Sweden payroll and tax overview.

Sweden is located in the heart of Scandinavia, between Norway, Finland and, off its south coast, Denmark. An EU member-state, Sweden has a reputation for trade and entrepreneurship and is also part of the World Trade Organisation, and the Organisation for Economic Co-operation and Development. Sweden currently ranks as the seventh-wealthiest country in the world by GDP: primarily an export-oriented economy, it draws on abundant natural resources including timber, iron ore, and hydropower - while skill-intensive sectors such as engineering, telecommunications, manufacturing and pharmaceuticals also represent important financial interests. Sweden’s business culture is based on egalitarianism, and is reinforced by a talented labour pool with an impressive work ethic. Many multinational businesses maintain a presence in Sweden including Volvo, IKEA, Electrolux, Tetrapak, and Eriksson, each taking advantage of favourable government business initiatives. In 2012-2013, Sweden was ranked as the fourth most competitive economy in the world by the World Economic Forum.

Why invest in Sweden?

Financiers looking for opportunities in Sweden will discover many reasons to invest:

• Tax rates: Sweden imposes a relatively favourable corporate tax rate of 20.6% (on net profits) and has no capital gains tax. Further tax incentives such as contribution exemptions and additional deductions are available.
• International hub: Sweden’s location at the centre of northern Europe makes it a busy business hub, with excellent links - by road, rail, air and sea - to Norway, Sweden, Denmark, and the rest of Europe.
• Research & development: The European Commission ranked Sweden as the most innovative EU member state in 2014. At 3.37%, Sweden’s GDP investment in R&D exceeds EU targets, and businesses enjoy strong links with the country’s educational and technological institutions.
• Skilled labour: Sweden’s labour force is characterised by diligence and dedication, and employees tend to take pride in conducting business in a relaxed, efficient manner. Swedish workers are skilled and educated, with 32% of the workforce holding a tertiary degree.
• Industry potential: Key investment areas in Sweden include automotive, sustainable energy, financial services, and ICT. Technological innovation is driving growth and, to encourage investment, the government has specifically incentivised the energy sectors and telecommunications industry.
• Business incentives: Amongst a variety of initiatives to encourage investment, the Swedish government works to eliminate business obstacles, including introducing the Companies Act in 2006, which allowed foreign investors a greater say in their interests.

Registering a Company and Establishing an Entity in Sweden

An employer must be registered at the Swedish Tax Office. The company is not considered as a legal entity until it is registered with the Swedish Companies Registration Office. It usually takes two to four weeks to register a new company.

Company formation in Sweden follows this 3-stage process:

1. Obtain certification from a Swedish bank that the total cash amount for shares has been deposited into an account. This takes 1 day.
2. Submit an online application to the Swedish Companies Registration Office and obtain a Registration Certificate. This takes 14 days and costs approximately SEK 2,000.
3. Registration with the Swedish Tax Agency. This takes 1 day and can be done at the same time as stage 2.
4. If the company is only applying to become an employer in Sweden with the Swedish Tax Office (and not with the Swedish Companies Registration Office) it can take up to 15 weeks for the application to be processed.

Some useful information on how to fill in the tax application for foreign entrepreneurs.

Business Banking in Sweden

It is not mandatory to make payments to both employees and the authorities from an in-country bank account.

What Are the Working Days and Working Hours in Sweden?

The working week in Sweden is normally Monday to Friday. Normal working hours cannot exceed 40 hours per week. No more than 48 hours overtime over a period of four weeks, or 50 hours over a calendar month, is permissible. Maximum overtime is 200 hours per calendar year.

Basic Facts about Sweden

General information

Lying at the centre of Northern Europe, Sweden is officially a kingdom - and the third-largest country by area in the European Union. Home to prehistoric Germanic tribes, Sweden unified during the Middle Ages to form an empire, but gradually ceded territory to assume its modern borders, and join the EU, in 1995. Today, Sweden maintains a prominent regional and global presence as a member of the United Nations, the Nordic Council, the Council of Europe, and the WTO - amongst numerous other organisations. Sweden’s natural resources have helped it become one of the wealthiest nations in the world: a status reflected by high living and educational standards, and its ongoing global competitiveness. Part of the Scandinavian Peninsula, Sweden’s landscapes are characterised by rolling mountains and hills, while the country enjoys a temperate climate, with mild winters and warm summers.

Full Name: Kingdom of Sweden

Population: 10.23 million (Eurostat, 2019)

Capital: Stockholm

Major Language: Swedish

Major Religion: Christianity

Monetary Unit: 1 Swedish krona = 100 ore

Main Exports: Machinery and transport equipment, paper products, chemicals

Internet Domain: .se

International Dialling Code: +46

The tax year runs from 1st January to 31st December.

The typical penalty awarded for the late submission and payment of tax and social security contributions is a fee of SEK 625.

Income Tax in Sweden

Taxation on salaries for an employee involves contributing to three different levels of government: The Municipality, The County Council and The Central Government.

Employer with Permanent Establishment:

Preliminary Income Tax shall be deducted from the payslip and paid by the employer to the authorities.

The tax tables used for the calculation vary depending on where the employee lives, age and the employees’ total economic situation.

For irregular payments such as bonus, final pay etc. it is a percentage for one-time tax 10-57 % depending on the employees’ yearly income.

All the residents are liable to pay National and Municipal Swedish Tax on their worldwide income; non-tax residents in Sweden are liable to pay tax on income derived from work performed in Sweden.

Individuals will be regarded as tax residents if they are present in Sweden for a period of more than 6 months.

Married people are taxed separately.

Taxable Income Includes:

• Income from employment (deemed to form only one source), is taxed for municipal tax up to the threshold and for national tax for the exceeding part.
• Income from business (may include various sources of income), is taxed for municipal tax up to the threshold and for national tax for the exceeding part.
• Income from capital (deemed to form only one source) is taxed separately. No municipal tax is levied.

Certain deductions are permissible: i.e. expenses incurred due to double accommodation and home travel during temporary assignments away from ordinary place of work for up to 2 years for single individuals and five years for married couples.

If the employee is not a Swedish citizen, but has worked for a Swedish company for less than 6 months, they will have to apply for SINK at the Swedish Tax Office. SINK is always 25%, and the employer makes the tax deduction.

If the employee has worked for more than 6 months at a Swedish company, they have to apply for and pay general taxes (A-skatt) or have a decision from the Tax Office for adjustment. They will also have to make an income tax return.

Filing Date: May following the assessment year.

Monthly contributions must be paid to the local authorities by the 12th one week later in January and August of the following month.

Social Security in Sweden

Sweden has one of the most highly developed welfare systems in the world.

All employers in Sweden pay the social security contributions consisting of charges for pensions, health insurance and other social benefits. These contributions amount to 31.42% of the gross salary. 10.21% of this represents pension contributions. Only the contributions on income up to a maximum of 8,07 income related base amounts (SEK375´255) 519 708 kr for 2019 are calculated per person for pension. 538 700kr for 2020.

All Swedish residents are entitled to a state-financed guaranteed minimum pension of approximately SEK7,500 per month. State-financed guaranteed for single persons SEK 8,779, for married persons SEK 7,853.

Employees pay 7% of their income to pension contributions, up to a maximum of 8,07 income base amount. However, this contribution is neutralised by a corresponding income tax reduction for the employee.

For employees born in 2004-2006, employers pay a contribution of 10,21%. The lower fee applies to benefits up to a maximum of SEK 25,000 per month and employer. For compensation over SEK 25,000, the fee is 31.42%/ For employees born in 1999-2003, employers pay a contribution of 19,73%. The lower fee applies to benefits up to a maximum of SEK 25,000 per month and employer. For compensation over SEK 25,000, the fee is 31.42%. For employees born from 1938 to 1956, employers only pay a contribution of 10,21%. For employees born in 1937 or earlier, no contributions are paid.

Pension contributions are tax deductible for the employer, and a tax of 24.26% is levied on the amount of the contribution. The tax of 24,26% is not on the statutory contributions, it´s on the occupational pension.

The monthly amount depends on the:

• Size of pension contributions made entitling a person to a pension.
• General employment income development in the country.
• Accrued value of the part (2.5%) of the pension entitlement invested according to individual choice (premium pension).
• Current average life expectancy

Monthly contributions must be paid to the local authorities by the 12th of the following month.

Tax Reporting in Sweden

Yearly

Processing of statutory year end (tax year end)

• An annual reconciliation of payroll transactions
• The tax files (FOS) are updated via the payroll system. The files are retrieved from the Swedish Tax Authority (Skatteverket) and are instantly uploaded to the payroll system. The tax files include all tax information for the following year.
• Due to changes in tax policies, maintenance of the employer’s system is completed as required.

From January 2019, PAYE tax returns per employee are reported every month instead of the yearly annual income statement.

The employment contract can be written or verbal. Even if there is no requirement of a written contract, the employer is obliged to provide written information stating all of the terms & conditions that are of material relevance to the employment relationship. This must be done within one month after the commencement of work by the employee. This information is provided using the form mentioned above.

The details required when setting up a new start include:

• Employment contract in Swedish or English
• Tax information - information about tax table and tax adjustment is sent to the employee from the Swedish Tax Agency (STA) upon request.

If a new employee is a non-Swedish citizen:

• Tax information - the employee must visit a Tax Office and ask for a social security number and fill out an application form for SA-tax registration. After processing, the Tax Agency sends the decision to the employee and depending on their decision the social security percentage is decided.
• A1 form (if applicable)

The documentation required from expat new starts include:

• Passport / date of birth (YYMMDD)
• Work permit
• Contract
• A1 form (they shall not pay Swedish social security)
• SINK decision (if they will not stay for longer than 6 months and not pay full Swedish tax)
• Tax details

Leavers in Sweden

If there is a dismissal by the employer, it shall be based on objective grounds. Objective grounds always exist in case of shortage of work (redundancy). The notice of dismissal, which has to be in writing, should contain all the information stated in The Employment Protection Act. According to The Employment Protection Law (LAS), the employee has the right to be informed of the termination at least 2 weeks before, or according to the employment contract.

Payment for leavers must be made in the month after termination day.

No notifications have to be made to the local authorities when there is a leaver.

Payroll in Sweden

Payroll in Sweden involves certain obligations on the part of employers, who should be primarily concerned with observing relevant tax laws. A business’ payroll process must take into account individual income tax, social security contributions, payroll and sales taxes, and withholding tax.

Setting up payroll requires information from employees, including a Swedish Tax Identification Number (TIN). Income tax in Sweden is progressive, but may differ for ‘resident’ and ‘non-resident’ taxpayers. Employees are required to make a 7% contribution to social security, while employers contribute 31.42%: the payments cover various benefits including unemployment insurance, pensions, family benefits and health insurance.

Employees must be issued with a payslip every pay-date, and payroll records must be kept for at least 10 years.