Sweden offers its citizens some of the finest social programs that exist: universal health insurance, unlimited sick days, subsidized childcare, and free university tuition. These luxuries do not come without a cost, however, and Sweden’s tax rates are among the highest in the world. In addition to Swedish taxes, Americans living abroad cannot forget their US expatriate income tax return obligation or other reporting requirements, like FBAR. If you are considering a move to Sweden, you will want to examine what effect it could have on your expat income tax return, as well as the Swedish tax rates and deadlines.
US Expatriate Income Tax Returns While in Sweden
If you are a citizen or permanent resident of the United States, you are obligated as an expatriate to file a US income tax return with the IRS while living in Sweden – whether or not you have any US sourced income. While the US imposes tax on all of the income of its citizens and permanent residents, listed below are the special provisions available within the IRS tax code that help to protect expatriates from double taxation.
- The Foreign Earned Income Exclusion allows you to exclude the first $103,900 of your 2018 earned income as a result of your employment while a resident of a foreign country (the 2019 exclusion amount is $105,900)
- A foreign tax credit can be used to lower your US tax liability on your foreign sourced income by certain amounts paid to a foreign government.
- The Foreign Housing Exclusion allows an additional exclusion from income for certain amounts paid for household expenses that occur as a consequence of living abroad.
Additional filing requirements may be necessary for foreign financial assets located overseas, including filing FBAR (FinCEN Form 114) with the U.S. Department of the Treasury and FATCA (Form 8938) with the IRS as part of your US income tax return. These must be filed whether the foreign financial assets are owned separately or jointly, or if you have signature authority of bank or financial accounts that have balances higher than the respective thresholds.
Swedish Tax Rates
The fact that Sweden has some of the highest tax rates in the world is worth reiterating. You can deduct a basic allowance for 2018 of SEK (Swedish Krona) 13,400-35,100. The following taxes then apply to taxable earned income:
- Municipal Tax – 32.12%
- National Income Tax Rate – 20% if you earn more than SEK 455,300 for 2018, but 25% if you earned more than SEK 662,300 in the tax year
In addition, capital gains are taxable at a flat rate of 30%.
Limited concessions for expatriate employees living in Sweden are granted by Forskarskattenamnden (the Swedish Tax Commission) if certain requirements are met. These expatriate employee concessions will exempt 25% of gross remuneration, reimbursed moving expenses, and some schooling fees. It also provides that no social security is levied on exempt amounts for the first 3 years of a temporary stay in Sweden. The conditions related to these concessions include not being a Swedish citizen, working for a Swedish employer, the assignment not lasting more than 5 years, and having not resided in Sweden for 5 calendar years prior to starting your temporary assignment.
If you have a home or dwelling in Sweden, regularly reside in Sweden for a continuous period of 6 months or more or have essential ties to Sweden (such as maintaining a home in Sweden), you are considered a Swedish resident for tax purposes. If an individual was considered a resident and leaves Sweden, he or she will still be treated as a resident for tax purposes (for up to 5 years) if ties, such as a home or family, still exist in Sweden. Therefore, knowing if you are a resident is important because only residents of Sweden are taxed on worldwide income in Sweden.
Is Foreign (Non-Swedish) Income Taxed in Sweden?
You are taxed on your worldwide income if you are considered a resident in Sweden. Non-residents are only taxed on income sourced within Sweden, including capital gains and pensions. The Swedish tax rate on employment income for non-residents is a flat 20%.
Social Security in Sweden
Part of the reason taxes are so high in Sweden is due to the extensive social insurance programs that the country has in place. Benefits offered include universal health care, old age and unemployment benefits, free university level education, and extensive maternity leave. So, while your tax payments will seem very high at first, acknowledging what you are getting in return will help the transition.
Social security contributions are levied at 31.42% of the total taxable remuneration paid by employers, except for the pension insurance fee of 7% on employment income up to SEK 504,375. The maximum social security charge is SEK 35,300 and may be fully credited against other income taxes.
Swedish Tax Due Date
One aspect of your expatriate income tax return that won’t change with a move to Sweden is the tax year; Sweden also uses the calendar year for individual tax returns. These returns must be delivered to the Swedish Tax Agency by May 2nd of the following year.
US – Sweden Tax Treaty
Individuals filing an expatriate tax return will be relieved to know that there is a US-Sweden tax treaty. The treaty is useful for determining how your income will be treated by both the United States and Sweden if you pay taxes to both countries.
Other Taxes in Sweden
There are other forms of taxation in Sweden of which individuals residing in the country should be aware. The Value Added Tax (VAT) is levied on all goods and services in Sweden, including those crossing borders within the EU. The standard rate for the Swedish VAT is 25%, with reduced rates of 12% for foodstuffs and certain tourism industries, and 6% for newspapers and passenger transport.
There is no wealth, inheritance, or estate tax in Sweden.
Saving on US Expat Taxes
Sweden’s tax structure has tax rates that are much higher than what you may be used to paying in the United States. However, bear in mind that paying higher taxes to Sweden will translate into a lower tax liability with the United States since the Foreign Tax Credit will allow you to reduce your US tax liability on a dollar-for-dollar basis against any taxes paid to Sweden. The tax rates in Sweden are high enough that the Swedish tax liability is nearly guaranteed to eliminate your US tax liability on your US expatriate income tax return.
For more details about how a move abroad will affect your expatriate tax return, be sure to check out our guides for Americans living abroad.
Need More Information About US Expat Taxes in Sweden?
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Originally published in 2012; updated May 1, 2019