)
Yugoslavia (c)
Germany
Pakistan
Zambia
Greece
Peru
Zimbabwe
Hungary
(a) The treaty does not apply to Hong Kong.
(b) Sweden has signed the Nordic Mutual Assistance Treaty, together with Denmark, the Faroe Islands, Finland, Iceland and Norway.
(c) Sweden will apply the treaties with Czechoslovakia, the USSR and Yugoslavia to the new republics that have not entered into a separate treaty with Sweden, unless a law is enacted providing otherwise.
To learn more about the history, culture, economy and other information about Sweden
We have been preparing US income tax returns for US Citizens and permanent residents living in Sweden for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Sweden and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Sweden.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email