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  • Service: Tax, International Executive Services
  • Type: Regulatory update, Survey report
  • Date: 2/26/2014

Income Tax 

Taxation of international executives
Tax returns and compliance
Tax rates
Residence rules
Termination of residence
Economic employer approach
Types of taxable compensation
Tax-exempt income
Expatriate concessions
Salary earned from working abroad
Taxation of investment income and capital gains
Additional capital gains tax (CGT) issues and exceptions
General deductions from income
Tax reimbursement methods
Calculation of estimates/prepayments/withholding
Relief for foreign taxes
General tax credits
Sample tax calculation


All information contained in this document is summarized by KPMG AB, the Swedish member firm of KPMG International, based on Inkomstskattelagen Inkomstskattelagen (1999:1229), Lag (1998:674) om inkomstgrundad ålderspension, Socialförsäkringslagen (1999:799), Socialavgiftslagen (2000:980), Lag (1984:1052) om statlig fastighetsskatt, Lag (2007:1398) om kommunal fastighetsavgift, Skattebetalningslagen (1997:483), Lag (2007:346) om skattereduktion för hushållsarbete, Taxeringslagen (1990:324), Folkbokföringslagen (1991:481), Lag (2001:1227) om självdeklarationer och kontrolluppgifter.


Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?


Individual tax returns must be filed no later than 2 May of the year following the income year (calendar year).


What is the tax year end?


The tax year ends 31 December.


What are the compliance requirements for tax returns in Sweden?


Residents and non-residents


Full-year and part-year residents in Sweden file general tax returns. Tax return forms may be partly pre-printed on the basis of income statements issued by employers, banks, and so on. If a spouse or child has income, they must file their own return (joint returns do not exist). The time limit can be extended on application if there is a valid reason (such as out of the country, illness, and so on).


The tax agency issues final tax assessments June through December in the year following the income year. Where tax withheld exceeds the final tax liability, any excess is refunded when the final assessment is issued. Otherwise, if the tax withheld falls short of the final tax liability, the residue must be paid within three months after the final assessment has been issued.


Interest is payable on unpaid tax, accruing from 13 February in the year following the income year.


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Tax rates

What are the current income tax rates for residents and non-residents in Sweden?


Employment income for non-residents and investment income are subject to tax at flat rates, 20 percent and 30 percent respectively. Employment income for residents and business income for both residents and non-residents are subject to both municipal income tax and national income tax. Municipal income tax is levied at a flat rate, which varies from one municipality to another. The present average rate is 31.86 percent. National tax is levied at a rate of 20 percent on the portion of earned income between SEK 420,800 and SEK 602,600. The rate is 25 percent on the portion of earned income exceeding SEK 602,600.


Residents


Income tax table for 2014 – Employment income and Business income



Municipal Income Tax on Earned Income and Business income


Levied with 31.86 % (average rate) on total of taxable income.



National Income Tax on Earned Income and business income


Taxable income (SEK ) Tax on lower amount Tax within bracket
420,800– 602,600 SEK 0 20%
Over 602,600 SEK 36,360 25%

The maximum marginal rate on earned income is approximately 57 %.


Personal Earned Income Allowance


Full Year Residents


Total Income (SEK ) Allowance (SEK )
18,800 – 44,000 18,800
44,100 – 120,500 18,900 – 34,100
120,600 – 138,900 34,200
139,000 – 348,900 34,100 – 13,200
349,000 and above 13,100


Part Year Residents receive


A prorated portion of the minimum SEK 13,100 full year allowance.


Personal tax credit for People in Work (Work Allowance)

Total Income (SEK ) Credit (SEK )
18,900 – 40,404 32 – 6,883
40,405 – 130,536 6,883 – 11,510
130,537 – 358,752 11,511 – 26,304
Above 358,752 26,311

The calculation above is assuming a municipal tax rate of 31.86% (average rate) and that the tax payer is tax resident in Sweden during the whole year of 2014.


Income tax table for 2014 – Investment income


Taxable income bracket Tax on lower amount Tax rate on income in bracket
From SEK To SEK SEK Percent
0 Over Flat rate 30

Non-residents


Income tax table for 2014 – Employment income


Taxable income bracket Tax on lower amount Tax rate on income in bracket
From SEK To SEK SEK Percent
0 Over Flat rate 20

Income tax table for 2014 – Business income


Municipal Income Tax on Business income


Levied with 25% on total of taxable income.


National Income Tax on Business income


Taxable income (SEK ) Tax on lower amount Tax within bracket
420,800– 602,600 SEK 0 20%
Over 602,600 SEK 36,360 25%

The maximum marginal rate on earned income is 50%.


Income tax table for 2014 – Investment income


Taxable income bracket Tax on lower amount Tax rate on income in bracket
From SEK To SEK SEK Percent
0 Over Flat rate 30

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Residence rules

For the purposes of taxation, how is an individual defined as a resident of Sweden?


An individual is considered a resident in Sweden for tax purposes if one of the following three conditions is met:


  • The individual has his/her real home and dwelling in Sweden.
  • The individual stays in Sweden during a lengthy period of time (a permanent sojourn) and with only occasional interruptions. There is no legal definition of permanent sojourn, but a stay of six months or more will in general constitute residency.
  • The individual does not stay in Sweden on a permanent basis, but has previously maintained a real home and dwelling there, and has an essential connection with Sweden. The tax law contains examples of which circumstances should be taken into account when deciding whether these conditions apply and define what these conditions mean with more precision.

The laws also contain a deemed residence provision in the case of Swedish nationals or individuals having had their real home and dwelling in Sweden or stayed there on a permanent basis for 10 years or more. Such persons are deemed to be resident in Sweden during five years from the day of departure from Sweden, unless they can prove that they have no essential connection with Sweden.


Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.


There is no de minimus number of days rule.


What if the assignee enters the country before their assignment begins?


The residency status will be based upon the arrival date.


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Termination of residence

Are there any tax compliance requirements when leaving Sweden?


Exit taxation for departing employees on employee stock options has been abolished as of 1 January 2009. However, it is still necessary to analyze the individual’s Swedish tax residence status since Sweden is likely to claim that a portion of the option gain is taxed in Sweden at exercise, even if the individual is no longer a tax resident in Sweden at exercise. This is because part of the option gain will be considered derived from work performed in Sweden.


It is necessary to be aware of how tax residency is defined under Swedish tax law to determine whether the employee is resident or deemed resident for tax purposes at exercise even though an individual has left Sweden by that time. An individual is liable for Swedish taxes on worldwide income (that is, fully liable to tax in Sweden) if he/she is a permanent resident or has habitual abode in Sweden. Further, an individual will be deemed a Swedish resident if he/she has been a permanent resident or had a habitual abode in Sweden and maintains an essential connection with Sweden after departing the country.


If the individual is still a tax resident in Sweden at exercise, the individual’s worldwide income should be reported and taxed in Sweden. However, both under domestic tax law and under applicable tax treaties, income can be exempted or foreign tax credited. Moreover, if the individual is a non-resident in Sweden at exercise, but performing duties in Sweden, Sweden will claim that any portion of the option gain which relates to work performed in Sweden should be taxed in Sweden, but at the non-resident flat rate of 20 percent.


Please also note that Sweden will source from the date of grant to the date of vesting. However, the applicable tax treaty must be analyzed from a sourcing perspective.


Moreover, it should be observed that exit taxation is triggered if an individual has postponed capital gains taxation on stocks when a buying company or cooperative society offers stocks in exchange for the sold stocks instead of cash.


An individual who is considered non-resident in Sweden after departure can be subject to taxation on capital gains on shares and other securities. Should the disposal be made during ten years following the departure from Sweden, provided that the shares/securities were acquired while the individual was tax resident in Sweden, the capital gain will be subject to tax.


What if the assignee comes back for a trip after residency has terminated?


Normally, the residency will not be extended. However, it shall be noted that the residency may still be valid if it can be concluded from the circumstances that the assignee still resides in Sweden. The tax agency may decide the above on a case-by-case study.


Communication between immigration and taxation authorities


Do the immigration authorities in Sweden provide information to the local taxation authorities regarding when a person enters or leaves Sweden?


No.


Filing requirements


Will an assignee have a filing requirement in the host country after they leave the country and repatriate?


An assignee is obliged to file a Swedish tax return the year after repatriating on income derived from Sweden while resident here. Payments made after the repatriation but attributable to work performed in Sweden are taxed under the special income tax for non-residents at a flat rate of 20 percent instead of the progressive rate (assuming non-residency after repatriation).


The assignee should, when repatriating, deregister from the national registration.


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Economic employer approach

Do the taxation authorities in Sweden adopt the economic employer approach to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Sweden considering the adoption of this interpretation of economic employer in the future?


No.


De minimus number of days


Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?


Not applicable.


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Types of taxable compensation

What categories are subject to income tax in general situations?


The general rule is that all remuneration and benefits, whether in-cash or in-kind, in respect of an employment or temporary assignment constitute taxable income. Typical items of an expatriate compensation package are treated as taxable as follows:


  • base salary
  • reimbursement of taxes

Remuneration received free of tax will be grossed up for income tax purposes to a pre-tax gross salary.

  • school tuition reimbursements
  • cost-of-living and home leave allowances
  • expatriation premiums for working in Sweden
  • the benefit of free accommodation in employer-owned premises would be valued at market value

In the case of employer-rented accommodation, the value of the benefit would probably be equal to the rent paid by the employer. Where the employer reimburses rent paid by the employee to him/her the whole amount of the rent constitutes taxable employment income for the employee. The two latter cases also apply where (higher) rents are paid for furnished accommodation.

  • the provision of a company car

The provisions on assessing the taxable benefit of a company car are complex. Company cars are taxed at standard values, based on a given list price. Benefit of free fuel is taxed separately from the company car.

  • the provision of rest and relaxation facilities, or the contributions paid to the employee and/or his/her family for such purposes, constitutes taxable income
  • low-interest loans to employees and employer-financed stock options acquired below market value are generally taxable as employment income

Employer’s contributions to a foreign pension plan may under certain conditions constitute taxable income, unless corresponding approval is granted or the plan is deemed to be tax qualified in Sweden or a tax exemption follows from tax treaty provisions.

  • employee stock options as defined for Swedish tax purposes are generally taxed at exercise

The taxable value is determined as the fair market value of the underlying stocks at the time of exercise less the strike price of the options and any premiums paid by the employee.

  • under Swedish tax laws, compensation is taxable when available to the employee (at the employee’s disposal), even if paid later

Where remuneration becomes available to the employee after his/her departure from Sweden (when he/she has become a non-resident of Sweden), such remuneration would be taxable if it refers to services previously performed in Sweden. However, the income will in this case be taxed at the non-resident rate of 20 percent.


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Tax-exempt income

Are there any areas of income that are exempt from taxation in Sweden? If so, please provide a general definition of these areas.


Typical tax-free benefits include the following items.


Reimbursed moving expenses


  • Moving expenses, including transportation of the employee and his/her family, when the move is induced by a change in the place of employment.

Private medical care


  • Free private medical care is currently tax-free. However patients’ fees for care within the government financed medical system will be taxed if reimbursed by the employer.

Group life assurance plan


  • Normal contributions to a group life assurance plan.

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Expatriate concessions

Are there any concessions made for expatriates in Sweden?


The content of the rules, the conditions for them to apply, and the categories of personnel that may qualify are summarized below.


Contents


  • 25 percent of gross remuneration is exempt from income tax.
  • Exemption will also cover reimbursement of moving expenses, home leave (twice a year for the employee and family members), and certain school fees for nine-year compulsory school and for upper secondary school.
  • Social security is not levied on tax-exempt amounts.
  • Rules to apply for the first three years of the temporary stay in Sweden.

Conditions


  • The employee must not be a Swedish citizen.
  • The employee must not have been resident nor had his/her habitual abode in Sweden at any time during the five calendar years preceding the year when the temporary assignment started.
  • It is required that the temporary assignment is intended not to last longer than five years.
  • The employer must be resident in Sweden or be a foreign enterprise with a permanent establishment in Sweden.
  • The authority granting exemption, Forskarskattenämnden, will decide if the employee meets the necessary requirements. The decision may be appealed. An application must be filed within three months after the beginning of the assignment.

Categories of personnel


Qualification based on Employment Income Level


Provided that the above conditions are met, an expatriate with an employment income level exceeding SEK 88,800 (2014) automatically qualifies for the relief. However, an application will still have to be filed within three months after the beginning of the assignment.


Should not the employment income level requirement be met, the relief can still be applicable for the following categories of personnel:

  • Specialists and experts with an expertise not available or difficult to find in Sweden (such as technical experts).
  • Scientists employed in industry as well as any research institute with an expertise not available or difficult to find in Sweden.
  • Executives and other key personnel (such as directors, senior management, and top-level specialists in different fields such as administration, logistics, marketing, and IT).

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Salary earned from working abroad

Is salary earned from working abroad taxed in Sweden? If so, how?


Where a resident of Sweden performs work abroad as an employee, any remuneration received in respect of such work may be exempt from Swedish income tax under one of the following conditions:


  • The employment and the stay abroad last for six months or more and the income has been taxed in the country where the work is performed.
  • The employment and the stay last for one year or more in one country. In this case, the income need not be taxed in the country where the work is performed, but there must be a bona fide reason for non-taxation, other than that the income is exempt under a tax treaty.

Furthermore, exemption will only be granted where the visits to Sweden do not exceed in average six days per calendar month or in aggregate 72 days during a 12-month period. The rules may, nevertheless, apply if the stay abroad has to be interrupted because of war, earthquake and similar circumstances or due to illness of the employee or a member of his/her family. The rules imply full exemption, that is, the exempt income is not taken into account for progressing the individual’s tax rates.


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Taxation of investment income and capital gains

Are investment income and capital gains taxed in Sweden? If so, how?


Investment income includes dividends, interest, capital gains, and rental income from private residences. This type of income is subject to tax at a flat rate of 30 percent.


Dividends, interest, and rental income


Dividends


Dividends are generally taxable as investment income at a flat rate of 30 percent. However, part of the dividends from closely held companies may be taxed as employment income in the hands of a shareholder who actively works or who has actively worked for the company to a significant degree during the last five years.


Interest


Interest is taxed as investment income at a flat rate of 30 percent.


Rental income


Rental income from immovable property such as a private dwelling is taxable as investment income at a flat rate of 30 percent. A standard deduction of SEK 40,000, plus 20 percent of the gross rental income, is allowed. If the rental object is a flat, the 20 percent deduction does not apply. Instead, other deductions are available. Other rental income from immovable property, that is, not from private dwellings, is taxed as business income and hence at ordinary progressive tax rate.


Gains from stock option exercises


Please note that this only refers to employee stock options.


Residency status Taxable at:
Grant Vest Exercise
Resident N N Y
Non-resident N N Y
Other (if applicable) N/A N/A N/A

Foreign exchange gains and losses


Regardless if the gain accrues by a business activity or not, exchange gains are considered a taxable income in Sweden. An exchange gain is taxable as investment income at a flat rate of 30 percent.


If payments are received due to a sale of assets in a foreign currency and the money is exchanged within 30 days, the exchange rate on the day of exchange shall be applied when calculating the gain/loss.


Principal residence gains and losses


22/30 of principal residence gains are taxed at a flat rate of 30 percent. Taxation may be deferred if a substitute home is bought within the EU and if certain criteria are met. Tax of 0.5 percent of the deferred gain is levied annually. Moreover, under general rules for capital losses, for capital losses not exceeding SEK 100,000 the taxpayer is entitled to a tax relief equal to 30 percent of the loss. Any portion of the loss exceeding SEK 100,000 will entitle the taxpayer to a tax relief of 21 percent. The tax credit can be used to set-off national and municipal income tax and the municipal real property fee.


Please note that Sweden also taxes gains on properties located outside of Sweden if the individual is a tax resident in Sweden at the time of signing the sales contract.


Capital losses


Capital losses may be set-off against capital gains. Please also see above regarding deductible amounts.


Personal use items


On property used by the taxpayer himself/herself for private purposes gains are included in taxable investment income only to the extent that the gain exceeds SEK 50,000 per year. Losses on such assets are not deductible.


Gifts


There is no gift tax.


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Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Sweden? If so, please discuss.


Not applicable.


Are there capital gains tax exceptions in Sweden? If so, please discuss.


Pre-CGT assets


Not applicable. Please see above under Personal Use Items.


Deemed disposal and acquisition


Not applicable.


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General deductions from income

What are the general deductions from income allowed in Sweden?


In regard to employment income, the tax allowable items include expenses for travel between home and office to the extent that such expenses exceed SEK 10,000. Increased cost-of-living during business trips, temporary assignments away from home and other necessary expenses related to the employment are allowable to deductions subject to certain restrictions.


For 2014, a resident taxpayer is granted an income-related personal allowance ranging from SEK 13,100 to SEK 34,200. For part-year residents, an allowance of SEK 13,100 is granted on a pro rata basis.


Alimony paid to a divorced spouse is deductible if the liability is established through a written agreement or by a court order. Alimony payments received constitute taxable income. Maintenance paid to children is not deductible.


Interest not attributable to a business activity is fully deductible against investment income. Where investment income totals a loss not exceeding SEK 100,000 the taxpayer is entitled to tax relief equal to 30 percent of the loss. Any portion of the loss exceeding SEK 100,000 will entitle the taxpayer to a tax relief of 21 percent. The tax credit can be used to set-off national and municipal income tax and the municipal real property fee. Any excess/loss cannot be carried forward. Investment expenses, such as management fees, safe deposit fees, and so on are deductible to the extent they exceed SEK 1,000.


Premiums paid to pension insurance policy are, in principle, deductible against earned income subject to a cap (SEK 12,000 for 2014).


A tax reduction on employment income was introduced from 1 January 2007.


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Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in Sweden?


The following is the normal method of recognizing tax reimbursements paid by the employer:


  • current year gross-up
  • one year roll over may be used under certain conditions.

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Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in Sweden? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.


Resident employers are required to withhold income tax from salaries, wages and other remuneration, normally according to tables determined by the Tax Agency. The withholding is based on a tax bill (an A tax bill) issued automatically by the tax agency stating which tax table to use when computing the withholding. An employee may apply for an adjusted tax bill based on estimated taxable income, such as, in the case of interest expenses, high deductible losses or alimony payments to a divorced spouse. Non-resident employers without a permanent establishment in Sweden are generally not subject to the withholding requirement. Instead, the employee may apply for a Special A-tax bill and make estimated tax payments on a monthly basis.


For companies with a turnover subject to VAT less than SEK 40 million the tax collection return should be submitted not later than the 12th of the month following the withholding month. Tax withheld is due to the tax agency not later than the 12th of the month following the withholding month (in January and August the 17th). For companies with a turnover subject to VAT exceeding SEK 40 million the tax collection return should be submitted not later than the 26th of the month following the withholding month (in December, the 27th). Tax withheld is due to the tax agency not later than the 12th of the month following the withholding month (in January the 17th).


When are estimates/prepayments/withholding of tax due in Sweden? For example: monthly, annually, both, and so on.


Please see above. In the event that the withholding tax does not cover the assignee’s final tax liability an additional tax payment, without any interest charged, can be made no later than 13 February the year after the income year. Normally, the last day of payment of residual tax is three months after the assignee has received his final notice of assessment.


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Relief for foreign taxes

Is there any Relief for Foreign Taxes in Sweden? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?


International double taxation is avoided or relieved in three different ways:


  • deduction from income of foreign income taxes paid
  • credit of foreign income tax against Swedish income tax
  • tax exemption (applicable only in respect of income from employment abroad).

The rules apply only to residents of Sweden.


Sweden has an extensive network of tax treaties covering income tax. Sweden generally applies the tax credit for foreign tax relief.


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General tax credits

What are the general tax credits that may be claimed in Sweden? Please list below.


The employee social security contributions are fully credited against the income tax.


A tax reduction can be claimed for costs relating to household services. The tax reduction equals 50 percent of the labor cost of the household service. The reduction is capped at SEK 50,000 per person and SEK 100,000 per household.


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Sample tax calculation

This calculation assumes a married taxpayer resident in Sweden with two children whose three-year assignment begins 1 January 2014 and ends 31 December 2016. The taxpayer’s base salary is USD 100,000 and the calculation covers three years.


2014
USD
2015
USD
2016
USD
Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD 1.00 = SEK 6.50.


Other assumptions


  • All earned income is attributable to local sources.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • Interest income is not remitted to Sweden.
  • The company car is used for business and private purposes and originally cost USD 50,000.
  • The employee is deemed resident throughout the assignment.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.

Calculation of taxable income


Year-ended 2014
SEK
2015
SEK
2016
SEK
Days in Sweden during year 365 365 365
Earned income subject to income tax
Salary 650,000 650,000 650,000
Bonus 130,000 130,000 130,000
Cost-of-living allowance 65,000 65,000 65,000
Net housing allowance 78,000 78,000 78,000
Company car 39,000 39,000 39,000
Moving expense reimbursement 130,000 0 130,000
Home leave 0 32,500 0
Education allowance 19,500 19,500 19,500
Total earned income 1,111,500 1,014,000 1,111,500
Other income (capital income) 39,000 39,000 39,000
Total income 1,150,500 1,053,000 1,150,500
Deductions 13,100 13,100 13,100
Total taxable income 1,137,400 1,039,900 1,137,400

Calculation of tax liability


2014
SEK
2015
SEK
2016
SEK
Taxable income as above 1,137,400 1,039,900 1,137,400
Swedish tax thereon 534,028 478,453 534,028
Less:
Domestic tax rebates (dependent spouse rebate) 0 0 0
Foreign tax credits 0 0 0
Total Swedish tax 534,028 478,453 534,028


© 2014 KPMG AB, a Sweden corporation and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.

 

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Taxation of international executives