US Expat Taxes Explained: Filing as an American Living in Sweden
Will moving to Sweden change your expatriate tax return? Sweden offers its citizens some of the finest social programs in the world, including universal health insurance, unlimited sick days, subsidized child care, and free university tuition. These luxuries do not come without a cost, however, and Sweden’s tax rates are among the highest in the world. In addition to Swedish taxes, Americans living abroad cannot forget their US expatriate tax return requirements or other reports, such as the FBAR, which is often required by the U.S. Department of the Treasury. This article will explain how your expatriate taxes will change with your move to Sweden.
US Expat Taxes in Sweden
If you are a citizen or permanent resident of the United States then you are obligated to file US taxes, in this case US expat taxes, with the IRS each year regardless of the country in which you reside.
In addition to the regular income tax return, you could also be required to file an informational return on your assets held in foreign bank accounts with Foreign Bank and Other Account Reporting (FBAR) Form 114, in addition to Form 8938 Statement of Specified Foreign Financial Assets.
While the US is one of the few governments that tax the international income of their citizens and permanent residents who reside overseas, it does have special provisions to help protect them from double taxation including:
- The foreign earned income exclusion allows you to decrease your taxable income on US expat taxes by the first $108,700 for 2021 ($107,600 for 2020) earned as a result of your labors while a resident of a foreign country.
- The foreign tax credit, which allows you to offset the taxes you paid in your host country with your US expat taxes dollar for dollar, and
- The foreign housing exclusion, which allows you to exclude certain household expenses that occur as a result of living abroad.
Note the additional requirements necessary for assets located overseas, including Foreign Bank and Other Account Reporting (FBAR) Form 114 with the U.S. Department of the Treasury and Form 8938 with the IRS. These must be filed if you have signature authority of bank or financial accounts that have balances higher than the respective thresholds. For more information, see US Expat Taxes Explained.
Sweden Tax Rates
As mentioned earlier, Sweden has some of the highest tax rates in the world. The national income tax rate is 20% if you earn less than SEK 395,600, but 25% if you earned higher than that in the tax year. This is then added to the municipality tax, which varies from 30-33%, depending on the municipality. This is then capped with a 1-2% charge tax. The tax rate in Sweden at the lowest is 50%, but can be as high as 60%. Capital gains are taxable at a flat rate of 30%.
There is no special regime for expatriates, except that you will not be taxed on your worldwide income unless you are a resident in Sweden.
The corporate tax rate in Sweden is 26.3%.
If an individual is living in Sweden, or regularly resides in Sweden, he or she is considered a Swedish resident for tax purposes. If an individual was considered resident and leaves Sweden, he or she will still be a resident for tax purposes if ties, such as a home or family, still exist in Sweden. It is important to know if you are resident in Sweden or not as it determines if your worldwide income is considered taxable.
Is Foreign Income Taxed in Sweden?
Individuals are taxed on their worldwide income if they are considered resident in Sweden. Non-residents are only taxed on income sourced within Sweden, including capital gains and pensions.
Social Security in Sweden
Part of the reason taxes are so high in Sweden is due to the extensive social insurance programs that the country has in place. There are benefits including universal health care, old age and unemployment benefits, free university level education, and extensive maternity leave. So, while your tax payments will seem very high at first, acknowledging what you are getting in return makes it much more reasonable.
Individuals are also required to pay into social security up to SEK 28,900. This SEK 28,900 is fully creditable against other taxes owed. Bear in mind that if you are only in Sweden for a short-term contract, you may still be required to pay into US Social Security because there is no Totalization Agreement between Sweden and the US.
Sweden Tax Due Date
One aspect of your expatriate tax return that won’t change with a move to Sweden is the tax year; Sweden also uses the calendar year for individual tax returns. Tax returns must be filed if individuals earned more than SEK 18,000. These returns are to be delivered to the Swedish Tax Agency by May 2nd of the following year.
US – Sweden Tax Treaty
Individuals filing an expatriate tax return will be relieved to know that there is a US-Sweden tax treaty. The treaty is useful in determining how an individual’s income will be treated by both the United States and Sweden when that individual is paying taxes to both countries. If you have questions about how this treaty will affect your US expatriate tax return, speak to one of our expat tax experts.
Other Taxes in Sweden
There are other forms of taxation in Sweden that individuals residing in the country should be aware of. The Value Added Tax (VAT) is levied on all goods and services in Sweden, including those crossing borders within the EU. The very high standard rate for the Swedish VAT is 25%, with some reductions on items like food and certain tourism industries. There is no wealth or inheritance or estate tax in Sweden.
Saving on US Expat Taxes
Sweden’s tax structure has tax rates that are much higher than what individuals may be used to paying in the United States. However, bear in mind that paying higher taxes to Sweden will translate into a lower tax liability with the United States as the foreign tax credit will allow you to reduce your US tax liability on a dollar-for-dollar basis against any taxes paid to Sweden. The tax rates are high enough that the Swedish tax liability is nearly guaranteed to eliminate the tax liability on your US expatriate tax return. If you are unclear about how approach your expatriate tax return while living in Sweden, contact us regarding Greenback’s expatriate tax services.