Taxation in Sweden

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Taxation in Sweden on salaries for an employee involves contributing to three different levels of government: the municipality, the county council, and the central government. Social security contributions are paid to finance the social security system.

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Income tax on salaries is deducted by the employer (a PAYE system) and paid directly by the employer to the Swedish Tax Agency (Skatteverket).

The effective taxation rate in Sweden is commonly cited as among the highest in the world; see list of countries by tax rates.

Total tax revenue as a percentage of GDP for Sweden over the past several decades compared to other highly developed states Tax revenue as a percentage of GDP (1985-2014).png
Total tax revenue as a percentage of GDP for Sweden over the past several decades compared to other highly developed states

Sweden has a taxation system for income from work that combines an income tax (paid by the employee) with social security contributions (employers contributions) that are paid by the employer. The total salary cost for the employer is thereby the gross salary plus the payroll tax. The employer makes monthly preliminary deductions (PAYE) for income tax and also pays the payroll tax to the Swedish Tax Agency.

The income tax is contingent on the person being taxable in Sweden, and the social security contributions are contingent on the person being part of the Swedish social insurance plan. The income tax is finalised through a yearly tax assessment the year following the income year. [1]

27% of taxpayer money in Sweden goes towards education and healthcare, whereas 5% goes to the police and military, and 42% to social security. [2]

Value added tax and 1960s indirect taxation reforms

Value added tax (VAT) which originated in France in 1954, is a tax added on the supply of goods and services. In this way, making it impossible for individuals to evade tax. [3] VAT was introduced in Sweden in 1969, replacing the previous retail sales tax (ömsättningskatt). [4] This was at a time when the country´s tax policy was moving toward greater dependence on indirect taxation and was a part of the Swedish reform of the indirect tax structure. The reform supporting indirect taxation was implemented due to the need for an additional source of revenue to meet the social responsibilities of affluence. With Sweden´s flourishing economy, public consumption through education, welfare, national defense, healthcare etc. was rising rapidly. Improvement of the public sector, in addition to a growing population resulted in the costs rising. When all these costs went up, taxes rose as well, and Sweden became the country with the second highest ratio of taxes to gross national product (at 37.1%) among the developed countries that make up the Organization for Economic Cooperation and development.

The second reason for Sweden implementing the indirect tax reforms was the weight of the existing direct tax burden. The country had an extremely progressive individual income tax, in addition to the inhabitants having to pay a progressive annual net wealth tax on the value of capital assets beyond 100,000 kronor. Thus, being a large supplemental tax on unearned income. In addition, the local government units in Sweden rely almost only on a local income tax as their basis of revenue, and with local expenditures such as hospitals and school buildings rising, this tax rose as well.

With all these taxes rising, the Swedish government´s reasoning for this reform was with two goals in mind: 1) no decrease of the government's tax receipts 2) no transfer of any substantial part of the tax burden from business to the consumer. Thus, the need for an indirect tax system arose. [5]

Today, the value added tax (mervärdesskatt or moms) rate in Sweden is 25%, with exceptions for food and services like hotel room rental fees (12%), and for sales of publications, admission tickets to cultural events and travel within Sweden (6%). [6]

Income tax

Sweden has a flat tax at every level of government, [7] [8] however, because the national tax has a much higher exemption, the combined tax rate by all levels is progressive. [9] [10] The rates for 2023 are as follows (based on yearly incomes):

Sweden Income Tax Rates
Income (SEK)National RateLocal Rate (Municipal + County)
00%0%
Up to: 614,0000%32%
Over: 614,00020%32%

[11]

Taxable income is reduced by general deductions which means that the marginal tax in practice varies between 7% on incomes just above 20,008 kronor to 60.1% on incomes above 675,700 kronor. [12] For an average salary, on an additional pay of 100 kronor, the employee first pays 32 kronor in income tax (direct, 32%).

Local income tax and the equalization system

The main source for local authorities and country councils in Sweden is a local income tax which is paid by 85% of the population. These 85% are citizens earning above a certain level of income, and the tax is added to the national income tax.

Sweden has various types of local authority with 290 municipalities (kommuner) and 18 country councils (landsting). Furthermore, there are two regions, Västra Götaland and Skåne, where the regional councils are directly elected and the responsibility for the major part of the national government´s regional development resources for the region lies. Additionally, they are responsible for health care and generally hold more power than the other counties. Lastly, there is the island municipality of Gotland which combines the functions of county council and the municipality. The municipalities hold various functions. The ones exclusive to the municipalities are town planning, all primary and secondary education, water and sewage, parks and open spaces, most welfare functions and refuse collection. While the ones shared with country councils and the central government are some culture and leisure activities, regional/spatial planning and environmental and consumer protection. The most financially burdensome and important functions of all these are education and social welfare. Therefore, Sweden has implemented constitutional laws that give the local authorities the right to raise necessary taxes to fulfill these duties. Thus, local authorities are free to set their own rates. In 2003 the average rate was 31.17%. The rates over the country are quite equal due to the present equalization system which was introduced in 1996. This system is horizontal because the resources are transferred between local authorities. Equalization is achieved by evening out differences in tax bases and structural conditions (age, geographical distance etc.). However, the system has been criticized for putting high burdens on a small number of municipalities (especially Stockholm) and has undergone many revisions due to this. [13]

Payroll tax

Due to the implementation of value-added tax resulting in a reduction of the tax burden on businesses, Sweden made up this deficiency from the business sector by an adoption of an employers´ payroller tax . [14] These payroll taxes imposed on employers have become an increasingly important part of the Swedish tax system, which is highlighted in their sharp increase since originally implemented (they amounted to 6% of the wage bills of private businesses in 1950, but 40% in the late 1970s). [15]

In 2018, the Swedish social security contribution paid by the employer is 31.42%, calculated on top of the employee's salary before taxes. The percentage is lower for old employees. [16] The specifics of the payroll tax (National Insurance in UK English) may be found at the Swedish Tax Agency's Website. [17] In addition, the employee pays 7% in pension contributions to the public system, with a cap at an annual income of 420,447 kr. Thus, the maximum employee contribution is 29,400 kr. However, this contribution is neutralized by a corresponding income tax reduction (tax credit) for the employee. [18]

Corporate and capital gains tax

Sweden has a flat tax rate of 30% for capital gains. [19] The Swedish tax authorities defines capital gains as incomes that can not be attributed to business operations or service. For example; rental of private assets, dividends, profit from the sale of assets and interest payments. [20] Corporate net income is taxed at a flat rate of 22%.

Registering a non-Swedish company or sole trader in Sweden

A foreign company conducting business in Sweden, whether a natural or a legal person, may become taxable for VAT, employer's contributions and/or income tax. The company should then apply for registration at the Swedish Tax Agency, and may apply for a Swedish F-tax certificate.

In the ‘Tax application for foreign entrepreneurs´ brochure and form, SKV 419 and SKV 4632 respectively, there is information on how to submit the application.

Sole traders who have a Swedish personal number, and corporations that have a representative who has a Swedish personal number and who is also authorised to sign (authorised to sign by himself) on behalf of the company, may submit the application electronically through the verksamt.se website. Verksamt.se is jointly managed by the Swedish Tax Agency, the Swedish Companies Registration Office and the Swedish Agency for Economic and Regional Growth. Other foreign companies may submit their application directly to the International Tax Offices [21] at the Swedish Tax Agency by post. When registered with the Swedish Tax Agency, the foreign company receives a unique Swedish identity number. For natural persons to receive such a number they must verify their identity with a passport or another such identity card or documentation. For a legal person it is required that the identity is verified with some form of attested certificate of registration/incorporation and that the representative demonstrates his/her authority to represent (sign) on behalf of the legal person when it requests registration for taxation. Foreign legal persons active in Sweden should first contact the Swedish Companies Registration Office to ask if they are required to register a branch office. If such a registration is made with the Swedish Companies Registration Office, they will supplied with a Swedish registration number by the Swedish Tax Agency. For contact information, see the Swedish Companies Registrations Office website.

Further information in English can be found on the Swedish Tax Agency's website. [22]

Buying a Swedish company or Swedish real-estate does not necessarily give right of residence in Sweden. Fraudsters have sold such assets claiming they would give right of residence. [23]

See also

Related Research Articles

<span class="mw-page-title-main">Payroll tax</span> Tax imposed on employers or employees

Payroll taxes are taxes imposed on employers or employees, and are usually calculated as a percentage of the salaries that employers pay their employees. By law, some payroll taxes are the responsibility of the employee and others fall on the employer, but almost all economists agree that the true economic incidence of a payroll tax is unaffected by this distinction, and falls largely or entirely on workers in the form of lower wages. Because payroll taxes fall exclusively on wages and not on returns to financial or physical investments, payroll taxes may contribute to underinvestment in human capital, such as higher education.

In France, taxation is determined by the yearly budget vote by the French Parliament, which determines which kinds of taxes can be levied and which rates can be applied.

Taxation in Greece is based on the direct and indirect systems. The total tax revenue in 2017 was €47.56 billion from which €20.62 billion came from direct taxes and €26.94 billion from indirect taxes. The total tax revenue represented 39.4% of GDP in 2017. Taxes in Greece are collected by the Independent Authority for Public Revenue.

This is a list of the maximum potential tax rates around Europe for certain income brackets. It is focused on three types of taxes: corporate, individual, and value added taxes (VAT). It is not intended to represent the true tax burden to either the corporation or the individual in the listed country.

Due to the absence of the tax code in Argentina, the tax regulation takes place in accordance with separate laws, which, in turn, are supplemented by provisions of normative acts adopted by the executive authorities. The powers of the executive authority include levying a tax on profits, property and added value throughout the national territory. In Argentina, the tax policy is implemented by the Federal Administration of Public Revenue, which is subordinate to the Ministry of Economy. The Federal Administration of Public Revenues (AFIP) is an independent service, which includes: the General Tax Administration, the General Customs Office and the General Directorate for Social Security. AFIP establishes the relevant legal norms for the calculation, payment and administration of taxes:

Taxation in Denmark consists of a comprehensive system of direct and indirect taxes. Ever since the income tax was introduced in Denmark via a fundamental tax reform in 1903, it has been a fundamental pillar in the Danish tax system. Today various personal and corporate income taxes yield around two thirds of the total Danish tax revenues, indirect taxes being responsible for the last third. The state personal income tax is a progressive tax while the municipal income tax is a proportional tax above a certain income level.

Taxation in Finland is mainly carried out through the Finnish Tax Administration, an agency of the Ministry of Finance. Finnish Customs and the Finnish Transport and Communications Agency Traficom, also collect taxes. Taxes collected are distributed to the Government, municipalities, church, and the Social Insurance Institution, Kela.

Taxation in Norway is levied by the central government, the county municipality and the municipality. In 2012 the total tax revenue was 42.2% of the gross domestic product (GDP). Many direct and indirect taxes exist. The most important taxes – in terms of revenue – are VAT, income tax in the petroleum sector, employers' social security contributions and tax on "ordinary income" for persons. Most direct taxes are collected by the Norwegian Tax Administration and most indirect taxes are collected by the Norwegian Customs and Excise Authorities.

Taxes in Germany are levied at various government levels: the federal government, the 16 states (Länder), and numerous municipalities (Städte/Gemeinden). The structured tax system has evolved significantly, since the reunification of Germany in 1990 and the integration within the European Union, which has influenced tax policies. Today, income tax and Value-Added Tax (VAT) are the primary sources of tax revenue. These taxes reflect Germany's commitment to a balanced approach between direct and indirect taxation, essential for funding extensive social welfare programs and public infrastructure. The modern German tax system accentuate on fairness and efficiency, adapting to global economic trends and domestic fiscal needs.

<span class="mw-page-title-main">Taxation in South Africa</span>

Taxation may involve payments to a minimum of two different levels of government: central government through SARS or to local government. Prior to 2001 the South African tax system was "source-based", where in income is taxed in the country where it originates. Since January 2001, the tax system was changed to "residence-based" wherein taxpayers residing in South Africa are taxed on their income irrespective of its source. Non residents are only subject to domestic taxes.

Taxation in Estonia consists of state and local taxes. A relatively high proportion of government revenue comes from consumption taxes whilst revenue from capital taxes is one of the lowest in the European Union.

Taxes in Bulgaria are collected on both state and local levels. The most important taxes are collected on state level, these taxes include income tax, social security, corporate taxes and value added tax. On the local level, property taxes as well as various fees are collected. All income earned in Bulgaria is taxed on a flat rate of 10%. Employment income earned in Bulgaria is also subject to various social security insurance contributions. In total the employee pays 12.9% and the employer contributes what corresponds to 17.9%. Corporate income tax is also a flat 10%. Value-Added Tax applies at a flat rate of 20% on virtually all goods and services. A lower rate of 9% applies on only hotel services.

Taxes in Poland are levied by both the central and local governments. Tax revenue in Poland is 33.9% of the country's GDP in 2017. The most important revenue sources include the income tax, Social Security, corporate tax and the value added tax, which are all applied on the national level.

Taxes in Lithuania are levied by the central and the local governments. Most important revenue sources include the value added tax, personal income tax, excise tax and corporate income tax, which are all applied on the central level. In addition, social security contributions are collected in a social security fund, outside the national budget. Taxes in Lithuania are administered by the State Tax Inspectorate, the Customs Department and the State Social Insurance Fund Board. In 2019, the total government revenue in Lithuania was 30.3% of GDP.

Taxes in Croatia are levied by both the central and the regional governments. Tax revenue in Croatia stood at 37.8% of GDP in 2017. The most important revenue sources are income taxes, social security contributions, corporate tax and the value added tax, which are all applied on the national level.

Taxation in Bosnia and Herzegovina includes both federal and local taxes. Tax revenue in Bosnia and Herzegovina stood at 28.6% of GDP in 2013. Most important revenue sources include the income tax, Social Security contributions, corporate tax, and the value added tax, which are all applied on the federal level.

Taxation in Belgium consists of taxes that are collected on both state and local level. The most important taxes are collected on federal level, these taxes include an income tax, social security, corporate taxes and value added tax. At the local level, property taxes as well as communal taxes are collected. Tax revenue stood at 48% of GDP in 2012.

The organization responsible for tax policy in Ukraine is the State Fiscal Service, operating under the Ministry of Finance of Ukraine. Taxation is legally regulated by the Taxation Code of Ukraine. The calendar year serves as a fiscal year in Ukraine. The most important sources of tax revenue in Ukraine are unified social security contributions, value added tax, individual income tax. In 2017 taxes collected formed 23% of GDP at ₴969.654 billion.

Taxes has an important part in the Moroccan economy. The taxes are levied by the government and the organization responsible for tax policy on Morocco is called the “General Management of Taxes”.

<span class="mw-page-title-main">Taxation in Luxembourg</span>

Tax revenue in Luxembourg was 38.65% of GDP in 2017, which is just above the average OECD in 2017.

References

  1. ↑ "För arbetsgivare". www.skatteverket.se (in Swedish). Swedish Tax Agency.
  2. ↑ "Offentliga sektorns utgifter". August 22, 2017.
  3. ↑ Olatunji, Olaoye Clement (2009). [chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://d1wqtxts1xzle7.cloudfront.net/6784930/61-68-libre.pdf?1390848066=&response-content-disposition=inline%3B+filename%3DA_Review_of_Value_Added_Tax_VAT_Administ.pdf&Expires=1714397336&Signature=FyxAjnWEAfJRMpyfekNpN7j-it7HaDta~odf-ECyOAyLchdiADyBWlB5jwDd-jPqEXFx~Uc3G8QOwF~UAIhKsODmctlO0oOA0MKPbZ9E5G0CzRH9m7imNF5IQVAfybcPRkQnBXvHxYHh03c52vtb5cpqza2W8bQyRCkiGsTmV5JGtIDYHI35X4OpAYXFzNMa7pdLkMq5bI~MMoWLMfqGelVpJ1Hp6LfXxAhnGjTk196Fo0CM3N3UKmNdS-4bYFURJpG7o2C-sfRaqWbkkv2foG8KtRhzU6AtIw~Ff~G72Bkqb905ATBogHgiTsjQ-O5RPuNGFn4yfBPVXzwkM4k73A__&Key-Pair-Id=APKAJLOHF5GGSLRBV4ZA "A review of value added tax (VAT) administration in Nigeria."] (PDF). International Business Management 3.4. Retrieved 29 April 2024.{{cite book}}: Check |url= value (help)
  4. ↑ Norr, Martin; Hornhammar, Nils G. (March 1970). The Value-Added Tax in Sweden. Columbia Law Review. Retrieved 29 April 2024.
  5. ↑ Norr, Martin; Hornhammar, Nils G. (March 1970). The Value-Added Tax in Sweden. Columbia Law Review. Retrieved 29 April 2024.
  6. ↑ "Momsbroschyren (SKV 552)". www.skatteverket.se (in Swedish). Swedish Tax Agency.
  7. ↑ "Worldwide Personal Tax and Immigration Guide". www.ey.com. Retrieved 2023-11-21.
  8. ↑ Local tax rates 2023, by municipality. Statistics Sweden. Retrieved 2023-11-21.
  9. ↑ PricewaterhouseCoopers. "Taxes in Sweden". PwC. Retrieved 2023-11-02.
  10. ↑ "The Swedish government intends to introduce a more favorable taxation for certain foreign skilled workers and experts". www.ey.com. Retrieved 2023-11-02.
  11. ↑ Arvanius, Shirin. "Sweden, Individual - Taxes on personal income". Worldwide Tax Summaries. Retrieved 29 April 2024.
  12. ↑ "Belopp och procent – inkomstår 2021". www.skatteverket.se (in Swedish). Retrieved 2018-06-22.
  13. ↑ Loughlin, John; Lidstrom, Anders; Hudson, Chris (24 January 2007). "The Politics of Local Income Tax in Sweden: Reform and Continuity". Local Government Studies: 351-366.
  14. ↑ Norr, Martin; Hornhammar, Nils G. (March 1970). The Value-Added Tax in Sweden. Columbia Law Review. Retrieved 29 April 2024.
  15. ↑ Holmlund, Bertil (1983). Payroll Taxes and Wage Inflation: The Swedish Experience. The Scandinavian Journal of Economics 85. Retrieved 29 April 2024.
  16. ↑ Ekonomifakta: Sociala avgifter
  17. ↑ "Arbetsgivaravgifter". www.skatteverket.se (in Swedish). Swedish Tax Agency.
  18. ↑ "Swedish Payroll and Tax Information and Resources". activpayroll. Retrieved 2020-01-29.
  19. ↑ Guide, Global Property (1 August 2016). "Medium rental income taxes and CGT".
  20. ↑ "Inkomst av kapital".
  21. ↑ "Utlandsskattekontor i Malmö och Stockholm" [International Tax Offices in Malmö and Stockholm]. www.skatteverket.se (in Swedish). Swedish Tax Agency.
  22. ↑ 'Skatteverket.se: Tax registration of foreign companies Archived 2013-04-18 at archive.today , Swedish Tax Agency
  23. ↑ Henke, Jesper (13 June 2013). "Tomtköp skulle ge uppehållstillstånd". SVT Nyheter (in Swedish). Sveriges Television.

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