Sweden Personal Income Tax

Territoriality. 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 other income sourced in Sweden.

Definition of resident. 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.

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 increased cost of living if the employee is temporarily working in Sweden.

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 non­resident 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 borne by a permanent establishment of the employer in Sweden.

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 gross salary and benefits
  • Moving 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 individual must either receive monthly remuneration of a minimum of SEK88,601 (including monthly benefits) per month for the 2016 calendar year or qualify as an expert. In addition, an application must be filed with the Expert Tax Board (Forskarskattenämnden) in Stockholm within three months after the beginning date of the assignment.

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 estate located in Sweden. The effective tax rate on such gains is approximately 22% of the capital gain.

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 (see Rates). Taxable business income is computed under the rules of sound account­ing practices. Accounting profit and taxable income are the same, in principle, but the tax law prescribes several adjustments to arrive at taxable income.

Directors’ fees. Directors’ fees are considered employment income. 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 20% final withhold­ing tax, with no deductions allowed.

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. 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.

According to Swedish Supreme Administrative Court decisions in 2015, option income can be tax-exempt if an individual earns the income outside Sweden while being a tax nonresident of Sweden but exercises the option while being a tax resident of Sweden. These decisions primarily apply to EU citizens.

Capital gains and losses. Capital gains are treated as investment income. Gains on listed shares are taxed at a rate of 30%. The rate is 25% for gains on unlisted shares. In addition, certain specific rules apply to companies if 50% of the voting capital is con­trolled by four or fewer shareholders. Residents are subject to tax on capital gains on both Swedish and foreign shares. Nonresidents are taxed on capital gains on Swedish shares and foreign 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. However, taxation of capital gains derived from the sale of non-Swedish shares is limited to shares pur­chased during the period in which the individual was tax resident in Sweden. Tax treaties often shorten the 10-year period.

Residents are subject to tax on 22/30 of the capital gains on dispos­als of private homes located in Sweden or abroad. Con se quently, 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 primarily be deducted against capital gains and investment income and then also may be deducted from employment 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 SEK100,000 may be credited against taxes payable. For expens­es exceeding SEK100,000, the percentage of the tax credit is reduced to 21%.

Under certain conditions, travel costs between home and work that exceed SEK10,000 are deductible. The amount deductible if using a private automobile is SEK1.85 for each kilometer trav­eled. An employee is also entitled to a deduction of SEK1.85 for each kilometer traveled in a private automobile to carry out the employer’s business.

Alimony paid to a former spouse is deductible, subject to certain limitations.

Mandatory individual social security charges in other EU mem­ber states can be deductible in Sweden.

Personal deductions. A basic deduction is allowed for both local and state tax purposes. For 2016, the amount of the basic local and state deduction ranges from a minimum of SEK13,000 to a maximum of SEK34,200. However, this does not imply that all income in excess of SEK13,000 is taxed because no tax is pay­able if total income does not exceed SEK18,800 (for 2016). Accordingly, up to this level of income, the personal deduction does not apply. Beyond an income level of SEK18,800, the per­sonal deduction supersedes the exemption rule.

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. Lower rates can apply for young employees.

Rates. For 2016, employment income is subject to both national income tax and local income tax, at the rates set forth below.

Employment income over SEK430,200, up to SEK625,800 (before the personal deduction), is subject to national tax at a flat rate of 20% (in addition to the local tax). Income over SEK625,800 is subject to national tax at a rate of 25% (in addition to the local tax).

Local taxes are levied on employment income at rates ranging from 29% to 36%.

Nonresidents who perform work in Sweden are taxed at a flat rate of 20%, and no deductions are allowed. This tax is imposed as a final withholding tax. A special application form needs to be filed with the Swedish tax agency in order to get a decision for the nonresident taxation. Nonresident entertainers and artists are subject to reduced tax at a flat rate of 15%.

Credits. A tax credit applies to income from employment or self-employment. This tax credit is calculated on the basis of the eli­gible income. The amount of the tax credit depends on the amount of income, the amount of tax and the number of months the individual has been resident in Sweden in the tax year.

Employee social security contributions described in Section C are paid by the employer and are not included in taxable income for the employee.

A tax credit is granted for expenses with respect to so-called house hold or housekeeping services. Such services include clean­ing, child care 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 SEK50,000. As a result, the maximum annual tax credit is SEK25,000 per individual.

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). The tax credit is granted against tax payable and calculated as 30% of actual labor costs. The maximum annual tax credit is SEK50,000.

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.

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 December 2004.

Real estate fee. The real estate fee for privately owned properties equals 1% of the assessed value. The highest amount of the real estate fee is SEK7,412 for each house. The owner of the real estate should pay the real estate fee. The owner or the owner as of 1 January 2016 should pay the fee for the whole 2016 calendar year.

This fee also applies to nonresidents owning real estate in Sweden. For business properties, other rates may apply.

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 2016, the total average rate for most employers is 31.42%.

For employees born in 1991 or later, the rate of social security taxes is reduced to 31.42% from June 2016 (25.46% before June 2016).

Employees. Social security is not payable by the employee. Although the employee pays a minor portion of social security (pension insurance contribution) through the tax return, this amount is normally fully creditable against the tax paid.

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 2016, the nominal social security rate is 28.97% for income from a busi­ness actively conducted by an individual. For self-employed individuals born in 1991 or later, the rate is reduced to 28.97% from June 2016 (23.69% before June 2016). In addition, the rate is 10.21% for individuals born between 1938 and 1950 (both years inclusive). The rate is 6.15% for individuals born in 1937 or earlier who carry on business activity. For passive business income, the rate is 24.26%, regardless of the age of the individual.

Totalization agreements. To provide relief from double social security taxes and to assure benefit coverage, Sweden has entered into totalization agreements with various jurisdictions, 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 jurisdictions.

Austria                           Greece                          Netherlands

Belgium                         Hungary                       Norway

Bosnia and                     Iceland                         Poland

Herzegovina                  India                             Portugal

Canada                           Ireland                          Quebec

Cape Verde                    Israel                            Serbia and

Chile                              Italy                              Montenegro

Croatia                           Korea (South)              Slovak Republic

Cyprus                           Latvia                           Slovenia

Czech Republic              Liechtenstein                Spain

Denmark                         Lithuania                      Switzerland

Estonia                            Luxembourg                Turkey

Finland                            Malta                            United Kingdom

France                             Morocco                      United States

Germany

A totalization agreement with the Philippines is signed but is not yet in force. Totalization agreement negotiations are currently underway with Brazil, China and Japan.

Tax filing and payment procedures

Tax is assessed on taxable income for each fiscal year, which is generally the calendar year. Married persons are taxed separately, not jointly, on all types of income.

Annual tax returns must generally be filed by 2 May of the year following the year in which the income is earned. Extensions to file returns may be obtained.

Tax on salaries, wages and other remuneration, including benefits in kind, is withheld by employers. Individuals who are self-employed or who have business income as well as other non-employment income may register as self-employed taxpayers. Pre liminary tax is then computed according to a preliminary tax return. The preliminary tax is payable monthly, beginning in Feb­ruary of the fiscal year and ending in January of the following year.

An expatriate generally receives a final tax assessment by mid-December at the latest of the year in which the tax return is filed. Any difference between the final tax due and the preliminary tax paid is either refunded immediately or must be paid by 90 days after the date of the final tax assessment.

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 five-year carryforward 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 Organisation for Economic Co-op eration 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. However, under Sweden’s unilateral tax credit system, 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 jurisdictions.

Albania                            Germany                   Nigeria

Argentina                        Greece                       Norway (b)

Australia                          Guernsey (d)             Pakistan

Austria                            Hungary                    Philippines

Bangladesh                      Iceland (b)                 Poland

Barbados                         India                          Portugal

Belarus                            Indonesia                  Romania

Belgium                           Ireland                       Russian Federation

Bermuda (d)                  Isle of Man (d)          Singapore

Bolivia                           Israel                         South Africa

Botswana                       Italy                           Spain

Brazil                             Jamaica                     Sri Lanka

British Virgin                Japan                         Switzerland

Islands (d)                     Jersey (d)                  Taiwan

Bulgaria                         Kazakhstan                Tanzania

Canada                           Kenya                        Thailand

Cayman Islands (d)       Korea (South)           Trinidad and

Chile                              Latvia                        Tobago

China (a)                        Lithuania                   Tunisia

Cyprus                           Luxembourg             Turkey

Czechoslovakia (c)        Macedonia                Ukraine

Denmark (b)                  Malaysia                   USSR (c)

Egypt                             Malta                         United Kingdom

Estonia                           Mauritius                  United States

Faroe Islands (b)           Mexico                      Venezuela

Finland (b)                     Morocco                   Vietnam

France                            Namibia                    Yugoslavia (c)

Gambia                          Netherlands               Zambia

Georgia                          New Zealand             Zimbabwe

a) The treaty does not apply to the Hong Kong Special Administrative Region (SAR).

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.

d) Tax treaty limited to certain tax issues.

Entry visas

Permission to enter Sweden is granted to foreign nationals who wish to visit or stay in the country for up to three months if they have valid passports and if they prove they have sufficient means to support themselves while in Sweden and to pay for their jour­neys home. Citizens of certain Eastern European countries and most African, Asian and Latin American countries must apply for visas before they may enter Sweden. Applications for entry visas are made through the Swedish embassy in the country of resi­dence. Citizens from certain countries can obtain permission to enter Sweden on arrival.

Work permits and self-employment

In December 2008, the Swedish parliament enacted legislation revising the rules regarding work permits. The intention was to facilitate the hiring by Swedish employers of non-EU/EEA citi­zens with special skills. The legislation transferred the responsi­bility for determining the availability of the needed skills from the Labour Boards and the Immigration Board to the individual employers.

Citizens of EU/EEA member countries and Switzerland are treated in accordance with EU rules and do not need work permits to work in Sweden. Sweden also has an agreement with the other Nordic countries (Denmark, Finland, Iceland and Norway) that allows citizens of these countries to live and work in Sweden without residence or work permits.

Foreign nationals from other countries who wish to work in Sweden must obtain work permits before entering Sweden. An application for a work permit must be accompanied by an offer of employment form issued by the Swedish employer or “end user” (the company for which the individual performs work in Sweden if not the legal employer) in Sweden. In situations in which the foreign (non-EU/EEA or Swiss) national is a new hire (by the formal employer), the position must be posted on the EU job exchange (EURES) network before a job offer is issued to the foreign national.

The terms of the offer of employment must comply with current collective bargaining agreements concerning wages, mandatory insurance and other benefits or, if no collective agreements exist, with market practice for the specific industry. An opinion must be obtained from the relevant union body as part of the applica­tion process.

Certain exemptions exist with respect to the requirement to apply for a work permit, such as for employees who enter Sweden for the purpose of undertaking internal training for up to three months with the Swedish entity of an international group of com­panies.

EY Sweden has a certification agreement that enables stream­lined processing of work permit applications. For a company certified with the Swedish Migration Agency through EY Sweden, the processing time to receive a work and residency permit is 10 days (or up to 20 days if a positive opinion from the relevant trade union has not been obtained) instead of standard processing times, which can currently range from 12 to 24 months. However, as a result of the ongoing refugee crisis in Europe, the current processing time for certified companies is approximately two months.

Work permits are granted for a maximum period of two years and can be extended for another two years.

In July 2015, the Swedish government appointed a committee to investigate the rules governing work permits in Sweden, the Swedish Migration Agency’s process for the issuance of a work permit and the rights of foreign employees. The committee will present its findings in September 2016.

Residence permits

Non-EU/EEA/Nordic foreign nationals who wish to stay in Sweden for longer than three months must have residence permits. These must be obtained before entering Sweden. Individuals nor­mally apply for residence permits in an application for a work permit, and the permits are granted simultaneously. Residence permits are granted for a maximum period of two years when applied for in an application for a work permit. A renewal applica­tion must be submitted before the expiration of the initial residence permit. An individual who has held a work permit in Sweden for a total of four years may submit a permanent residency application.

Family and personal considerations

Family members. Accompanying spouses or other accompanying family members of expatriates can be included in the primary applicant’s residency application.

Children of expatriates do not need student visas to attend schools in Sweden.

Marital property regime. The default marital property regime in Sweden is community property. All property owned by the spouses is regarded as community property, regardless of wheth­er it is acquired prior to marriage or after marriage by gift or inheritance. If a gift or inheritance is received on the condition that it is deemed to be private property, however, the gift or inheri­tance is not re garded as community property.

Couples may elect out of the regime before or during the marriage by signing a marriage settlement, which should be registered with the civil court.

The community property regime applies to couples resident in Sweden at the time of the wedding. If a couple with foreign citi­zenship becomes resident in Sweden after the wedding, the regime applies after two years of residency in Sweden. The cou­ple may elect out of the regime by signing a settlement.

Driver’s permits. EU citizens and citizens of Iceland, Liechten­stein and Norway may use home country driver’s licenses for unlimited periods of time in Sweden.

Citizens of other countries may use their driver’s licenses for up to 12 months if these are issued in English, French or German, or if they are accompanied by a translation into one of these lan­guages or into Danish, Norwegian or Swedish. A driver’s license without a photograph is valid only if accompanied by an identity document with a photograph. Residents of Sweden for longer than one year must obtain Swedish driver’s licenses. A driver’s license issued in Switzerland or Japan may be exchanged for a Swedish driver’s license if the holder is resident in Sweden or if he or she passes a standard medical test. Otherwise, to obtain a Swedish driver’s license, an individual must complete a physical exam and written and driving tests. In addition, drivers must take lessons in driving on slippery roads.

Obligation to report postings

Foreign employers must report postings and specify a contact person to be registered in Sweden. The Swedish Work Environ­ment Authority maintains the register.

A posted employee is a person who has been sent by his or her employer to another country to work for a limited time period. If a person has been sent to Sweden, he or she is covered by certain provisions in Swedish laws and collective agreements during the period of employment.