A not uncommon question for expats living in Sweden, is how to declare rental income in the Swedish tax return. For expats, most likely the question concerns rental income from renting out a home located outside of Sweden. Let's learn more.
Is rental income from renting a home abroad subject to Swedish tax?
If you are tax resident in Sweden, you will be liable to Swedish tax on rental income, irrespective of where the rented home is located in Sweden or not. However, if you are non tax resident in Sweden, you will not be subject to Swedish tax on rental income from renting a home outside of Sweden.
Even though you are tax resident in Sweden, a tax treaty can sometimes prevent Sweden from taxing rental income from abroad. More on this below.
What is the applicable tax rate on rental income in Sweden?
The applicable tax rate depends on whether the home that is rented out is classified as a private capital asset, or a business asset.
If the home is a capital asset, rental income will be subject to Swedish Capital Tax at 30 %.
If the home is classified as a business asset, rental income will be subject to employment tax rates (30 – 55 %). It is also very likely that the income will be subject to Swedish social security fees.
The classification of a home is quite complex, and has to be done in every unique case, with regard to Swedish case law and Swedish preparatory works to the legislation. In short, one should consider how the home is currently used, but also how the owner is intending to use the home within a foreseeable future.
What deductions can I do?
If a home you rent out is classified as a private capital asset, you are only allowed to make a couple of standardized deductions. The deductions are dependent on what type of home you own. This can cause some problems, when for instance a type of ownership in a country does not have an equivalency in the Swedish law.
If a home you rent out is classified as a business asset, you are allowed to deduct any expenses occurred in relation to the letting.
Interest costs are always deductible, regardless of the classification of the home. Mortgage payments, i.e. amortization, are mostly never deductible.
What form should I use when declaring rental income in the tax return?
If the home is classified as a business asset, you should use the "NE" form. This form is very complicated, even for Swedes, why we recommend you to take help.
If the home is classified as a private capital asset, you should report the taxable surplus (after deductions) in box 7.2 of the main tax return form (INK1). There is a help-form available for calculating deductions. This form is named "SKV 2199".
Can tax treaties affect the Swedish tax?
If you are only temporarily in Sweden, or if you have stronger ties to another country than Sweden, chances are that you can benefit from Sweden’s tax treaty with that state. In many cases, Sweden can be totally prevented from taxing your rental income from abroad. However, this must be claimed in the annual Swedish Tax Return by a professional.
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