Sweden Global Payroll and Tax Information Guide
The Kingdom of Sweden, located in Scandinavia in northern Europe, is a parliamentary democracy and a member of the European Union. Sweden’s currency is the Swedish krona (SEK), also known as the Swedish crown. For a country only about the size of California, Sweden displays remarkably solid economic growth, a robust education system, and a high standard of living for its near 10 million citizens. Sweden has primarily an export-oriented economy. In 2012-2013, Sweden was ranked as the fourth most competitive economy in the world by the World Economic Forum. Sweden currently ranks as the seventh-wealthiest country in the world by GDP and is also one of the most popular destinations in Europe. Detailed below are key points companies should consider when setting up in Sweden from a Global Payroll Perspective.
WHAT’S NEW IN SWEDEN PAYROLL
- Monthly PAYE to replace annual income statements in 2019
- Sweden’s proposed 2019 budget contains income and social tax changes
- Some individuals over 65 years of age are to owe less income tax under the changes
BASIC FACTS ON 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. Taxes are levied at the national, county, and municipal levels. Setting up payroll requires information from employees, including a Swedish Tax Identification Number (TIN). Employers also must provide mandated workplace protections. Employees are guaranteed vacation time, maternity and sickness leave, and termination pay, among other services, regardless of their job. Employees must be issued with a payslip every pay-date, and payroll records must be kept for at least 7 years. The tax year in Sweden runs from January 1st through to December 31st.
The corporate income tax rate from 1 January 2019 is 21,4 percent, a fall from the previous rate of 22 percent.
Residents of Sweden are liable to income taxation and social insurance contributions on their worldwide income. Payments to employees other than regular wages are subject to an income tax withholding rate of 30 percent. Employees with total annual income of less than SEK 1,000 are not subject to income tax withholding. Non-residents employed in Sweden are taxed a flat rate of 25 percent. Non-Swedish residents employed by non-Swedish firms are exempt from paying any income tax provided they do not spend more than 183 days in Sweden over a 12-month period. Employers withhold income taxes and social insurance contributions using the Pay-As-You-Earn (PAYE) system from employee wages on a monthly basis. The income tax accrued as employees are paid by employers (not self-employed) is called the preliminary tax, or A-tax.
Payroll tax is taxed at a rate of 31.42 percent for employers, or 28.97 percent for the self-employed, although this may differ to individuals under 26 or above 66 to encourage greater labour force participation.
Sales tax is 25 percent. Swedish VAT is in accordance with EU VAT directives, at a rate of 25 percent. 12 or 6 percent rates may apply for some goods and services such as restaurant services, artworks, books and newspapers and public transport.
Dividends paid to Swedish individuals or corporations are generally not subject to any withholding, however, non-residents are subject to 30 percent withholding tax of dividend payments. Sweden does not withhold tax on interest, royalties or branch profits. Withholding tax on dividends by a Swedish company to its foreign parent company is reduced or waived under most double tax treaties.
Sweden has one of the most highly developed welfare systems in the world.
- Employee Social Security
Employees must make a 7% contribution towards the public social security system.
- Employer Social Security
The social security system in Sweden is comprised of several elements:
- Health insurance
- Benefits for work-related accidents and occupational diseases
- Benefits for invalidity
- Pensions for the elderly and survivors
- Unemployment insurance
- Parental and family benefits
Employers are required to make a contribution of 31.42 percent in addition to an employee’s base salary. From 1 Jan.2019, a public service fee of 1 percent of taxable income is to be introduced. Employers deduct social insurance contributions from employee wages on a monthly basis and remit them to the Swedish Tax Agency using the PAYE system.
STATE/ JURISDICTIONAL TAXES
Municipal income taxes are assessed by each municipality of Sweden. A municipality’s total income tax rate consists of two components:
- primary municipal tax
- county council tax
The total income tax rates, primary municipal tax rates, and county council tax rates among Sweden’s municipalities are available on the Statistics Sweden website.
COMPENSATION AND BENEFITS
Employers are responsible for providing basic benefits for their employees. Both federal laws and collective bargaining agreements support a system with minimum wages per occupational group, wage payment, pay for overtime, limits on the workweek to 40 hours, 11 public holidays, and annual leave, including 25 vacation days per year. Parental leave and sick leave are guaranteed for all employees, including significant vacation time provided for both fathers and mothers after the birth of a child. Minimum Wage: Sweden has no statutory minimum wage, but minimum wage standards frequently are set by collective bargaining agreements. Overtime: Overtime is permitted to a maximum of 48 hours during a four-week period or 50 hours per calendar month but cannot total more than 200 hours per 12-month period. Hours of Work: An eight-hour day is the norm, 40 hours per week. Saturday and Sunday as rest days. Holidays: Sweden has 11 public holidays per year. Leave: Employees are entitled to 25 working days, equivalent to five weeks, of annual vacation. Vacation pay is intended to constitute 12 percent of all pay an employee earns during the qualifying year.
- Sickness Leave:Employers are responsible for paying sick leave to employees for two weeks. Employees are not eligible for any compensation for the first day of sickness. Thereafter, employers must compensate them for 13 days at 80 percent of their salaries.
- Parental Leave: Parents are jointly guaranteed 480 days of paid parental leave per year, at a rate consistent with most of their normal salaries, with at least 60 days reserved for each parent. Fathers or mothers also are entitled to 10 extra paid days off when the child is born or 20 days off if multiple children are born. Parental leave is taxed as regular income.
Wage Payment: Monthly compensation is commonplace. Bonuses and Special Benefits: Sweden does not mandate employers to provide bonus payments to employees. Termination Pay: Termination of indefinite employment can follow a period of notice given either by the employer or by the employee, by summary dismissal by the employer, and by an employee’s immediate resignation. The statutory termination notice given by employee is one month. When the employer gives notice of termination, the required notice period varies according to the employee’s continuous length of employment. Workers’s Compensation: Employers injured in the workplace are compensated through their workers’ compensation insurance fund.
FOREIGN WORKERS IN SWEDEN
The Swedish Migration Board is the central authority for foreigners migrating to Sweden. Foreign workers in Sweden are divided into two key groups regarding visa and travel criteria:
- non-EU residents– generally requires a Schengen Visa and, if working, a work permit
- EU residents –valid passport and/or identification cards indicating EU citizenship
Workers in Sweden for less than six months are required to pay a flat-rate tax on income accrued in Sweden, unless noted otherwise by a tax treaty. Workers in Sweden for more than six months are counted as tax residents and are taxed on Swedish-based income at progressive rates like normal residents. Visas: Foreign workers are divided into two key groups:
- citizens not from the European Union – should acquire a visa prior to entry
- citizens from the European Union– do not require a visa
For stays of longer than 90 days, foreign workers, whether non-EU or EU, are required to attain a government-issued residence permit card. Workers from Switzerland are treated as though they are EU/EEA residents. Taxes: Foreign workers in Sweden are entitled to the same rights in terms of tax and workplace laws as Sweden citizens, however employees working in Sweden for less than six months are taxed at a flat rate of 25 percent, unless amended by tax treaty. Tax relief for key foreign personnel: Employees with specialized skills difficult to find in Sweden can receive a 20 percent reduction of taxable income, including any benefits and employer contributions to housing and living costs, while employers can receive a 20 percent reduction on the basis on which their social security contributions are calculated.
Sweden has entered into more than 80 income tax treaties, including an income tax treaty with the United States. Sweden also has a totalization agreement with the United States regarding social security program coverage and contributions. To learn more about payroll in Sweden and for further information on Payslip’s international payroll services contact us today!
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