Every country in the world has its own tax system. Tax rates, deductibility, and deadlines are among the many things that often differ between countries. It is therefore not uncommon for a person who has recently moved to Sweden to experience confusion regarding their income tax return.
In Sweden, every tax resident is required to submit their annual tax return to the Swedish Tax Agency, and a person who makes mistakes, risks facing higher taxes and, in the worst case, tax penalties. In this article, nomadtax outlines what a person declaring income for the first time in Sweden should consider.
Am I obligated to File a Swedish Tax Return?
In Sweden, there are two types of tax residency status: either one is considered "tax resident" or "non tax resident". Unfortunately, the Swedish rules regarding tax liability are somewhat ambigious due to unclear case law from Swedish courts. However, one can somewhat simplified say that anyone spending more than six months in Sweden becomes tax resident.
For individuals who have stayed alternately in Sweden and other countries, the matter of tax residency becomes more complex. There is no specific limit in the form of days spent in Sweden that leads to tax residency, which is the most common method used by other countries to determine tax liability. Instead, an assessment must be made based on principles of Swedish case law, which in more complicated cases should be conducted by a tax lawyer.
Regarding newcomers to Sweden, it is also necessary to determine from which day the person becomes tax resident in Sweden. According to Swedish legislation, a person can be tax resident for only part of the calendar year. The assessment is crucial because it determines which individuals are obligated to file tax return in Sweden. A tax resident must file a tax return in Sweden, while a non tax resident generally does not need to do so.
Which Incomes Should I Include in the Swedish Tax Return?
Sweden has a so-called global tax claim, meaning that Sweden aims to tax all incomes of tax residents, regardless of where the income is sourced. This includes, for example, salary income for work performed abroad, dividends from foreign companies, trust distributions from foreign trusts, and capital gains from the sale of real estate property located abroad. Holdings in foreign low-tax entities, can be subject to the Swedish CFC tax.
A tax resident must be prepared to declare all their income in the Swedish declaration. It is important to classify each foreign income under Swedish income tax rules, as these rules apply fully to the Swedish declaration. For instance, payments from foreign trusts may be entirely tax-free in Sweden, while they can also be taxed at up to a 55% marginal tax rate - depending on the Swedish tax classification. If there is legal uncertainty about how a particular foreign income should be taxed in Sweden, one can apply for a Advance Tax Ruling.
Sweden has special rules for individuals who are shareholders in a company they actively work in. These rules mean that dividends and capital gains are partly taxed as employment income, i.e., with a 30 – 55% progressive tax. The rules also apply to holdings in foreign companies, which unfortunately tend to surprises newcomers to Sweden every year. If a tax resident incorrectly declares such income (from their own company) or does not declare the income at all, the person risks being subject to a 40% tax penalty. Therefore, ensure that a tax lawyer investigates your tax situation preferably before moving to Sweden.
How Do Tax Treaties Affect My Swedish Tax Return?
Sweden has entered into tax treaties with a large number of countries worldwide, which can limit Sweden's right to tax its tax residents. To determine the effect of a tax treaty on an individual in Sweden, it must first be established in which country the person is deemed to be resident according to the tax treaty. The assessment is complex and involves an examination of the relevant tax treaty's provisions. After determining the treaty residency, an individual can, in their Swedish income declaration, claim that Sweden has limited or no right to tax certain income.
For example, according to many tax treaties, Sweden does not have the right to tax a capital gain arising when real estate property in another country is sold. However, this requires that the person selling the property is deemed a treaty resident in the country where the property is located. Therefore, always consult a tax lawyer if you have foreign income as tax resident in Sweden.
What deductions Can I Make in the Swedish Tax Return?
Tax deductions are another point that varies greatly from country to country. Generally, Sweden is somewhat restrictive regarding the possibility of deductions, but there are exceptions. For instance, newly arrived expatriates can sometimes benefit from the so-called 'expert tax regime', resulting in the person not being taxed on 25% of their salary.
Often, some foreign costs can also be deducted, such as interest expenses on loans in foreign banks. This can effectively reduce your Swedish tax.
Can I Get a Foreign Tax Credit in Sweden?
It is common for individuals who move to Sweden to also be tax resident in their former home country. In such cases, the person may be taxed both in Sweden and in their former home country because both countries want to tax the income. As mentioned earlier, tax treaties can be applied to avoid double taxation. Sweden also has domestic legislation allowing for a credit for foreign taxes, although this law has several limitations.
When Should I File My Tax Return in Sweden?
The deadline for submitting the Swedish tax return is on May 2nd the year following the taxation year. This means that you must submit your Swedish income declaration for 2023 by May 2, 2024. It is possible to apply for an extended deadline.
Did you move to Sweden in 2023, and do you have questions about your Swedish income declaration? Contact us at Nomadtax to receive advice on your tax situation and assistance with your Swedish income declaration.
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