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Taxes in Sweden: Which should I pay?
Live in one of the most sustainable countries in the world with an excellent quality of life. Learn about the taxes in Sweden!
This Scandinavian country, known for its famous northern lights, mountainous landscapes, forests, and numerous lakes, offers one of the highest standards of living in the world. It’s a destination that works hard for sustainability and offers an unparalleled combination of work-life balance. This is because taxes in Sweden are among the highest in Europe, but in return, the government provides its population with extraordinary services.
If, as an entrepreneur, you want to set up your business in this country or if, as an individual, you’d like to live here for a while, whether for study or work, it’s important to understand the taxes you are required to declare. The Swedish tax system, in addition to imposing various taxes, has developed an incentive program that benefits a large number of citizens, both locals and foreigners. Let us guide you through Sweden’s tax system!
Taxes for Individuals in Sweden
lIndividuals in Sweden must pay both direct and indirect taxes, some of which are nationa, while others are set by the municipalities of each town. Individuals include employees, freelancers, digital nomads, retirees, or students, among others. This group, in addition to having rights to live in the country, is obligated to pay taxes on their annual earnings, properties, or consumption of goods. Below, we detail each of these taxes.
1. Income Tax
The income tax is defined as a levy based on the annual earnings of each taxpayer and serves to support public expenses. There is a national rate and, on the other hand, a municipal rate, which varies depending on your location. Here’s how it works:
- Municipal tax: A rate ranging from 29% to 35%, depending on the municipality you reside in.
- State tax: An additional 20% is added for annual income above $63,000 (€57,000).
- Example: If your annual income is $72,000 (€65,000), you would pay the municipal tax and an additional 20% on the $8,900 (€8,000) that exceeds the state limit.
2. Value Added Tax (VAT)
In Sweden, VAT is known as moms, which is an abbreviation of the Swedish word mervärdesskatt. This term literally translates as “value added tax” and reflects the concept of taxing the added value generated at each stage of production and distribution of goods and services. For Swedes, using a simpler name like moms makes it easier for everyday use, just as VAT is used in other countries. Here are the rates:
| IVA Rate | VAT Rate Applicable Products |
|---|---|
| 25% (standard rate) | Most products and services (clothing, electronics, household items, cars, furniture, etc.) |
| 12% (reduced rate) | Food, restaurants, and catering services. |
| 6% (super-reduced rate) | Books, public transport, and tickets to cultural events. |
VAT rates in Sweden
3. Property and Goods Tax
Sweden is one of the few countries that does not have a wealth tax, as in 2007, the Swedish government eliminated the wealth tax. However, there are other property taxes in Sweden. For instance, if you own property in Sweden, you will be subject to a property tax rate of 0.75% of the fiscal value of the property, with a maximum limit of $1,010 (€940) per year.
4. Energy Consumption Tax
Residents in Sweden are required to pay a tax on their energy consumption, such as heating, electricity, and gasoline. This tax was designed as a measure to encourage moderate energy consumption. The rates applied depend on the type of energy consumed. Here’s more information in this table:
| Energy | Fees | Objective |
|---|---|---|
| Electricity | 35 öre per kWh (€0.033 / $0.035) | Encourage efficient energy use and the development of renewable sources. |
| Gasoline and diesel | $0.70 (€0.63) per litre for gasoline and $0.46 (€0.42) per litre for diesel. | Reduce carbon emissions. |
| Heating | $120 (€110) per tonne of CO₂ emitted. | Reduce CO₂ emissions. |
Tax rates in Sweden on energy consumption.
Taxes for Legal Entities or Companies in Sweden
Thinking of setting up or moving your business to this country? Taxes in Sweden also apply to legal entities or businesses generating activity in Sweden. These fiscal duties apply to annual profits made within the country, and businesses must also declare VAT, comply with property tax related to business assets, and contribute to the social security system for each of their employees.
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1. Corporate Income Tax
The Swedish tax system aims to encourage business creation and investment in the country. Therefore, this tax has a fairly competitive rate compared to other European countries, set at 20.6% on net profits. Example: If a company generates net profits of $100,000 (€92,500), the tax payable would be $20,000 (€19,050).
2. VAT for businesses
As explained earlier, VAT is an indirect tax applied directly to the goods or services that consumers purchase. For businesses, they are responsible for collecting this tax through their invoices, adding an extra percentage on the final price. Later, businesses must return the VAT to the state through their declarations. Here’s a reminder of the rates:
- Standard rate of 25%: For most goods and services.
- Reduced rate of 12%: For food and hospitality.
- Super-reduced rate of 6%: For books and public transport.
3. Social security contributions
Among the taxes in Sweden for businesses, they must also declare social security contributions for each employee hired. The general rate is 31.42% of the employee’s gross salary, and this tax burden ensures that the Swedish government can provide services such as healthcare, retirement pensions, or unemployment protection.
Example: If an employee has a gross monthly salary of $3,000 (€2,775), the company would need to pay $950 (€870) in social security contributions. Thanks to this monthly contribution, the employee will be assured of receiving medical assistance in case of illness or receiving a monthly pension if they need to take leave due to an accident.
4. Environmental Taxes for Businesses
Companies that use fossil fuels or generate significant emissions are also subject to carbon taxes, just like individuals. This tax aims to encourage the transition to renewable energy sources and reduce the ecological footprint, which is why it imposes one of the highest rates: $150 (€140) per tonne of CO₂ emitted.
Tax Benefits in Sweden
After covering the various taxes in Sweden for individuals and businesses, you should know that the government also offers tax incentives to reduce the high rates. The aim is to encourage people to start their own businesses and generate income in the country, especially in areas like sustainability and innovation. Below, we detail the main tax benefits you can take advantage of, both for locals and foreigners:
| Tax benefit | Details |
|---|---|
| Deductions for research and development (R&D) | Companies that invest in R&D projects can benefit from significant tax reductions and deduct up to 100% of their expenses. |
| Incentives for renewable energies | Can cover 30% to 50% of the costs for projects to install solar panels, heat pumps, and other sustainable energy systems. |
| Exemptions for Foreign Entrepreneurs | There are temporary deductions for highly qualified foreign employees relocating to Sweden, through the expert tax relief, covering 25% of the salary tax-free during the first five years. |
| Inheritance and Donation | Tax Sweden does not apply any tax on inheritance or donations, which is an advantage compared to other countries. |
| Pension Funds | The limits for pension fund contributions are approximately $47,600 (€44,000) annually. |
| Donations to Charitable Organizations | Residents can deduct 25% of the value of donations made, up to a maximum of $150 (€136) per person per year. |
Tax benefits in Sweden
Frequently Asked Questions about Taxes in Sweden
The tax system in Sweden is progressive, meaning it increases as income rises. The income tax is split into two parts: The municipal tax, which varies by locality, and the state tax, which applies to higher incomes. Additionally, there are value-added taxes (VAT), property taxes, and other specific levies.
On one hand, there is the municipal tax, which ranges from 29% to 35%, depending on the locality, and on the other hand, the state tax, for annual incomes above $63,000 (€57,000).
As a self-employed worker in this country, you also have to deal with a series of taxes, although rates will vary depending on your financial profile. It’s important to meet your tax obligations to avoid penalties and fines.
Yes, there are certain tax deductions that can be applied to work-related expenses, such as transportation or the purchase of tools needed to perform your profession. There are also deductions for pension fund contributions and donations to charitable organizations.
Businesses are subject to various taxes in Sweden, such as the corporate tax with a rate of 20.6%. They also have to comply with various tax regulations, such as VAT declaration and withholding taxes on employee salaries. In return, they also benefit from certain tax advantages.
If you live and work in Sweden for more than six months a year, you are considered a tax resident and must declare your global income. However, if you work for less than six months, you will only be subject to taxes on income earned in Sweden.
