Sweden is certainly not a tax haven but is widely known as a high-tax country. Nevertheless, large parts of the population agree with their taxes. The top tax rate is currently around 55.5%. In the past, however, it was even possible that you had to pay more than 100% in taxes, albeit in exceptional cases. Because in Sweden you pay taxes primarily at local and regional level, you have a certain influence on how the money is used. In addition, you can better estimate on site whether the tax paid serves meaningful purposes. This fact, as well as the generally perceived low prosperity gap in the country, explain why Swedes like to pay taxes.

1st Taxation in Sweden – Introduction

Sweden is a special country in many ways. Sure, every country may claim that. But this does not detract from the many peculiarities that Sweden and its people can boast. Confirmation of this can also be found in Germany and elsewhere in the world. Everyone knows ABBA, IKEA and Volvo, as well as all the clichés you hear from travelers who have spent their holidays in Sweden. This is just the proverbial tip of the iceberg. Did you know, for example, that in Sweden taxes are assessed very differently than in Germany, namely very easily via SMS? Or that you have some say in the use of taxpayers' money? No? Then look forward to a trip with us to the happy high tax country Sweden.

2nd stories about taxes in Sweden

At this point we usually include a historical outline of the respective region in order to tune our readers. In this case, however, we want to use this place to report on some stories and real fairy tales about finance and taxes in Sweden.

2.1 Cash in Sweden

Sweden was the first country in the Western world to introduce money in paper form. Although there was already paper money during the Song Dynasty in China (in the 10th century), it is precisely this paper money from Sweden that paved the way for the success of later banknotes worldwide. Therefore, the introduction of banknotes in Sweden is quite revolutionary. In fact, as early as 1661, notes were introduced in Sweden, which were also recognized by the state as official means of payment. However, precursors existed several years earlier in Spain and the Netherlands, but they had to do without official recognition.

In the past decade, in Sweden, as in many other Scandinavian countries, the use of cash has declined sharply. Most transactions are now cashless. This is why it was predicted, especially for Sweden, that cash will be de facto abolished in 2023. The trend in this direction is indeed enormous, but with the tightening of the international security situation in 2022, the use of cash in Sweden has increased again, albeit only slightly. Because cashless business offers so many advantages that at least the Swedes hardly want to do without it.

2.2 Scary Tales about Taxes in Sweden (which are true)

Abroad, Sweden is generally known as the welfare state. However, the financing of this system entails correspondingly high taxes. In the past, this has led to many a curious situation.

2.2.1. Ingmar Bergman's tax evasion abroad

For example, there is the story of the star director Ingmar Bergman, who in the 1970s was subject to double taxation with both income tax and capital gains tax in Sweden. He calculated that as a result he would have had to pay a tax of a whopping 139 %. In fact, he was arrested in Stockholm in 1976 for tax evasion, but was released shortly afterwards. Bergman went into exile. Although his tax evasion was primarily related to his treatment as an alleged tax evader, it is generally accepted that the injustice of the horrendous double taxation would have justified voluntary exile. Ultimately, however, Ingmar Bergman was acquitted of suspicion of tax evasion.

2.2.2. Astrid Lindgren’s fairy tale – horrors of the Swedish Social Democrats

At the same time, an even greater sensation in Sweden was caused by the tax paid by children's book author Astrid Lindgren. Here, too, double taxation took place, resulting in a tax of around 100,1 %. Understandably, the author perceived this as unfair. On this occasion she wrote the fairy tale Pomperipossa in Monismania, with which she also attracted much public attention in 1976. This year, however, there were elections in Sweden. Their public feud with the then Finance Minister Gunnar Sträng, who at that time was able to use a significantly lower tax rate through tax arrangements himself and accused her of having miscalculated, then probably led to the Social Democratic Party, which had been governing for more than four decades, being voted out.

Since then, fiscal policy in Sweden has sought to establish a balanced tax policy. When Astrid Lindgren passed away in 2002, even the Prime Minister finally admitted that she was probably right about her tax.

In hindsight, it may have been a good thing from a purely fiscal point of view that Astrid Lindgren never received the monetaryly highly endowed Nobel Prize for Literature, although at least many Swedes believe that she more than deserved it.

3. Tax Law in Sweden

3.1. Tax liability in Sweden

In Sweden, three criteria determine whether there is a tax liability. On the one hand, there is an unlimited tax liability if you are resident in Sweden. Secondly, a stay of more than six months in Sweden is sufficient to have to submit a tax return. And thirdly, if you were previously taxable in Sweden and remain connected to that country through economic interests, you will also remain arrested abroad for tax purposes in Sweden.

The latter condition is therefore relevant for both Swedish and foreign citizens, provided that they were taxable in Sweden for at least ten years before moving abroad. However, this extended tax liability only applies for a period of ten years. In the first half of this period, however, the tax liability can be waived if you can prove that there are no longer any tax-relevant connections with Sweden (for example, that you no longer have a residence). After the expiry of these first five years, however, a reversal of the duty of proof applies, which must now be provided by the financial administration in the opposite case.

In addition, the world income principle applies in Sweden.

Once upon a time, there was a differentiated taxation of married couples, similar to the German spouse splitting. However, many years ago, the legislature in Sweden had abolished this preferential treatment.

Commercial income, to which the ownership of agricultural or forestry real estate regularly leads, is also taxable. Losses can be offset against profits in the following year.

3.2. Income tax in Sweden

In Sweden, taxes are primarily paid at local and regional level. Consequently, these taxpayers' money is used directly on the spot. This strengthens regional development, but there is also a subordinate state burden-sharing. Only from an income of more than SEK 614,000 (about EUR 50,000) a part of the tax flows to the state. Nevertheless, the State Tax Administration (Skatteverket) takes over the collection and collection of income tax and other taxes.

In addition, in Sweden you only charge taxes from a certain basic allowance. This depends on the one hand on the income level, on the other hand on the age of the taxpayers. Senior citizens from the age of 66 years are entitled to a higher allowance. For example, the general basic allowance 2023 is SEK 22.200 and for seniors SEK 58.200. With increasing income, however, the credited allowance increases, because the allowance is variable in Sweden. In Sweden you can do without real progression.

3.2.1. Municipal and regional income tax

Since the tax on income up to SEK 614,000 enters municipal funds, municipalities themselves determine which tax rates should apply to the income tax. In this respect, the calculation of the tax in Sweden is more similar to the cantonal system in Switzerland than in Germany. In 2023, the average tax rate of all municipalities and regions in Sweden is about 32%. This includes both the municipal and the regional tax of the Län (provinces in the rank of German federal states). In addition, church tax may also apply if taxpayers belong to the Swedish church.

For example, the Municipality of Torsby states that it charges 22.02% in income tax. The region of Vämland län, where Torsby is located, requires an additional 11.68 % in taxes. Thus, you pay in Torsby a slightly above average income tax.

3.2.2. State share of taxes in Sweden

However, if you earn an income above SEK 614,000 per year, you pay an additional 20% on the amount exceeding it. If the tax liability is limited, the tax rate increases to 25%.

This tax is the national tax share that goes to the state. However, this tax revenue also indirectly finances regional compensation payments, which are only of minor importance.

In a way, this division in tax collection fulfills the same function as in Germany the progression of the tax rate.

3.2.3. Payroll tax

Employees of all kinds are subject to a withholding tax that is comparable to the German wage tax. In fact, in Sweden, in addition to the tax deduction of wages, the withholding of all social security contributions takes place. However, these services collected there go to the financial administration. This has the advantage that you do not have to worry about any further payments yourself.

3.2.4. Tax support for foreign specialists

Sweden promotes the establishment of highly qualified specialists with tax advantages. There are five conditions for this. Firstly, the application submitted either by the taxpayer himself or by his employer must be submitted within three months of starting work. Secondly, it must be ruled out that one was not subject to tax in Sweden in the previous five calendar years. Thirdly, the scheme only applies if the planned stay in Sweden is to be a maximum of five years. Fourthly, this regulation applies only to foreigners. And fifth, the employer must be either of Swedish nationality or a company based in Sweden.

When examining the application, a distinction is made as to whether the employer pays a monthly total compensation of at least SEK 105.001. This amount applies for 2023 and is adjusted annually based on the general price development in the country. Alternatively, if the remuneration is lower, it is checked whether the employee actually has professional expertise (for example in the field of research) and whether this can contribute to an economic advantage of the company.

If the application is accepted, specialists can look forward to an exemption of 25% of the income from this employment relationship. This applies to both income tax and social taxes. All other income is therefore subject to the general tax rules.

3.3. Corporate tax

For corporations, including corporations, 20.6% of taxes have been incurred in Sweden since 2021. This is exclusively a state tax. Therefore, there is no local taxation in Sweden according to the model of the German business tax.

Shared social contributions for employees of a limited company amounting to about 31 % of the pure wage costs are also incurred, but are deductible under corporate tax.

It is also worth mentioning that in Sweden only one national legal form is known as a corporation, namely Aktiebolag (AB). Although it formally corresponds to the German public limited company, it can be founded in two ways, whereby the second alternative can be founded with a significantly lower share capital (SEK 25,000 instead of SEK 500,000) and therefore it is more like a German GmbH. Accordingly, a distinction is made in Sweden between a private AB and a public AB whose shares are tradable on the stock exchange.

In addition to AB, there is also the possibility of establishing a cooperative. There are three alternatives: firstly, the purely economically oriented, secondly, a non-profit-making cooperative and thirdly, a municipal cooperative in which several municipalities join forces for specific purposes.

3.4. Capital gains taxes

In Sweden, a broad definition of capital income applies. In addition to the classic income from securities trading, interest income and dividends, there is also all other income that does not constitute income from self-employment or from self-employment. Thus, in Sweden, for example, capital gains taxes also apply to income from the sale or rental of a private property.

The tax rate on capital income is in principle 30%. In the case of income from the sale of residential property, the tax applies only to 22/30 of the profit. Thus, 26,67 % of profits remain tax-free. On the other hand, in the case of commercial real estate, only 10 % of the profit is tax-free. It may also be possible to defer taxes on those profits to a certain extent. The reason for this is that this should facilitate the acquisition of a new property in Sweden or in EU/EEA countries.

When selling personal property, there is an exemption of SEK 50,000. Either the original purchase price or alternatively 25% of the selling price is used.

In the case of losses, for example from shares transactions, it is possible to apply the losses to taxes from other sources of income, but a loss carry forward is excluded in this case. For this purpose, there is a restriction on the tax crediting. In the case of private losses, only 50 % is applied. In the case of commercial losses, the share increases to 63 %.

3.5. VAT, Excise duties

The general VAT rate in Sweden is 25%. It is the second highest in the EU (the highest has Hungary with 27%). Food and beverages (except alcoholic beverages), hotel accommodation and catering are subject to a reduced VAT rate of 12 %. On the other hand, 6% VAT covers books, newspapers and other media (including in electronic form), cultural events and passenger transport of all kinds in Germany. In Sweden, however, there is no tax on medical services and medicines, as well as on certain insurance policies and financial products. Also on services of public institutions (such as museums, libraries) are exempt from VAT.

Excise duties also exist in Sweden, with taxes on tobacco products, alcoholic beverages, vehicles and energy (fuels and electricity).

3.6. Property Tax, Property Tax, Inheritance and Gift Tax

In Sweden, the equivalent of the German wealth tax has been abolished for several years.

Only private real estate taxes apply, which thus affects, among other things, homes and holiday homes. The tax rate is 0.75% of the market value, but the amount of the tax is limited to a moderate maximum amount of SEK 9.287. You are only taxable if you own the property on 01.01. of a year. On the other hand, Sweden taxes 1 % on real estate in its assets. For industrial areas, the tax rate falls to half.

In addition, inheritance and gift tax are unknown in Sweden. They were also abolished in 2004.

3.7. Property transfer tax (Stamp tax)

In Sweden, taxes also apply when transferring real estate. For natural persons, it amounts to 1,5 % of the market value or the value which was set in the property tax assessment last year, if this is higher. If a legal person purchases a property, the tax rate increases to 4.25%. However, the exception here is that such companies, which are engaged in the construction or holding and management of residential property, in turn only have to pay 1,5 % of the tax on capital transfers. In addition, in Sweden, stamp duty applies when a mortgage loan takes place. The tax rate is 2%.

The Swedish stamp duty and the German property transfer tax are different in that in Sweden this tax flows to the state instead of the regions.

Paying taxes in Sweden: other special features

4.1.Swedes like to pay taxes because they themselves benefit directly from it

Probably the most wonderful thing about taxes in Sweden is that the majority of residents are happy to pay their taxes. Sweden is one of the countries in the world that levies the highest taxes – even more than in Germany. So one wonders if this is in principle the reversal of the propaganda with which North Korea, for its part, points out that there are (allegedly) no taxes there. Far from it. In Sweden, we generally know exactly what happens to taxes. There you can regularly actively participate in the decision at the municipal level whether, for example, a local hospital should be promoted or a senior residential home. This direct effect of own taxes increases the acceptance of taxes enormously.

This also applies in view of the many social benefits that are free of bureaucratic arbitrariness to everyone in need. The same applies to medical care, which is of a high standard in Sweden. Here the basic idea of a welfare state still resonates, even if Sweden has now distanced itself noticeably from the original ideal.

4.2.Swedes like to pay taxes because the tax office makes it easy for them

But there is a second element that makes it much easier for Swedes to pay taxes. Because they receive the documents for the income tax return every year in the spring (in March, at the latest in April) by post. The required data is usually completely prefilled, so that you only have to carry out a check. In Sweden, no one has to carry out extensive research into which tax deductions can be used. No one runs the risk of forgetting them. In Sweden, therefore, you only pay the taxes required by tax law. The need for professional tax advice in Sweden is therefore correspondingly low. This low complexity of assessment thus also contributes to the general acceptance of taxes in Sweden.

But it is even easier. Because if you have no objections regarding the information in the prefilled tax return, then you can simply submit the tax return with a confirmation online, by phone, with an app or by SMS. In addition, the tax office always mentions a personally responsible contact with the prefilled income tax return as well as the extension. This avoids long waiting times for queries.

However, these facilitations are accompanied by a general consent to limited data protection. Because the state has in Sweden much more comprehensive knowledge about the economic and financial conditions of its tax subjects than in Germany, for example. For example, there are numerous reporting obligations to the state, for example by banks, insurance companies, reporting authorities, land registries. However, Swedes trust their state because they know it serves them. This also makes tax evasion more difficult.

5th Tax in Sweden – Conclusion

If we want to draw a conclusion about the Swedish tax regime, we can think of two completely contrary pictures: Sweden is both a tax hell and a tax haven in terms of its taxes. There are certainly few countries in the world where, despite high taxes, you are as satisfied with tax law and the associated administration as in Sweden. If, however, we as tax consultants are asked whether it is worth moving to Sweden for tax reasons, our spontaneous answer “by no means” could hardly raise doubts. But we would not recommend anyone to emigrate to North Korea for purely fiscal reasons. It is better to pay taxes in Sweden.

Sweden is certainly worth considering when it comes to locating companies. After all, the corporation tax rate there is significantly lower than the level that the duo of corporation tax and business tax collects in Germany. But there are at least within the EU significantly more alternatives that offer cheaper tax rates, Romania for example. However, hardly any other EU country has such a highly developed infrastructure as Sweden. Coupled with the high general standard of education and the generally high level of commitment as well as the higher productivity of the working people in this country, there is therefore a lot to be said for a company location in Sweden.

So it may be that the idyll of Bullerbü applies just as much to Sweden as that of a high-tax country, but in this case one should look at the overall picture. Because beyond low taxes, Sweden has proven that a successful state should also rely on the satisfaction of its taxpayers.