Sweden has one of the highest standards of living in Europe. Studying the Swedish language and understanding the local tax laws are ones of the challenges that American expats in Sweden face. Residence plays a key role in determining the amount of tax liability. There is a term of deemed residence provision in regards to Swedish citizens and the taxpayers who had a dwelling or permanent home in Sweden. Consequently, it is essential for American expats understand the local laws because it affects the filing of US expatriate tax returns.
We get multiple questions from our prospective and current clients in Sweden. What are income tax rates for expats and nationals in Sweden? How is residency determined? Do you offer US expatriate tax services to American expats Sweden? The purpose of this guide is to summarize the most popular questions.
Expatriate Tax Rules and Returns for American Expats Sweden
US citizens are the only taxpayers in the world who are taxed on a worldwide income whether they live in Stockholm or Los Angeles. Consequently, most American expats Sweden are required to file US expatriate tax returns if they meet the US filing requirements.
However, American expats can use special deductions and exclusions under IRC section 911 to avoid double taxation.
- Foreign income exclusion. American expats Sweden can reduce their earned taxable income by $101,300 for a calendar year 2016 on US expatriate tax returns if they have foreign earned income and meet a physical presence test or bona fide residence test.
- Foreign housing exclusion. Additionally, American expats Sweden may be able to deduct certain housing expenses that have been incurred while living abroad.
- Foreign tax credit. American expats can take a foreign tax credit for overseas taxes paid on a dollar-for-dollar basis.
There are additional filing requirements for American expats Sweden with foreign financial assets. Please read our Category FBAR to learn more about the FBAR requirements as a part of US expatriate tax preparation.
Tax system in Sweden– FAQ
I am an American expat residing in Sweden. Is my worldwide income taxed in Sweden?
- American expats in Sweden who are considered resident individuals are taxed on their worldwide income at progressive rates.
- Non-resident individuals are taxed only on income sources from Sweden.
Who is considered a tax resident in Sweden?
Domestic tax law of Sweden should be reviewed to determine a residency.
American expat in Sweden is considered a resident individual in one of the following cases:
- s/he is domiciled in Sweden and has a permanent home in Sweden
- s/he stays continuously in Sweden for more than six months
- s/he has an essential connection to Sweden
What is the tax year in Sweden?
The Swedish tax year (“beskattningsår”) runs from 1 January to 31 December.
What is an income tax rate in Sweden?
There are two marginal tax brackets for resident individuals. The higher rate of personal income tax is around 58%. 30% tax rate is assessed on investment income. Non-residents are subject to 25% withholding tax on employment income.
Which income is considered a taxable income in Sweden?
Most types of remuneration and benefits are taxable in Sweden. The details of expatriate compensation package should be reviewed to determine certain types of income that are exempt.
As an American expat in Sweden, can I file a tax return on overseas taxes with a spouse?
There is a separate tax liability for married spouses in Sweden. If both spouses are Swedish residents, then special rules apply in regards to certain income allocation.
Is it a requirement to file a tax return in Sweden every year?
Tax returns in Sweden must be filed by May 2 following a tax year.
Does Sweden have a tax treaty and social security agreement with the USA?
A double tax treaty was signed on January 1, 1996 between the USA and Sweden. The USA signed a totalization agreement with Sweden on January 1, 1987 that provides social security protection of expats working in both countries. The USA is finalizing an intergovernmental agreement with Sweden. To learn more about FATCA, please read What is FATCA. American expats Sweden should seek advice of an expatriate tax preparer to review overseas tax issues that affect Americans living in Sweden.
Conclusion
These are some of the basic tax questions that American expats should review before moving to Sweden and filing Swedish as well as US expatriate tax returns.
American expats Sweden who require additional assistance with US expatriate tax preparation, FATCA, FBARs, PFIC or any other overseas tax questions, should seek help of expat tax CPA. International tax experts at Artio Partners will be pleased to assist with various topics regarding US taxes, social security and foreign tax issues.