Sweden Individual Tax Guide

Sweden

Stockholm GMT +1

EY Street address: Mail address: Hamngatan 26 Box 7850 Stockholm 103 99 Stockholm Sweden Sweden

Executive contacts

Katrin Norell

+46 (70) 318-98-07 Email: katrin.norell@se.ey.com

Sevim Güven +46 (72) 230-95-20 Email: sevim.guven@se.ey.com

Andreas Bråthe +46 (73) 397-24-33 Email: andreas.brathe@se.ey.com

Private Client Services contact

Andreas Bråthe +46 (73) 397-24-33 Email: andreas.brathe@se.ey.com

Social security contact

Sevim Güven +46 (72) 230-95-20 Email: sevim.guven@se.ey.com

Immigration contact

Jose Vaz +46 (70) 148-13-25 Email: jose.vaz@se.ey.com

A. Income tax

Who is liable

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 gener ally 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 secu rity purposes unless they are exempt under the foreign key person nel 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 non resident 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.

However, the 183-day rule does not apply if the employee’s work can be seen as the hiring of labor to a Swedish company (that is, to a Swedish economic employer). Hiring of labor means that an individual is directly or indirectly made available by a foreign employer to perform work in a company’s business in Sweden and the work is performed as an integrated part of that company’s activities and, entirely or partly, under the Swedish company’s control and management. In these situations, taxation could arise in Sweden.

Several factors are considered when assessing whether the work can be regarded as hiring of labor, such as the following:

• Which entity benefits from the work performed by the employee?

• Which entity instructs the employee?

• Which entity bears the cost?

In situations in which the work is regarded as hiring of labor, the 183-day rule does not apply to provide an exemption from Swedish taxation for Swedish workdays under 183 days. However, Swedish taxation may still be exempt to some extent as the economic employer concept only applies for nonresidents working in Sweden for a period exceeding 15 consecutive workdays or a total of 45 workdays during a calendar year. Therefore, any work per formed in Sweden under these thresholds is still exempt from taxation, provided that the remaining criteria of the 183-day rule are met.

Foreign key personnel, who are experts and scientists with knowl edge 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 SEK95,201 (including monthly benefits) per month for the 2021 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 listed 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 opera tion of a business, it is taxed at the rates applicable to business income. Royalties are in general 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 sub ject 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 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 account ing 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, direc tors’ 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 25% final withhold ing 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 exemp tion, depending on the applicable tax treaty or whether the indi vidual is a citizen of a country within the European Union (EU). 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. However, tax withholding is limited to cash payments in the month in which the taxable event occurs.

According to Swedish Supreme Administrative Court decisions in 2015 and 2018, stock 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 con trolled 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 pur chased 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 dispos als of private homes located in Sweden or abroad. Consequently, gains derived from the sale of a primary residence are taxed at a rate of 22% (22/30 x 30%). 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 generate a tax credit with respect to tax payable on employment income.

Deductions

Deductible expenses. The principal deductions allowed are inter est expense, expenses for travel between home and work and for business, 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 expens es exceeding SEK100,000, the percentage of the tax credit is reduced to 21%.

Under certain conditions, travel costs between home and work that exceed SEK11,000 are deductible. The amount deductible if using a private automobile is SEK1.85 for each kilometer trav eled. 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/ European Economic Area (EEA) member states and Switzerland can be deductible in Sweden.

Personal deductions. A basic deduction is allowed for both local and state tax purposes. For 2021, the amount of the basic local and state deduction ranges from SEK14,000 to SEK36,700. However, this does not imply that all income in excess of SEK14,000 is taxed because no tax is payable if total income does not exceed SEK20,100 (for 2021). Accordingly, up to this level of income, the personal deduction does not apply. Beyond an income level of SEK20,100, the personal deduction super sedes the exemption rule. The personal deduction is subject to proration if individuals are part-year residents.

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 2021, employment income is subject to both national income tax and local income tax, at the rates set forth below.

Employment income over SEK537,200 (before the personal deduction) is subject to national tax at a flat rate of 20% (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 25%, and no deductions are allowed. This tax is imposed as a final withholding tax. A special application form needs to be filed annually with the Swedish tax agency in order to get a deci sion 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 selfemployment. This tax credit is calculated on the basis of the eli gible 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 household or housekeeping services. Such services include clean ing, childcare 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 SEK75,000. As a result, the maximum annual tax credit is SEK75,000 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 tax payer 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 EU/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.

The aforementioned credits combined cannot exceed SEK75,000 per year.

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.

B. 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. However, the highest amount of the real estate fee is capped at SEK8,524 for each house. The owner of the real estate should pay the real estate fee. The owner or the owner as of 1 January the applicable year should pay the fee for the whole calendar year.

This fee also applies to nonresidents owning real estate in Sweden.

For business properties, other rates may apply.

C. 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 admin istered by a single authority. For 2021, the total rate for most employers is 31.42%. In addition, the rate is 10.21% for indi viduals born between 1938 and 1955 (both years inclusive). The rate is 0% for individuals born in 1937 or earlier. For individuals

born between 1998 and 2002, social security taxes are paid at a rate of 19.73% on monthly remuneration up to SEK25,000. However, this reduced social security tax for individuals born between 1998 and 2002 is temporary and is effective from June 2021 until March 2023. Further, for individuals born between 2003 and 2005, social security taxes are paid at a rate of 10.21% on monthly remuneration up to SEK25,000. The ordinary rate applies for the excess.

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 2021, the nominal social security rate is 28.97% for income from a busi ness actively conducted by an individual. In addition, the rate is 10.21% for individuals born between 1938 and 1955 (both years inclusive). The rate is 0% 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 Norway Belgium Hungary Philippines 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 Netherlands

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

D. 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 selfemployed or who have business income as well as other nonemployment income may register as self-employed taxpayers. Preliminary tax is then computed according to a preliminary tax return. The preliminary tax is payable monthly, beginning in Feb ruary of the fiscal year and ending in January of the following year.

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.

E. Double tax relief and tax treaties

Double tax relief is provided by allowing taxpayers to credit for eign 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-operation 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 Norway (b)

Argentina Greece Pakistan Australia Guernsey (d) Philippines Austria Hungary Poland Bangladesh Iceland (b) Portugal Barbados India Romania

Belarus Indonesia Russian Federation

Belgium Ireland Singapore

Bermuda (d) Isle of Man (d) South Africa

Bolivia Israel Spain

Botswana Italy Sri Lanka

Brazil Jamaica Switzerland

British Virgin Japan Taiwan Islands (d) Jersey (d) Tanzania Bulgaria Kazakhstan Thailand Canada Kenya Trinidad and Cayman Islands (d) Korea (South) Tobago Chile Latvia Tunisia

China Mainland (a) Lithuania Turkey

Cyprus Luxembourg Ukraine

Czechoslovakia (c) Malaysia USSR (c)

Denmark (b) Malta United Kingdom

Egypt Mauritius United States

Estonia Mexico Venezuela

Faroe Islands (b) Namibia Vietnam

Finland (b) Netherlands

Yugoslavia (c)

France New Zealand Zambia

Gambia Nigeria Zimbabwe

Georgia North Macedonia

(a) The treaty does not apply to Hong Kong. (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.

F. Entry visas

Permission to enter Sweden is granted to foreign nationals who wish to visit or stay in the country for up 90 days within a 180-day period 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 jurisdictions outside of the EU may be required to apply for visas before trav eling to Sweden. Applications for entry visas are made through the Swedish embassy or consulate in the country of residence. Citizens from certain countries can obtain permission to enter Sweden on arrival. For a list of visa-required nationals, please refer to the Swedish Ministry of Foreign Affairs website.

G. 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 citi zens with special skills. The legislation transferred the responsi bility for determining the availability of the needed skills from the Labour Boards and the Migration Agency 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 local 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 applica tion process.

The Swedish work permit regulation stipulates that no foreign citizen should be granted a work permit in Sweden unless their terms of employment are at least on par with Swedish collective agreements or the practice within the occupation or line of busi ness. The terms of employment include salary level and insur ance coverage. The requirement to offer terms of employment that are at least on par with Swedish collective agreements or that are customary in the occupation or industry applies regardless of whether the employer has a collective agreement.

The type of insurances that must cover employees include the following:

• Health insurance

• Life insurance

• Occupational injury

• Pension insurance

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 com panies. Such exemptions are outlined in Chapter 5 of the Aliens Ordinance.

EY Sweden has a certification agreement that enables stream lined 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 for first-time applications and up to 20 days for extension applications (provided that the applications are deemed simple and complete by the Migration Agency). Applications filed outside of certification can instead carry a processing time of up to 12 months.

Work permits are granted for a maximum period of two years and can be extended for an additional two years. After 48 months of work in Sweden, a permanent residence permit can be applied for.

H. 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 nor mally 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 applica tion 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.

To be granted a permanent residence permit, the employment needs to fulfill the work permit requirements (offered terms of employment must be at least on par with those set by Swedish collective agreements or with those that are customary within the occupation or industry). However, the individual also needs to have sufficient ties to the Swedish labor market. If the individual has spent more than one year outside of Sweden during the previ ous four years, he or she would be deemed to have insufficient ties to Sweden. As a result, the permanent residence permit would not be granted, and the individual would have to leave Sweden. If the individual has spent less than one year outside of Sweden but more than four months, they would not be deemed eligible for permanent residence but could be granted a tempo rary extension of their work and residence permit in order to qualify for permanent residence at a later date.

I. Family and personal considerations

Family members. Accompanying spouses or other accompanying children below the age of 21 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 inheri tance is not regarded 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 cou ple may elect out of the regime by signing a settlement.

Driver’s permits. EU citizens and citizens of Iceland, Liechten stein 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 lan guages 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 Japan, Switzerland or the United Kingdom 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.

J. Obligation to report postings and new hires

Posted worker reporting. Foreign employers must report postings and specify a contact person to be registered in Sweden. The Swedish Work Environment Authority maintains the register. Reporting should be made as of the first day, effective from 30 July 2020.

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. This covers all posted workers regardless of nationality or citizenship.

New foreign employee reporting. All new third-country (non-EU/ EEA) hires, regardless of whether they are locally employed or assigned to Sweden, must be reported to the Swedish Tax Agency by no later than the 12th day of the month following the indi vidual’s first day of work in Sweden.