Sweden: Doing Business In Sweden - Taxation of Individuals

Last Updated: 28 February 1996
Residents and Non-residents

Territoriality

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

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'.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions