Moving to a new country can be overwhelming in many ways. One of the most important aspects of moving is taxes. In some cases, relocating to a new country could lead to lower taxes. The opposite situation is also true, especially for expats coming to Sweden. In this article, we will introduce you to how Sweden taxes its self employed tax residents.
When do I become liable to Swedish tax as self employed?
Firstly, to avoid any misunderstandings, this article concerns self employed persons coming to Sweden. A self employed person can also be called a 'sole traders' or 'sole proprietor'. If an expat moves to Sweden and conducts business activities through a company, the income will not be subject to the Swedish rules applying to self employed individuals.
As a main rule, a self employed person will be liable to Swedish tax, if seen as a Swedish tax resident. Accordingly, one must determine whether one is tax resident in Sweden, and if yes, from what date. Most people who move to Sweden become tax resident here from their first day of stay, but in some cases this could differ.
How high is the Swedish tax on self employment income?
For individual Swedish tax residents that are self employed, the business's result will be subject to Swedish progressive tax rates. This means that the annual result of the business will be taxed with 30 - 55 % tax, depending mainly on the size of the income, and in what municipality in Sweden the persons lives in.
Lets take it back one step though. Firstly, one has to compute the taxable result of the business, i.e. whether a taxable profit has been made. This is done in accordance with Swedish tax law and accounting standards. Business expenses are generally granted deduction with for tax purposes, but in relation to other countries, Sweden has a rather strict stance to deductions. This implies that certain expenses that are deductible in your home country, are not allowed under Swedish tax law. For example, business meals and entertainment expenses are subject to hefty limitations. If your annual result is negative, no taxes will be due. However, under Swedish tax law, a self employed person can not opt for withdrawing cash from the business. All income will be taxed, after deducting the allowed expenses.
Another aspect, that is often overlooked by expats, is the Swedish Social Security Contributions. Unfortunately, Sweden applies one of the highest rates in the world, and there is no cap applying. Therefore, a self employed expat living in Sweden, will be obligated both to pay tax on the annual surplus (30 - 55 %), but also Swedish Social Security Contributions that are usually due at 28,97 %. The contributions are deductible however. For self employed persons with lower income, there are some reliefs available though. But given the high rates, acting as self employed is not very attractive in Sweden. Most entrepreneurs operate through Swedish Limited Liability Companies ("Aktiebolag") instead.
How to file a Swedish Tax Return as Self Employed?
If you have been tax resident in Sweden during a year, and received income as self employed, you are obligated to include it in your annual Swedish Tax Return. This can be quite complicated, as the 'NE' form must be filled correctly. In the form, one is to include income and expenses, but also calculate the annual Capital Income Threshold, which is a special tax rule that enables part of a self employed person's income to be taxed with the lower capital income tax.
Can tax treaties affect my Swedish taxes as self employed?
Yes - they could. A tax treaty could imply that Sweden has a limited right to tax business income of an individual, i.e. a self employed person. Generally speaking, the person coming to Sweden would have to remain tax treaty resident in his home country, for this to be possible. Also, one must make sure that a Permanent Establishment does not arise in Sweden. In some cases, we have successfully created this set up for our clients, that were all living the Digital Nomad lifestyle. This requires a case-by-case analysis by a tax lawyer with special knowledge in international tax law however, as it is quite complicated.
Are you considering to move to Sweden, and receive income as self employed? Contact us if you would like to receive advice.