Taxes in Sweden: in-depth tax guide for Americans

Taxes in Sweden can be tricky for US expats living there. It's important to grasp Swedish tax rules and how they relate to US tax obligations to avoid penalties and comply with the law.

This guide offers a detailed overview of Sweden's tax system, including the Sweden tax rate, VAT, property taxes, social security, important tax filing deadlines, and the US-Sweden tax treaty.

Resident vs. non-resident of Sweden

Before discussing specific tax obligations, it's crucial to establish whether you're a resident or non-resident of Sweden. Your residency status determines how you are taxed and what income is subject to taxation.

You are classified as a resident for tax purposes if you meet one of the following conditions:

• You have a permanent home in Sweden.
• You stay continuously in Sweden for at least six months.
• You maintain close personal ties to Sweden, such as family or property.

Non-residents live in Sweden temporarily or have limited ties to the country. You may be a non-resident if you work in Sweden temporarily or earn income from Swedish sources without living there full-time.

Impact of residency:

• Residents are taxed on their worldwide income. It means that income from Sweden and abroad is subject to taxation.
• Non-residents are only taxed on income sourced from Sweden, such as wages from a Swedish employer or rental income from a property in Sweden.

Who can be considered a resident of Sweden

To be considered a resident of Sweden, you must generally hold a valid Swedish residence permit. This permit allows you to stay in Sweden for a set period and may be tied to various reasons such as employment, self-employment, studies, or family reunification. 

For those aiming for permanent residency, there are additional requirements to fulfill. These often include demonstrating a stable livelihood. It means the person has a consistent source of income and the ability to support themselves financially, as well as maintaining an orderly life.

You can apply for a permanent Sweden residence permit after holding a valid temporary residence permit for a specific duration, which varies based on the type of permit initially granted. The required timeframe and documents depend on the individual's status, such as whether you are in Sweden for work, family reasons, or other purposes.

Types of taxation in Sweden

Sweden imposes several types of taxes on residents and non-residents, depending on the nature of their income, which is subject to Swedish taxation.

Below is a breakdown of the primary taxes US expats in Sweden should know.

Personal income tax for residents

Residents are taxed under a progressive system, where higher income levels are subject to higher tax rates.

Sweden’s income tax consists of two levels:

• Municipal tax: A flat rate of 32% applies to income up to SEK 614,000.
• National tax: An additional 20% tax is levied on income exceeding SEK 614,000.

Sweden taxes worldwide income. Therefore, US expats who are residents must also report foreign income, including US earnings.

Fortunately, the US-Sweden tax treaty helps prevent double taxation on the same income.

Personal income tax for non-residents

Non-residents in Sweden are subject to a flat Swedish tax rate of 25% on income earned within the country. This tax applies to employment income from a Swedish employer and pension payments from Swedish sources.

Pro tip: You may be exempt from this tax if you work in Sweden for fewer than 15 consecutive days or a total of 45 days per year. In such cases, specific exemptions may apply, reducing your tax obligations under certain conditions, such as short-term employment or temporary assignments within Sweden.

Value-added tax

In addition to income taxes, Sweden implements several other taxes that significantly affect everyday life, including Swedish VAT and property taxes.
Value-Added Tax (VAT) applies to most goods and services, following EU VAT standards.
VAT Rates:

• Standard rate: 25% (applies to most goods and services).
• Reduced rates: 12% for food and books; and 6% for transport services.

Exemptions: Some services, such as financial transactions, are exempt from VAT.

Property tax

Sweden's property tax, also known as the property fee, is applicable to certain homes and varies based on the property's use and assessed value. The Swedish property tax is essential for homeowners and investors.
Here are the general rates:

• Residential property tax: Ranges from 0.75% to 3% of the assessed value.
• Maximum tax fee: For houses and apartment blocks, the maximum fee is set at SEK 9,287.

Other Swedish taxes

In addition to income and capital gains taxes, Sweden has several other taxes that residents and employers should be aware of.

One notable tax is the special wage tax on pension premiums, which is set at 24.26%. This tax applies to employers, including non-Swedish employers with a permanent establishment in Sweden, for their contributions to tax-qualified company pension plans.

Importantly, inheritance tax in Sweden is nonexistent, meaning that neither estate nor gift taxes are imposed on individuals. This absence of inheritance tax in Sweden makes the country particularly attractive to those who are concerned about potential levies on their assets, allowing individuals to pass on their wealth without additional financial burdens.

Social Security in Sweden

Understanding Sweden's social security system is critical for US expats, as contributions depend on your employment status.
Sweden's social security contributions are divided among different categories:

• Employer contributions: Employers contribute 31.42% of total compensation to the Swedish social security system.
• Employee contributions: Employees contribute a 7% pension fee, which is tax-deductible up to SEK 599,250.
• Self-employed: Self-employed individuals are required to contribute at a rate of 28.97%.

If you are an expat working temporarily in Sweden, the US-Sweden totalization agreement determines whether you continue to contribute to the US system or switch to the Swedish system based on the duration and terms of your employment.

Filing income tax returns in Sweden

When to file tax returns?

In Sweden, the tax year runs from January 1 to December 31. Tax returns are typically due by May 2 of the following year.

In March, the Swedish Tax Agency (Skatteverket) sends out pre-filled tax returns to all taxpayers registered in the system. This pre-filled form includes income, deductions, and other relevant information.

If there are no changes, taxpayers can confirm and submit the return without making any adjustments.

However, taxpayers with more complex financial situations, such as business income or foreign assets, may need to file additional documentation.

How to file a tax return?

Sweden offers several methods for filing tax returns. The Skatteverket's online portal is the most common and efficient method. You can also use the agency's app to file directly from your smartphone. The electronic options automatically include most of the necessary data, simplifying the process for most taxpayers.

You can confirm via SMS or phone if your pre-filled form is accurate. You can also mail a paper return.

Penalties for late or incorrect filing

Failure to file your tax return on time or submitting incorrect information can result in penalties.
If your tax return is filed late, the initial penalty is SEK 1,250. If the delay persists, the penalty can reach SEK 3,750.

Penalties for incorrect filing vary depending on the severity of the error. If Skatteverket determines that the inaccuracy was unintentional, it may impose a moderate penalty. However, intentional or grossly negligent errors can lead to more severe fines or legal consequences.

Types of income in Sweden

Employment income

In Sweden, all forms of employment remuneration are classified as taxable income. This includes director's fees, bonuses, commissions, pensions, and various allowances. Stock options and share programs also fall under this category.

Taxable benefits, such as housing allowances, company cars, and complimentary meals, further contribute to an employee's taxable income. Generally, compensation is taxed when paid out, adhering to the cash principle.

Premiums for employer pension plans not meeting Swedish tax-favorable criteria can also be considered taxable income.

Equity compensation

Equity compensation in Sweden primarily involves employee stock options, taxed as employment income upon exercise.

The taxable benefit is calculated as the difference between the fair market value of the shares at the time of exercise and the exercise price paid by the employee.

In 2018, Sweden introduced favorable rules for qualified employee stock options designed to incentivize workers in small companies. However, these rules are applicable only under particular conditions and are limited to a narrow category of small enterprises.

Income from closely held companies

When preparing your income tax return as an owner of a closely held company, consider the following:

• Applicable forms: Complete form K10 if you or a closely related individual is active in the company.
• Threshold amount: Calculate the threshold amount using either the major or simplification rules. The simplification rule involves a standard amount of SEK 156,475 based on ownership. Major rule requires ownership of at least 4% of capital and specific salary withdrawals, often resulting in higher thresholds.
• Non-qualified shares: If you or your relatives have not been active in the company, file form K12 for distributions or sales.
• Loans and rentals: Interest earned from company loans is taxable. Rental income from leasing part of your residence must be reported if a market-based rental agreement is in place.

Capital gains income

In Sweden, individuals are subject to Sweden's capital gains tax on capital gains realized during their period of residence.

Sweden’s capital gains tax applies to various assets, including:

• Stocks: Capital gains from selling Swedish stocks remain taxable for up to ten years after leaving Sweden. This period can be shortened through double taxation agreements.
• Real estate: Capital gains from selling private real property and tenant-owner apartments are taxed at 22%. However, there are options to defer taxation when purchasing new properties within Sweden or the EU/EEA.

Capital gains from stock sales are typically taxed at a flat rate of 30%. For non-quoted shares, the tax rate is slightly lower at 25%, as only 5/6 of the gain is taxable.

Investment income

Investment income in Sweden includes various earnings, such as:

• Bank savings: Interest income from savings accounts is taxable.
• Dividends: Earnings from dividends are also subject to tax.
• Capital gains: Gains from the sale of stocks, private property, and rental income from real estate fall under this category, and they are all taxed at a flat rate of 30%.

Only gains exceeding SEK 50,000 annually are taxable for personal assets.

Rental income from private property is categorized as capital income. It allows a standard deduction of SEK 40,000 plus 20% of the annual rental income for related expenses.

Additionally, foreign endowment policies and currency exchanges are classified as investment income and are subject to taxation.

Swedish pension system

The pension system in Sweden consists of three main components: the National Public Pension, Occupational Pensions from employers, and personal savings or investments.

National Public Pension is based on total income over a working life, funded through taxes.

It includes:

• Income Pension: allocated from 16% of pensionable income.
• Income Pension Complement: a supplement for qualifying individuals.
• Premium Pension: 2.5% of income invested in selected funds.
• Guarantee Pension: Available for those with low or no income.

Occupational Pension is typically provided by employers. Employees may have multiple pensions from different employers.

Personal savings encourage independent retirement savings through bank accounts or insurance policies, such as investment savings accounts (ISK). Pension credits may also be awarded during child-rearing years, and survivors can receive financial support if a loved one passes away.

In the US, foreign pensions are taxed differently than domestic plans. US tax treaties with Sweden generally allow pension income to be tax-deferred until distribution. Still, certain income may be taxable earlier. Foreign pensions must be reported on IRS forms.

Tax deductions for expats in Sweden

Navigating Swedish tax deductions can be complex for expats. However, understanding the available deductions can significantly improve your financial situation.

Here's a breakdown of key deductions that might apply to you.

Employment expenses

As an expat in Sweden, you can deduct various employment-related expenses:

• Travel costs: Expenses for travel to and from your workplace are deductible, but only the portion exceeding SEK 11,000 qualifies.
• Business travel: Costs for accommodations and transportation during business trips are also deductible.
• Vehicle use: If you use your personal vehicle for work, you can claim deductions based on a fixed amount per kilometer.
• Double accommodation: For temporary assignments, you may qualify for deductions related to double housing, allowing you to claim living costs in both Sweden and your home country for up to five years.

Pro tip. Keep thorough records of these expenses to ensure a smooth claims process.

Personal deductions

Expats in Sweden can take advantage of several personal deductions that can significantly impact their tax liabilities.

• Interest Expenses: Interest paid on loans, whether from Swedish or foreign lenders, is fully deductible. This deduction can help reduce your taxable income, providing relief in your overall tax burden.
• Social Security Contributions: If you hold an A1 certificate, mandatory contributions made in your home country may also qualify for deductions.

These personal deductions are crucial for optimizing your tax situation. By effectively utilizing them, you can minimize your overall tax liabilities and retain more of your earnings.

Personal allowances

In Sweden, individuals can benefit from a basic allowance that, depending on total income, ranges from SEK 15,400 to SEK 40,500.

This allowance reduces your taxable income and provides financial relief as you adjust to your new living conditions.

Credit for losses

If you experience losses from selling private assets, such as real estate or securities, you can claim a credit for those losses.

Generally, 50% to 70% of these losses are deductible, depending on the situation. This credit can particularly benefit those who have invested in property or financial markets.

Expert tax relief

Foreign experts and key personnel working for Swedish or foreign companies with a permanent establishment in Sweden can apply for expert tax relief.

To qualify for this tax relief, the employment period must be temporary, and the employee must be a non-Swedish national who has not been a tax resident in Sweden in the five years preceding their employment. Under alternative criteria, the relief is available if the employee's monthly income exceeds double the Swedish price base amount.

Applicants must submit a request to the Taxation of Research Workers Board (Forskarskattenämnden) within three months of starting work. If granted, 25% of the taxable income will be exempt from Swedish taxes and social security contributions for up to seven years, along with certain benefits and allowances.

Tax treaty between the US and Sweden

The US-Sweden tax treaty plays a crucial role in defining the tax obligations of US expatriates living and working in Sweden. It ensures that individuals are not subjected to double taxation on their income.

This treaty facilitates economic exchange and clarifies income taxation for those who move between the two countries.

Totalization agreement between the US and Sweden

In addition to the tax treaty, the US and Sweden have established a Totalization Agreement that clarifies social security contribution responsibilities for individuals working in both nations.

Under its provisions, US expats in Sweden are generally exempt from contributing to the Swedish social security system for a limited period, provided they have already paid into the US system.

Likewise, Swedish citizens working in the US can avoid contributions to the US social security system if they have contributed to Sweden's system.

By eliminating the possibility of double social security taxation, the Totalization Agreement promotes workforce mobility, making it easier for workers to navigate their tax obligations while fostering trade and investment between the two countries.

Most popular tax forms for US expats

1. Form 1040 is the standard individual income tax return that every US citizen must file, regardless of location. Typically, the filing deadline is April 15, but the IRS provides an automatic extension to June 15 for expats. Additionally, taxpayers can request an extension to October 15 and even December 15 if needed.
2. Form 8938, Statement of Specified Foreign Financial Assets (FATCA), also known as the FATCA report, is designed for expatriates who own non-US financial assets above certain thresholds. The financial thresholds vary based on filing status and residency in Sweden.
3. Form 2555: This form is tailored for U.S. expats and is used to claim the Foreign Earned Income Exclusion, a key provision that helps reduce U.S. tax liability on income earned outside the country.
4. FBAR (FinCEN Form 114): Required to report foreign financial accounts, this form is critical for expats with bank accounts or financial interests in Italy, especially if the total value of those accounts exceeds a certain threshold.

Swedish tax forms for US expats

US expats living in Sweden must fill out various tax forms to ensure compliance with Swedish tax regulations.

The primary form is the inkomstdeklaration, which comes in several versions:

1. Inkomstdeklaration 1 is designed for individuals, sole traders, and partners in limited companies to report personal income.
2. Inkomstdeklaration 2 caters to limited companies and economic associations.
3. Inkomstdeklaration 3 is used by nonprofit organizations and foundations.
4. Inkomstdeklaration 4 is for trading companies and limited partnerships.

Additionally, US expats may receive a Skatteverkets Kontrolluppgift, a control report from employers detailing employee income, which aids in completing income declarations.

Those holding shares in Swedish companies may need to file the K10 Form for capital gains tax reporting. The SINK Form allows for a flat tax rate on specific income types if you earn income from Sweden without being a tax resident.

Are you a US expat living in Sweden? Let Taxes for Expats take the stress out of managing your tax obligations in both countries. Our expert team is well-versed in both US and Swedish tax systems. We offer customized advice to ensure you're well-informed and compliant with your tax responsibilities. If you're looking for a US tax accountant or considering a tax consultation, our dedicated team is here to help!