Expat Tax for Americans in Sweden – What You Need To Know

Expat Tax In Sweden – Expat Living In Sweden

Sweden occupies the greater part of the Scandinavian Peninsula, which it shares with Norway. The land slopes gently from the high mountains along the Norwegian frontier eastward to the Baltic Sea. Read on to discover important tips on US Expat Tax In Sweden.

Geologically, it is one of the oldest and most stable parts of the Earth’s crust. An increasingly popular ex-pat destination. People worldwide are choosing Sweden for the prospect of a balanced, prosperous life in a country that combines high technology and liberal values concerning traditions. Not to mention an abundance of economic opportunities and extensive, efficient social welfare.

Natural Beauty

Beyond the outstanding natural beauty of Sweden’s snowy landscapes. Magnificent fjords, world-class cities, and the Northern Lights—not to mention its gorgeous citizens’ natural beauty. The benefits of living in Sweden also include its reputation for the quality of life.

Add to that a well-deserved reputation for Scandinavian orderliness, pristine cities, excellent public transportation, world-renowned social care, a prosperous economy, and Sweden’s perennially high standard of living.

The Top 10 Cities In the Sweden for expats:

• Stockholm
• Gothenburg
• Oulu Malmö
• Uppsala
• Västerås
• Örebro
• Helsingborg
• Lund

About Sweden

Sweden’s per capita gross national product (GNP) is among the highest globally, but so are its taxes. Most enterprises are under private ownership and have a market orientation. But when transfer payments such as pensions, sick pay, and child allowances are included, roughly three-fifths of gross domestic product (GDP) passes through the public sector. Education, health care, and child care cost funding is thru taxation.

The Swedish coastline is typically rocky, with hundreds of small, sometimes wooded islands. Ground by glacial ice in the same direction, they have a typical rounded shape. From about late May until mid-July, sunlight lasts around the clock north of the Arctic Circle. But, even as far south as Stockholm, the nights during this period have only a few hours of semidarkness. In mid-December, on the other hand, Stockholm experiences only about 5.5 hours of daylight. In areas as far north as Lappland, there are nearly 20 hours of total darkness with relief by a mere 4 hours of twilight.

Swedish, the national language of Sweden and the mother tongue of approximately nine-tenths of the population, is a Nordic language. Sweden adopted Christianity in the 11th century, and for nearly 500 years, Roman Catholicism was the preeminent religion.

The majority of Sweden’s population, small in relation to its land area, lives in the southern third of the country. Most reside in towns. The colonization of the vast Norrland was later. It is far less populated than the south and central regions.

Guide To U.S. Expat Tax In Sweden

The Tax Samaritan country guide to U.S. expat tax in Sweden intends to provide a general review of ex-pat tax in Sweden. And, how that will impact your U.S. expatriate tax return as a U.S. Expat In Sweden.

As a U.S. taxpayer, all worldwide income is subject to taxation and reporting. For most expatriates, you must file a U.S. tax return on an annual basis due on April 15 each year. June 15 if you are residing overseas on April 15 deadline. The tax treatment for different classes of income can vary significantly from Sweden and the U.S. For example, certain benefits may be tax-free or excluded from taxable income in Sweden. Still, in the U.S., these benefits are likely to be non-qualified benefits that are subject to being included as taxable income in U.S. As such, there are many considerations related to US  U.S. expat tax in Sweden, and this brief article will address a few of those considerations.

Sweden Expat Income Taxes

Who Is Liable For Income Taxes In Sweden

Swedish citizens and foreigners who have been residents in Sweden for at least ten years are residents in Sweden for tax purposes until they can prove that there has been the severing of all important ties with Sweden.

Swedish residents who have been assigned to work abroad or who have taken up employment abroad with a planned duration of at least six months are not liable for Swedish income taxes on income from this employment, provided the income is taxed in the country of work.

The individual does not spend more than six days per month or a maximum of 72 days per 12-month period in Sweden. A partial day counts as a full day in Sweden to calculate the six days per month. Any income that is not subject to taxation in the working country is typically subject to taxation in Sweden. If the income is exempt from taxation in the working country under domestic legislation, the income can be tax-exempt in Sweden if the stay abroad lasts for at least one year.

Non-Residents

Non-residents working in Sweden for a Swedish employer or a foreign employer with a permanent establishment (PE) in Sweden have taxation at a flat rate of 25% at source. The same rate applies when a Swedish source pays a pension to a non-resident.

Non-residents working in Sweden for a non-Swedish employer without a PE are not subject to taxation in Sweden. So long as the individual does not spend more than 183 days in Sweden in 12 months.

Taxes make up the overwhelming majority of government revenues, that support a high level of social services that have virtually eliminated structural poverty. Sweden has a relatively high personal income tax rate (ranging from about 30 to 60 percent). But taxes for businesses are more moderate.

Tax Year In  Sweden And Tax Filing And Payment Rules

Sweden has introduced a pay-as-you-earn (PAYE) system with monthly reporting per individual for all employers.

For the income year 2020, the highest additional 5% state tax on employment income has been removed. The highest marginal tax rate has therefore decreased by 5% for 2020. Further, the Swedish Tax Agency has proposed that Sweden change from a formal employer approach to an economic employer approach to taxation of work in Sweden. The changes can significantly impact many non-Swedish employers who have used the 183-day rule exemption to avoid taxation of their workforce in Sweden. Employers pay Swedish employer social security contributions on compensation paid to employees covered by the Swedish social security system. Capital income is generally subject to taxation at a flat rate of 30%.

The alignment of the Swedish VAT system is with the European Union (EU) rules. The general VAT rate of 25% is chargeable on most goods and services. Reduced rates apply to a few goods and services. Such as foodstuffs, restaurant meals, non or low alcoholic drinks (12%), and transport of passengers (6%). Certain financial and insurance services are exempt from VAT.

The property fee payment is by the owner of the real property as of January 1st of each year. The fee rate is a maximum of SEK 8,049 or 0.75% of the real estate’s taxable value for houses and blocks of flats.

Special Wage Tax

Swedish employers and non-Swedish employers with a PE in Sweden pay a special wage tax of 24.26% on pension costs relating to tax-qualified company pension plans.

The taxpayer must file an annual income tax return for all resident years. The taxpayer must also file an annual income tax return for the year in which the assignee leaves Sweden. Provided that in the year concerned, the taxpayer performed activities in Sweden and is not protected by a double tax treaty. The tax return filing is due within the statutory deadline(s) for filing.

In the years following the expatriation year, the assignee does not generally have any filing requirements. Provided that the assignee is treated as a tax non-resident and has no Sweden-sourced income.

Taxpayers can generally claim any Sweden income tax you pay against the tax liability on your U.S. return on the same foreign source income.

What You Need To Know About U.S. Income Taxes

Some of these preferential tax treatments or benefits for U.S. ex-pat tax in Sweden include:

• If you are a U.S. citizen or green card holder of the United States and live in Sweden, your U.S. expat tax in Sweden is based on your worldwide income, and as such, you must file a U.S. return for all the years that you are residing in Sweden. However, as a U.S. expat, you may qualify to reduce your U.S. taxable income up to an amount of your foreign earnings that is adjusted annually for inflation ($107,600 for 2020). Also, you can exclude or deduct specific foreign housing amounts depending on other factors if you exceed the initial exclusion. This is known as the Foreign Earned Income Exclusion and foreign housing exclusion.
• When it comes to your U.S. expat tax in Sweden, most U.S. expatriates worry about “double taxation.” (i.e.,– paying taxes to two different countries – the U.S. and Sweden). A U.S. taxpayer working overseas in Sweden may reduce U.S. taxable income and “double taxation” by claiming the Foreign Tax Credit on Form 1116. Should any foreign income not be fully offset by the foreign earned income exclusion, housing exclusion, or housing deduction, the foreign tax credit paid or accrued may be used as a deduction or credit on the U.S. tax return. Taxpayers can either deduct the taxes as an itemized deduction on Schedule A or claim the credit. In most cases, it is to your advantage to take foreign income taxes as a credit.

A Common But Dangerous Mistake

A common but dangerous mistake is the assumption that if there are zero taxes when claiming these tax benefits that there is not US expat tax filing requirement. That is not true. If you are working overseas, it is likely that you meet the filing requirements to file a tax return. And, must do so.

It is important to note that the preferential tax treatments, such as the foreign earned income exclusion and foreign tax credit are not applicable to the outcome of your tax liability until a claim is made on a filed tax return.

When faced with U.S. expat tax in Sweden, there are many tax items to consider. But the above are by far the most common benefits individuals can take advantage of. Suppose you can qualify for both of these benefits (the foreign earned income exclusion & foreign tax credit). In that case, your tax professional should do a tax analysis to determine a strategy to optimize the return outcome as much as possible. For example, those with young children may want to consider forgoing the foreign earned income exclusion and utilize the foreign tax credit.

With top-notch experience and knowledgeable expat tax preparation from Tax Samaritan, you have assurance that all these eligible benefits will be explored and approached with the best outcome pursued.

The decision to utilize the foreign earned income exclusion or the foreign tax credit can be complex & depend on various factors, so it is typically best to discuss with a tax professional if unsure which option is best or what you may qualify for.

Sweden Foreign Bank Account Reporting – The FBAR (FinCen Form 114)

Another important tax deadline that frequently applies to  U.S. expat tax in Sweden is in regards to the disclosure of foreign assets on the FBAR.

The FBAR filing deadline is April 15th. Or the preceding business day if April 15th falls on a holiday or weekend. Unfortunately, requesting an extension on your return does not extend the FBAR due date. However, in years past, the Treasury Department has granted an automatic six-month extension to October 15th for those who miss the April 15th due date. Any reports filings after this date are a delinquent FBAR.

FBAR Filing

The FBAR must be filed with the Treasury Department. It is not filed with your federal income tax return.

The filing requirement applies whenever you meet the FBAR filing requirements, which in a nutshell is whenever a U.S. person has a financial interest in, or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other types of foreign financial account (including an insurance policy with a cash value such as a whole life insurance policy) maintained with a financial institution, with an aggregate value of over $10,000 at any time during the calendar year based on the highest value of each foreign account during the tax year.

Suppose you have bank accounts at Nordea Bank, Skandinaviska Enskilda Banken AB (SEB), Svenska Handelsbanken, Swedbank AB, Forex Bank, or another bank Sweden or any other foreign country. In that case, you may meet the filing requirement to disclose your foreign accounts on the FBAR. Please don’t hesitate to contact Tax Samaritan to learn more about your filing requirements.

U.S. – Sweden Social Security Totalization Agreement

An agreement effective January 1, 1987, between the United States and Sweden improves Social Security protection for people who work or have worked in both countries. It helps many people who, without the agreement, would not be eligible for monthly retirement, disability, or survivor benefits under the Social Security system of one or both countries. It also helps people who would otherwise have to pay Social Security taxes to both countries on the same earnings.

For the United States, the agreement covers Social Security taxes (including the U.S. Medicare portion) and Social Security retirement, disability, and survivors insurance benefits. It doesn’t cover benefits under the U.S. Medicare program or the Supplemental Security Income (SSI) program.

For Sweden, the agreement applies to retirement, disability and survivors benefits under Sweden’s basic and supplementary pension programs and the taxes that must be paid under those programs. The agreement doesn’t affect benefits or tax liability under other Swedish programs such as health insurance, unemployment insurance, work accident, occupational illness insurance, or family allowance benefits.

U.S. Social Security

Under the U.S. Social Security program, employees and their employers and self-employed people are required to pay Social Security taxes. Under the Swedish system, employers (but not employees) and self-employed people must pay Social Security taxes. Before the agreement, employers and self-employed people could, under certain circumstances, be required to pay Social Security taxes to both the United States and Sweden for the same work.

Under the agreement, if you work as an employee in the U.S., you will typically have coverage by the U.S. You and your employer will pay Social Security taxes only to the United States. If you work as an employee in Sweden, you usually have coverage by Sweden. And, your employer pays Social Security taxes only to Sweden.

On the other hand, if your employer sends you from one country to work for that employer or an affiliate in the other country for five years or less, your home country will continue to cover you. You will be exempt from coverage in the other country. For example, suppose a U.S. company sends an employee to work for that employer or an affiliate in Sweden for no more than five years. In that case, the employer and the employee will continue to pay only U.S. Social Security taxes and not have to pay in Sweden.

Self-Employed Individuals

Self-employed individuals living and working in Sweden are generally covered by the Swedish system and should obtain a certificate of coverage to claim the totalization agreement’s benefits. You must attach a photocopy of this certificate to your U.S. individual tax return to exempt yourself from U.S. self-employment tax properly. Tax Samaritan can help guide you through this process if unsure of how to proceed.

U.S. –  Sweden Tax Treaty And Tax Relief For U.S. Expat Tax In  Sweden

The United States and Sweden do have an income tax treaty in place. Many of the articles apply to non-resident aliens for U.S. tax purposes. Still, they can also extend certain benefits to U.S. citizens, residents, and green cardholders. But there are limitations with the ‘Savings Clause’, so it is crucial to understand if you qualify for these benefits.

See our Tax Samaritan Takeaways below for other valuable references.

Please click on the hyperlinks below for additional takeaways for your expat tax in Sweden:

Sweden Tax Treaty documents

Totalization Agreement Between the United States and Sweden

Top banks in Sweden

Tax Samaritan Expat Tax Services

IRS Publication 54, Tax Guide for US Citizens and Resident Aliens Abroad

US Embassy in Sweden