Sweden: Doing Business In Sweden - Taxation of Individuals

Last Updated: 28 February 1996
Residents and Non-residents


Individuals deemed to be residents for tax purposes are liable for taxes on their worldwide income, as well as on their net wealth at year-end. The tax liability on income generated abroad or assets located abroad may be reduced by an applicable income tax treaty (see Tax Treaty). Non-residents are liable to tax only on certain income from Swedish sources (see Taxation of Non-residents).

Under the "six-month rule", an individual Swedish tax resident with revenue from employment outside Sweden will be exempt from Swedish taxes on this income provided both of the following apply:

- Both the employment and the stay abroad last for a period of at least six months; and
- The income has been taxed in the country of employment.

Even if no taxes are paid abroad (usually because the foreign country exempts certain salaries from taxation), income from employment abroad may be exempt from tax provided both the employment and the stay abroad last more than one year in the same country.

Definition of Resident

A Swedish resident is defined as an individual whose real dwelling and home is in Sweden, or who has entered Sweden with the intention to establish residence there. Individuals could also be treated as residents if their stay in Sweden is permanent. A stay in Sweden of six months' duration or more is normally regarded as permanent. The six-month period for permanent residency has no connection with the 183-day rule contained in most tax treaties. As soon as foreigners leave Sweden, they once again are liable for Swedish tax only on income from Swedish sources.

A person who has "essential connections" with Sweden may also be regarded as a Swedish resident. This rule usually becomes important when a Swedish national, or a person who has been a resident of Sweden for at least 10 years, leaves Sweden to take up residence in another country. In this case, the former residents must prove that they do not have essential connections with Sweden during the first five years from the date of departure. To prove that no essential connections exist, all of the facts and circumstances of each case are considered.

Taxation of Residents

Income Subject to Tax

All remuneration received by a resident Swedish individual is taxable unless it is specifically exempted by law. It makes no difference whether the remuneration is received in the form of cash or in kind, or whether it is intended to cover expenses incurred on the job or private living costs. Foreigners who come to Sweden to work are often reimbursed for moving expenses, rent, school fees, home leave and similar items. However, a Swedish resident may claim expenses incurred in connection with work as a deduction from taxable income, including expenses for increased living costs.

Three separate sources of income are recognised:
- Income from employment;
- Income from business; and
- Income from capital.

Income from Employment

Income from employment includes all wages, salaries and pensions as well as most allowances and fringe benefits. Directors' fees are taxed as income from employment.

The private use of a company car, housing benefits and free meals are valued according to special tables. All other fringe benefits are valued at market price.

Income from Business

Self-employment income of residents is considered business income. Taxable business income is computed under the rules of "good accounting practice". Accounting profit and taxable profit are, in principle, the same, although the tax law prescribes a number of adjustments that must be made.

Royalties are taxed as income from business.

For expenses to be deductible, they must be included in the financial accounts and thus reflect net taxable profit. In principle, all expenses incurred to obtain, secure and maintain business income are deductible. Exceptions are made for expensive entertainment and the costs of wine and liquor.

A profit allocation reserve is available.

Income from Capital

Income from capital consists of interest, dividends, capital gains and losses, income from certain real estate and other similar income. Dividend income, 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.

Interest expenses may be deducted from capital income. If the result is a net capital loss, then a tax credit of 30% is available against national income tax, local income tax and real estate tax up to a net loss of SEK 100,000 and 21% on the excess.

Capital gains are generally taxed at a 30% rate. Gains on real estate are taxed at a 30% rate. Seventy per cent of capital losses may generally be deducted against capital income. Losses on the sale of listed securities, however, are fully deductible against gains on listed securities.

Only 50% of the gain on the sale of a permanent home is a taxable capital income. A permanent home is a home acquired at market price in which the taxpayer has been resident for at least one year, provided that the period of ownership during which the taxpayer has not been resident does not exceed one year. However, a house is always regarded as a permanent home if the taxpayer has been resident in it for at least three of the preceding five years.

If real property which was acquired before 31 December 1990 is sold before 31 December 1999, certain transitional rules apply. The tax cost of such property is equal to the tax cost calculated under rules applying to sales before 31 December 1990 plus the cost of improvements made from 1 January 1991 up to the date of sale. Transitional rules relating to indexation rules under prior law may apply.

Gains realised by individuals or estates on the sale of business real property or condominiums are taxed as income from capital unless the sale is considered part of a trading activity. Gain to the extent of depreciation deducted during the period of ownership is added back to the cost basis and taxed as business income. The costs of maintenance and repair are also added back to the cost basis, provided they have been incurred within the preceding five years.

A deficit in the income from capital must be used in the year it occurs. It may not be carried forward as a tax loss. However, if the result is a net capital loss, then a tax credit of 30% is available against national income tax, local income tax and real estate tax up to a net loss of SEK 100,000 and 21% on the excess.


Losses resulting from business and employment may be carried forward and offset against the same categories of income in future years without time limit.

Personal Deductions

In determining net taxable income, the following personal deductions are allowed:

- A basic deduction, which for 1995 is a minimum of SEK 8,900 and a maximum of SEK 18,100;
- Payments to a Swedish insurance company for personal pension insurance, limited to SEK 17,850 for 1995;
- Expenses for travel between home and work;
- Maintenance paid to a former spouse, up to certain limits; and
- Expenses connected with dual residence (double living expenses).

Tax Rates

Income from employment and income from business are taxed at progressive rates. For 1995, such income up to SEK 203,800 is subject only to a local income tax and a fixed national income tax of SEK 100. The local income tax rate varies from 26% to 35% depending on the municipality and the average local income tax is approximately 31%. Income over SEK 203,800 is subject to a 25% national income tax in addition to the local income tax. The threshold of SEK 203,800 is adjusted for inflation annually. for the 1995 rates.

Income from capital is subject to national capital gains tax at a rate of 30%.

Taxation of Expatriates

Foreign nationals working in Sweden are subject to Swedish tax on their worldwide income and capital gains if they are deemed Swedish residents for tax purposes. Expatriates do not receive any special, favourable tax treatment.

Taxation of Non-residents

Non-resident individuals are taxed on salary earned from work performed in Sweden, certain pensions, income from a permanent establishment in Sweden, income from real property located in Sweden and capital gains on the sale of such real property. On salary income and pensions, non-residents pay only a national tax of 25%, and no deductions are allowed. This is levied as a final withholding tax. Foreign entertainers and artists are subject to an "artist tax", which is basically a withholding tax. In addition, a non-resident who is not a dealer in shares is taxable on capital gains from sales of portfolio shares in certain Swedish companies and certain securities issued by Swedish limited liability companies if the individual resided or stayed permanently in Sweden at any time during the 10 calendar years immediately preceding the year in which the transaction occurred.

Income from salary and other comparable benefits received by a non-resident for employment or as a commission for an activity performed in Sweden paid by an entity other than the Swedish state or a Swedish municipality is exempt from tax if all of the following 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; and
- The remuneration is not an expense of a permanent establishment in Sweden belonging to the employer.

Non-residents are taxed on fees and similar remuneration received in their capacities as members or deputy members of boards or similar bodies of a Swedish company regardless of where the services are performed.

Individuals are generally taxed on a cash basis, with liability for income taxes incurred only when income is constructively received. This creates uncertainties if, for example, payments are constructively received after a person has left Sweden. Although unrestricted tax liability ceases the day a foreigner leaves Sweden, compensation constructively received by a foreigner after departure from Sweden is taxable if it constitutes payment for work performed exclusively in Sweden.

Individual Income Tax Rates

The following table presents the 1995 combined (national and local) effective marginal rates for the respective brackets of income assuming a 31% local tax rate. In using the table, taxable income should always be rounded down to the nearest SEK 100 (for example, SEK 203,894 is rounded to SEK 203,800). The table assumes taxable income net of the basic deduction (net taxable income). The basic deduction and the brackets are adjusted annually. Net taxable income up to SEK 203,800 is subject to an SEK 100 fixed minimum national income tax that is not reflected in the table. Net taxable income exceeding SEK 203,800 is subject to a 25% flat national income tax that the table reflects as part of the 56% combined marginal tax rate for that bracket.

The basic deduction increases proportionally from SEK 8,900 to SEK 18,100 over the taxable income range of SEK 8,900 to SEK 103,200. The deduction reaches its maximum of SEK 18,100 for the taxable income range of SEK 103,200 to SEK 108,700. The increased deduction is phased out over the range of SEK 108,700 to SEK 199,800 and returns to SEK 8,900 for net taxable income exceeding SEK 199,800. The marginal rates in this table reflect the national and local tax on taxable income net of the basic deduction.

                   Net Taxable Income

           Exceeding                Not Exceeding          Tax Rate
              SEK                        SEK                  %

                 0                       203,800              31

           203,900                          -                 56

Individual Income Tax Calculation

The following illustrates the 1995 income tax calculation for a single individual permanently residing in Sweden.
Calculation of Taxable Earned Income             SEK

Salary                                       300,000
Basic deduction                           (    8,900)
Taxable earned income                        291,100

Calculation of Tax

Local income tax at 31%                       90,241
National income tax
SEK 100 + 25% x(SEK 291,100 - SEK 203,800)    21,925

Total tax on earned income                   112,166

Income from capital:
interest expense of SEK 140,000

Tax reduction: 30% of 100,000              (  30,000)
               21% of 40,000               (   8,400)

Total income tax payable                      73,766

The contents of this article are intended as a general guide to the subject matter. Specialist advice should be sought for your specific circumstances.

For further information contact Per Snellman on Tel: +468 613 9000 0r Fax: +468 791 7511; or enter a text search 'Ernst & Young' and 'Business Monitor'.

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