Tax Facts - Sweden

Gerard Associates Ltd. Financial Advisory Services does not provide individual tax advice, and nothing contained in this briefing should be construed as such. We make every effort to ensure the accuracy of the information but cannot be held responsible for any liability arising.

It is essential that all clients seek tax advice specific to their own personal circumstances with the relevant tax professional of the jurisdiction(s) in which you are liable to tax.

This has been prepared based on our understanding of current legislation and tax practice as at the date above. However, these are subject to change, and may result in income tax consequences different from those detailed below.

We cannot accept responsibility for its interpretation or any future changes to law.

 

 

Introduction

Taxation in Sweden occurs at both a national level and a municipal level. The Ministry of Finance is responsible for tax legislation and the regime is administered by the Swedish Tax Administration.

 

Tax Year

1st January – 31st December.

 

Assessment Basis

Swedish residents are taxed on their worldwide income. Married persons are independently liable to Swedish tax.  A tax return must be filed each year. The individual receives a pre-printed form that can be amended by the individual. Filing of a tax return may also be completed via internet, e-mail, telephone or SMS, provided that an individual does not have complicated tax affairs.

 

Income Tax

Swedish residents are liable to tax on their worldwide earned income, which will include all income from employment, whether salary or benefits in kind, together with, for example, directors fees, bonuses, commissions, pensions and annuities plus any type of allowance.

 

Various general deductions for expenses may subsequently be made and these include travelling expenses to and from work, cost of living allowances in respect of business trips and pension premiums.  However, in many cases the deductible amounts are restricted or regulated.

 

Taxable income is also reduced by the Basic Income Tax Deduction (Personal Allowance) which depends upon the total size of the individual’s taxable income and municipal tax rate, and varies between SEK12,500 and 32,700 (2010).  Individuals pay two forms of tax on their taxable income, namely national income tax and municipal income tax. Taxable income less than SEK372,100 is subject to municipal tax only. The municipal income tax rate levied depends upon the municipality in which the individual is resident, and averages at 31.56%. Taxable income in excess of SEK372,100 is subject to additional national income tax calculated at a flat rate of 20%, and taxable income exceeding SEK532,700 is taxed at 25%, giving a marginal tax rate of around 57% if the average municipal tax rate is applied.

 

Taxation of Investment Income

Investment income, or capital income as it is termed in Sweden, is not subject to a municipal tax, but is liable to flat rate tax of 30% with few allowances or deductions. Capital income includes interest income and dividends received, as well as capital gains arising from the sale of shares and property, for example.

 

Premium Taxes

Life insurance in Sweden is exempt from premium taxes.

 

Tax on Property Rental Income

Worldwide rental income from the letting of private property normally forms part of capital income. The tax is assessed based upon annual rental and other income received from the property after a deduction of related expenses. For private real property, the related expenses are deemed to be a standard amount of SEK12,000 and 20% of the annual rental income. For rented flats the actual costs are deductible instead of the standard amount.

 

Wealth Taxes

Wealth taxes were abolished in Sweden on 1 January 2007.

 

Capital Gains Tax

Capital gains form part of capital income and are taxed accordingly. This includes the sale of shares, property and other assets. Profits on gains from the sale of personal assets are only taxable if profits exceed SEK50,000 per annum.  Capital losses, as well as interest paid in respect of loans, are deductible from capital gains and income.  If there is a net loss or deficit a tax credit of 30% of the deficit is granted against employment income or real estate tax. Any deficit in excess of SEK100,000 will, though, only receive a credit of 21%. Deficits may not be carried forward to later tax years.  As a rule only 70% of capital losses from the sale of securities and only 50% of the capital losses from the sale of private real property are deductible. For quoted shares 100% of a loss may be deducted against gains on such quoted shares.

 

Inheritance and Gift Tax

Inheritance and gift tax were abolished for both private individuals and companies on 1 January 2005.

 

Regional and Municipal Taxes

See income tax.

 

Property Taxes

Real estate tax levied on all immoveable property used as dwellings was abolished in January 2008, replaced by a Municipal Property Fee. The tax on foreign private property was abolished at the same time. The fee is based on the assessed value of the property with a maximum of SEK6,387 or 0.75% of the assessed value for single family houses. The same levy was applied to apartments with effect from 1 May 2009.

 

Stamp Duty/Transfer Tax

Stamp duty is levied on real estate and site leasehold rights (1.5% for individuals) and grant or suspension of mortgages (2%).

 

Sales Tax

Sales tax of 25% is generally levied with some goods being exempt and others enjoying lower rates of 12% and 6%.

 

Social Security Contributions

A wide ranging, compulsory social security system exists in Sweden, which provides benefits such as basic and complimentary pensions as well as social welfare benefits that include sickness pay and maternity allowance. Social security contributions are paid partly by the employer and partly by the employee.  An employer's compulsory contribution is 31.42% (for 2010) of monthly gross remuneration (including both salary and benefits). For employees between the ages of 18-25 and over 65 these fees are reduced in some circumstances. An employer may also enter into a collective agreement to pay employees’ additional pension premiums of between 6% and 15%.

 

An employee is liable to pay a compulsory contribution, or Basic Pension Contribution, of 7% of annual taxable income. However, no contributions are paid on taxable income in excess of SEK412,377, which makes a maximum employee pension fee of SEK28,900 for 2010. 100% of the employee’s contribution is entitled to a tax reduction.

 

Taxation of Expatriates Living in Sweden

The basis for taxation in Sweden is determined by an individual’s residential status. Swedish residents are taxed on their worldwide income and non-residents only on income arising from sources in Sweden.

 

Expatriates are considered resident in Sweden if they meet the following conditions:

 

·         they are domiciled in Sweden, i.e. have a permanent home in Sweden, or

·         they stay permanently in Sweden, i.e. stay continuously for more than 183 days in the country, or

·         they are considered to have an essential connection with Sweden after leaving the country/moving abroad.

 

When determining whether an individual has an essential connection with Sweden, all important ties with Sweden, both economic and social, are taken into consideration by the tax authorities.  Individuals who are Swedish nationals, or foreign nationals who have been resident in Sweden for a total of ten years, are deemed to be resident in Sweden until five years have elapsed from the date of moving out of Sweden, unless the person can prove that their essential connections with Sweden have been broken. After five years the burden of proof is reversed and the tax authorities have to prove that essential ties still exist between the individual and Sweden.

 

An individual who is considered resident in Sweden may, at the same time, be considered resident in another country under that country's domestic legislation (dual residence). If there is a tax treaty between that country and Sweden there are normally provisions in the treaty to determine in which country a person shall be considered resident in case of dual residence, or how double taxation is to be eliminated. Sweden has negotiated double taxation treaties with over 80 countries including all countries in the Nordic region.

 

Special rules on taxation apply to foreign experts and key personnel. According to these regulations, only 75% of the income earned is subject to income tax and social security charges during the first three years in Sweden. Some benefits, such as school fees and allowances for moving residence, are tax exempt. These regulations apply to foreign personnel employed by a Swedish company, or a foreign company with a permanent establishment in Sweden. The employment and residence in Sweden must be limited in time, not exceeding five years, and the employee should not have been a resident in Sweden prior to the employment.

 

 

To qualify for this exemption it is necessary to obtain a ruling from the National Tax Board, which is part of the Swedish Tax Administration. The application must be filed within three months upon arrival.

 

Taxation of ‘Non-Residents’ Living in Sweden

A Swedish non-resident individual is subject to Swedish income tax only on income arising from sources in Sweden. Therefore, expatriates regarded as non-resident individuals will only have a limited Swedish tax liability.

 

Non-residents will be subject to income taxes on remuneration arising from employment undertaken in Sweden and paid by a Swedish employer. Directors' fees paid by a Swedish company are always considered to have been earned in Sweden, regardless of whether the activities are carried on in Sweden.  There is a specific concession available for non-resident expatriates working in Sweden. Non-residents may be taxed at a flat rate of 25% with no deductions applying. The 25% tax is withheld by the employer and is the final tax due on income. In order to benefit from the 25% flat rate (known as SINK) an application must be filed with the Local Tax Authority in advance, normally by the Swedish employer. There is normally no obligation to file an annual income tax return if you only have income from Sweden that is subject to a “SINK-ruling”. Non-residents working in Sweden and receiving the main part of their employment income from Sweden may choose between being taxed according to the resident or non-resident rules, implying that certain deductions are available.

 

Non-resident individuals are generally not liable to pay capital gains tax, though dividends received from a Swedish company are taxable unless tax exempt under a double taxation treaty. Non-residents are not generally liable to tax on gains of shares or on capital gains from the sale of personal assets. They will only be liable to tax on the gain resulting from the sale of real estate situated in Sweden and, where applicable, rental income from letting a home in Sweden (real property or flat).