Today, many US expatriates have chosen Sweden as their home country. The liberal culture of Sweden challenges the mind. The green landscapes of the country are pleasing to the eye. As a US citizen considering living or working in Sweden, you must examine the tax rates in Sweden and the deadlines as well as what impacts it could have on your tax return as an expatriate.
Social Programs in Sweden
Sweden offers the most fantastic social programs, which are among the best you can find anywhere in the world. Benefits offered under these programs include universal health care insurance, subsidized childcare, free university-level education, limitless sick days, extensive maternity leave as well as unemployment and old-age benefits. They are not free, though. They come with a cost. Sweden requires you to pay for these programs through high tax rates and Sweden is one of the countries with the highest tax rate. And these high taxes that you pay are part of the reason Swedish social insurance programs are the finest in the world. But while your tax may seem very high, acknowledging what you are getting in return for that will help the transition to Sweden appear much more reasonable.
You are considered a resident of Sweden for tax purposes if you own a home in Sweden, have essential ties to Sweden, or continuously live in Sweden for at least 6 months or more. Residents of Sweden are taxed on their global income. If a US expatriate who is a resident leaves the country, she or he would still be considered as a resident for tax purposes if ties, such as a family or home, still exist in Sweden. However, non-residents are taxed only on their income sourced within Sweden and that includes pensions and capital gains. As a US expatriate, you will not be required to pay taxes on your global income unless you are a Swedish resident. Hence, it is critical to ascertain your Swedish residency status as it will determine whether your worldwide income will be taxed or not.
If your earnings are more than 490,800 SEK in 2019, your tax rate on income in Sweden is 20%. If your earnings are more than 689,400 SEK in 2019, then the tax rate is 25%. This is in addition to the 29% to 34% municipality tax. These then are further capped with a 1% to 2% charge tax.
There are other Swedish taxes of which US expatriates living in Sweden should be aware. In Sweden, there is a standard value-added tax of 25% on all goods and services including those crossing EU borders. Foodstuffs and certain tourism industries are levied at 12%, with a reduced rate of 6% for passenger transport and newspapers. And capital gains are taxed at a flat rate of 30%. The corporate tax rate is 26.3% in Sweden. There is no wealth, estate, or inheritance tax in Sweden.
Concessions in Sweden
Forskarskattenamnden grants limited concessions to US expatriate employees living in Sweden if certain requirements are met. The requirements include working for an employer in Sweden, not being a Swedish citizen, have not lived in Sweden for 5 calendar years before starting your temporary assignment and the assignment lasts for less than 5 years. If you meet these conditions, then they can exempt 25% of remuneration, as well as reimburse school fees and moving expenses. It also grants that no social security tax is levied on exempt amounts during the initial 3 years of your temporary stay in Sweden.
The Tax Year in Sweden
One aspect of your expatriate tax return that will remain unchanged with a move to Sweden is the tax year. The tax year in Sweden is the same as in the US. Sweden uses the calendar year for tax returns i.e., January 1st through December 31st, just like in the United States. Tax returns must be submitted to the Swedish tax agency by the 2nd of May of the following year.
Taxes for US Expats
The United States is among a few governments that tax worldwide income earned by its citizens and permanent residents residing abroad. Therefore, in addition to taxes in Sweden, Americans living in Sweden cannot forget their expatriate income tax return obligation in the US or other reporting requirements, such as FBAR, often required by the US treasury department. All US citizens or a permanent residents living or working in Sweden are required as an expatriate to file tax returns with the US federal government each year, irrespective of whether or not you have income sourced in the US.
Along with the usual income tax return, many people may have to submit returns with the Treasury department of the US disclosing assets held in bank accounts in Sweden. According to the Foreign bank and other account reporting, also known as FBAR, FinCEN Form 114 is used to file this. You must file these if you have a signature authority of financial or bank accounts that have higher balances than the respective thresholds. They must also be filed whether the foreign assets are owned jointly or separately. You would also be required to file a for 8938 along with your tax return if you have foreign financial assets over $200,000.
There are several special provisions to protect US expatriates living in Sweden from double taxation on the same income. There is a tax treaty in place between the United States and Sweden and this may be a consolation to US expatriates filing a tax return. The treaty is useful for deciding how your income will be considered by both Sweden and the United States if you have to pay taxes to both countries. For any questions about how this treaty will impact your US tax return, give us a call or send us an email.
Foreign Earned Income Exclusion and Foreign Housing Exclusion
Foreign income exclusion would allow you to bring down your taxable income on your US expatriate taxes. It can exclude approximately $101300 up-front from your 2019 earned income as a result of your residency and employment in Sweden. the foreign housing exclusion would allow you to exclude some amounts paid for household and domestic expenses that are incurred as a result of living in Sweden.
Foreign Tax Credit
Sweden’s taxes may be much higher than what you would be paying in the United States. The foreign tax credit can reduce your tax liability against Swedish taxes. This is good news because the taxes in Sweden are so high that the tax liability in Sweden can eliminate your tax liability in the US.