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At TFX we have been preparing taxes for Americans in Sweden since 1996.
Many US expats have begun choosing Sweden as their destination. The green landscapes are pleasing to the eye. The liberal culture challenges the mind. Of course, this comes with a price – Sweden has very high tax rates compared to the rest of the world. Read on for advice on managing your taxes if you choose to live in Sweden.
Swedish Social Programs
Sweden boasts some very good social programs – among the best to be found anywhere – but to pay for these programs, the tax rates are among the highest.
The Swedish health insurance system, free college tuition, and subsidized childcare require payment of as much as 25% income tax nationally, and an additional municipality tax of between 29% and 34%.
For purposes of taxes, anyone who lives (either permanently or regularly) in Sweden is considered to be a resident. Swedish residents must pay taxes on their income worldwide. Non-residents are only subject to taxes on their income derived from sources in Sweden.
Swedish Tax Year
The Swedish tax year, just as in the United States, is the 1st of January through the 31st of December. Tax returns must be submitted by the 2nd of May in the next year.
Swedish Social Security
Along with the taxes paid for the extensive number of social programs, Swedish social security requires contributions of as much as SEK 28,900.
There is also a value added tax in Sweden on all services and goods. The basic rate is set at 25%, but some lower rates apply to food and some tourism industries.
Capital gains in Sweden are taxed at 30%.
US citizens, as well as permanent residents, must file expatriate tax returns with the federal government every year regardless of where they reside. Along with the typical tax return for income, many people are also required to submit a return disclosing assets which are held in bank accounts in foreign countries by using FinCEN Form 114 (FBAR).
The United States is among only a few governments who tax international income earned by their citizens, as well as permanent residents, residing overseas. There are, however, some provisions that help protect from possible double taxation. These include:
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- The Foreign Earned Income Exclusion. This exclusion allows one to exclude USD 101,300 (this amount is for 2016 taxes) in earned income from foreign sources.
- A tax credit allowing tax on remaining income to be reduced based on the taxes paid to foreign governments.
- An exclusion on foreign housing that allows additional exclusions from their income for some amounts paid to cover household expenses due to living abroad.
Preparing a quality tax return following proper tax planning should allow one to use these, as well as other strategies, in minimizing or possibly eliminating tax liability. Note that in most cases the filing of a tax return is required, even if taxes are not owed.