A record number of Americans are choosing to leave the United States, seeking new opportunities and lifestyles abroad. While many opt for nearby destinations like Canada or Mexico, some make a more unexpected choice—moving to Sweden. Relocating to Sweden can be a transformative experience, but it also comes with unique challenges, especially in terms of taxes and legal compliance. This is particularly true for American entrepreneurs and business owners. In this article, we will explore how Sweden’s tax system applies to US business owners.
When Do Americans Become Taxable in Sweden?
Sweden does not use a fixed number of days to determine tax residency. Instead, Swedish law applies a case-by-case approach based on established legal precedent. In some situations, determining the exact date an individual becomes a Swedish tax resident can be complex. This is particularly true for Americans who visit Sweden to search for housing or jobs and then return to the US for a period before moving permanently to Sweden.
Generally speaking, anyone who resides permanently in Sweden is considered a tax resident. For individuals with alternating residency, such as those spending six months in Sweden and six months in the US, it may be possible to argue that they are not tax residents of Sweden.
Even if you are deemed a Swedish tax resident, the US-Sweden tax treaty may limit Sweden's right to tax your income. Therefore, it is essential to consult a qualified tax attorney to evaluate your tax residency status under both Swedish domestic law and the US-Sweden tax treaty.
How Are Dividends From an American Corporation Taxed in Sweden?
Dividends from publicly traded companies are generally taxed at a flat 30% capital gains tax in Sweden. For non-listed companies, the standard tax rate on dividends is 25%.
However, there is a significant exception to this rule. Dividends from so-called “closely held companies” are partially taxed as earned income, with rates ranging from 30% to 55%. That said, it is possible for dividends from closely held companies to be taxed at a favorable 20% rate, but only up to a specific threshold.
Whether your ownership in an American company qualifies as a “closely held company” is therefore crucial in determining the tax rate applied to dividends from the company.
It is also important to note that the same rules—taxation as if the income were earned income—apply to capital gains realized from the sale of shares in a closely held company. Ownership in such companies must be reported on Form K12 in the annual Swedish income tax return.
Finally, the US-Sweden tax treaty may also play a decisive role, as its provisions could potentially exempt dividends from an American corporation from Swedish taxation. As a result, an assessment of the treaty’s impact should always be conducted by a Swedish tax attorney. This is a routine part of the services we provide for our American clients planning their move to Sweden.
Do Americans Need to Pay Themselves a Minimum Salary in Sweden?
Under Swedish labor law, there is no specific minimum salary you are required to pay yourself as an entrepreneur running your own company. However, given the unique rules regarding closely held companies, it is often advantageous to pay yourself both a salary and dividends. This principle also applies to individuals owning shares in an American corporation.
Can Americans Keep Their US Company When Moving to Sweden?
There are no legal restrictions under Swedish law that prevent you from owning a US LLC while residing in Sweden. However, the Swedish tax treatment of an American LLC is not always favorable.
In fact, ownership of an LLC taxed as an S-corporation—where the company’s income is passed through to its owners—may be subject to Swedish tax rates exceeding 70%. For this reason, a thorough review of your business structure is essential to determine the most tax-efficient way to operate as an American entrepreneur relocating to Sweden. The US-Sweden tax treaty may also play a role here, as it can sometimes prevent Sweden from taxing LLC income.
Should Americans Start a Swedish Corporation When Moving to Sweden?
In some cases, it is more advantageous to establish a Swedish corporation when moving to Sweden. This is particularly true if your business will have a physical presence in Sweden. In other scenarios, retaining your American LLC might be the better choice. The optimal approach depends on your business activities, ownership structure, and other factors, making an individualized analysis crucial to minimizing both taxes and compliance burdens.
Is There a Risk of Double Taxation for Americans in Sweden?
Because the United States applies “citizen-based taxation,” there is a high risk of double taxation for Americans living in Sweden. This is due to both Sweden and the US taxing the individual’s worldwide income.
Fortunately, the US-Sweden tax treaty can help prevent double taxation. However, the treaty does not apply to US state taxes, which means Swedish “foreign tax credit” rules must be relied upon in those cases. These rules, however, come with several limitations.
What Are the Social Security Contribution Rules for US Business Owners in Sweden?
Sweden has very high employer social security contributions, which are generally due on all wages paid for work physically performed in Sweden.
Within the European Union, there is a regulation to prevent double social security contributions. However, since the US is not part of the EU, this regulation does not apply. Instead, Sweden and the US have a “Social Security Convention,” which partially alleviates the risk of double contributions. It is important to note that this convention only applies to pension-related contributions. A tailored analysis is necessary to assess the risk of double contributions and identify strategies to mitigate that risk.
Do I Need to File Taxes in Both Sweden and the US?
An American entrepreneur residing in Sweden will be required to file tax returns in both the US and Sweden. These filings must be coordinated to ensure compliance, making it essential to engage professional expertise to handle the process.
How Can US Entrepreneurs Optimize Taxes When Moving to Sweden?
Vid en flytt bör man planera utifrån det svenska och amerikanska skatteanspråket, och sätta upp en ”setup” som är så skatteeffektiv som möjligt. De svenska skatterna är skyhöga, och det kan därför vara förödande för en entreprenör om denne betalar mer skatt än som faktiskt behövs.
Are you an American considering a move to Sweden? Don’t hesitate to contact us to plan your relocation in a tax-optimized way.
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