Moving to Sweden provides many unique challenges. Not only does Sweden have tax rates much higher than the U.S. but many U.S. accounts aren’t covered by treaty, and mistakes early on could compound over time. For Americans planning to move to Sweden, high taxes could be a deal-breaker.
As we explore the basics of the Swedish tax landscape, we recommend being proactive and planning well ahead of your move. We’ll assist you with the nuances of being a dual U.S./Sweden taxpayer and what mistakes to avoid.
Planning Ahead
Tax rates in Sweden are quite high, and although there’s an income tax treaty in place between the U.S. and Sweden, the treaty doesn’t cover many U.S. and Swedish accounts. Not only could the lack of apples-to-apples treatment of these accounts translate to higher tax rates but there’s also the potential of double taxation and/or penalties due to a lack of compliance.
Many domestic institutions in Sweden aren’t very friendly regarding opening accounts for U.S. nationals due to Foreign Account Tax Compliance Act (FATCA) regulations.
To further complicate matters, U.S. retirement accounts aren’t always tax-deferred in Sweden, and, as such, significant actions must be taken before making the move and becoming a Swedish tax resident. On the other hand, opening Swedish retirement accounts should be avoided even if it offers tax benefits for Swedish taxpayers.
Personnummer
The personnummer is the Swedish national identification number, and it’s not an exaggeration to say it’s key to almost every service in Sweden. You need this number to contact public agencies and access any social services, including healthcare. This number is also used for things like opening bank accounts, applying for jobs and even memberships or monthly service subscriptions.
Because there are certain requirements you must meet to qualify for the personnummer, you have to schedule an appointment for an identity check. It is imperative to plan ahead and that your immigration status qualifies to apply for a personnummer. Not only do you have to qualify for permanent residence in Sweden but you also have to be listed in the Swedish Population Register.
Tax Implications
The Swedish tax year follows the calendar year, and the filing deadline is May 2. In most cases, Americans moving to Sweden will be net Swedish taxpayers. When it comes to income taxes, they might seem straightforward, as there are only two marginal tax brackets:
| Taxable Income | National Tax (%) | Municipal Tax (%) |
| From 0 to 625,800 SEK | 0% | 32% |
| More than 625,800 SEK | 20% | 32% |
However, several rules trigger tax residency, and once residency is established, Sweden will tax its residents on their worldwide income regardless of where the assets are located. Non-residents are only taxed on Swedish-sourced income.1
Aside from the higher national income tax rates, Swedish taxes are filed individually regardless of whether you’re filing married or jointly in the U.S. Another component is the municipal income tax rate, which could vary depending on the region.
Capital gains
Capital gains tax rates are also higher than in the U.S. There’s a flat 30% capital gains tax that applies to any taxable account in Sweden or abroad.
In some cases, you could take advantage of capital losses; however, they’re not carried forward. Currency is also a major variable, as Sweden uses the krona even though they’re a member of the EU. Careful calculation of gains and losses in krona must be considered when calculating gains/losses or when tax loss harvesting in U.S. accounts.
Retirement Accounts
This is an area that will certainly require intensive planning due to the difference in taxation between retirement accounts. Additionally, the taxation of the IRA and 401k isn’t a gray area, as there’s an official ruling on this. The Supreme Administrative Court of Sweden (Högsta förvaltningsdomstolen) made an official ruling in 2019 addressing the tax treatment of IRAs, 401ks and rollovers.2
IRAs
A significant downside of this ruling is the ratification that the traditional IRA isn’t taxed upon distributions, as it is in the U.S. The IRA is instead taxed as a regular brokerage account and subject to taxes on all dividends and capital gains, which includes traditional IRAs and Roths. As such, traditional IRAs wouldn’t be covered under Article 19 of the dual U.S.-Sweden tax treaty3 and wouldn’t be treated as tax-deferred.
Not only would significant changes need to be made before moving to Sweden, but the ongoing management and the asset pairing among all taxable/retirement accounts should be different than in the U.S. We can’t emphasize enough that the IRA/401k and other retirement accounts could expose the taxpayer to costly mistakes if tax planning isn’t put in place ahead of time.
As if this information weren’t troubling enough, mismatching of tax credits could arise, as IRAs are being taxed differently in Sweden. This would be evident when taking distributions from IRA accounts, because you might not be able to claim tax credits in the contracting estate, thus exposing you to the risk of double taxation.
401ks
The silver lining is that the ruling specifies that the 401k will continue to be tax-deferred and only taxed upon withdrawal. The reasoning behind this is that the Swedish tax authority sees 401ks as employer-sponsored retirement accounts that are managed as a disregarded trust-like structure and linked to the employer, where contributions were made while working for such employer.
Rollovers
A final common practice that the Swedish court aimed to put to rest is rollovers. Planning, timing and understanding the rules are musts for avoiding creating a taxable event. For example, rolling a 401k into an IRA isn’t a taxable event in the U.S. However, it could generate disastrous tax consequences in Sweden.
Investingsparkskonto (ISK)
Many providers won’t open ISKs for U.S. citizens, and you should always check with a U.S. expat tax preparer before opening an ISK. In our experience, U.S. citizens should avoid opening or maintaining ISKs. Not only do they present the risk of being double-taxed but they also fall under passive foreign investment company (PFIC) reporting requirements. In Sweden, they’re taxed on the value of the assets, while in the U.S. they would follow market-to-market or best-case scenario when gains are realized.
Kapitalförsäkring (KF)
Known as endowment or pension insurance, this is sometimes an alternative to ISK offered to Americans, but it’s our understanding that, just like the ISK, it’s not covered by treaty and falls under the PFIC regime. This is the case even if individual stocks or bonds are placed within the account.
Social Security
There’s a totalization agreement between the U.S. and Sweden. Sweden social security contributions tend to be higher in Sweden, and different rules are in place depending on whether they work for a foreign company and the amount of time they’ve been domiciled in Sweden.
The Sweden-U.S. income tax treaty gives the U.S. primary tax agency over Social Security benefits. Non-resident aliens are subject to 30% IRS statutory withholding on benefits.
Exit Tax (10-årsregeln)
The Swedish exit tax, also known as the 10-year rule, is a punitive exit tax that applies to all Swedish residents when they break residency. In its current form, upon leaving the country, the Swedish tax authority will continue taxing your capital gains at the current 30% rate for ten years from the day you break residency.
This tax applies to U.S. movable assets. ISKs and KFs aren’t subject to this exit tax. However, after moving out of Sweden, you may be required to close your ISK.
In some cases, tie-breaking rules could apply to avoid the exit tax. However, it’s our understanding that the U.S.-Swedish tax treaty doesn’t contain this provision. Effectiveness of the rules and treaty application are matters that should be considered on a case-by-case basis.
We recommend careful planning with your financial advisor as well as hiring a local tax preparer to plan ahead.
Inheritance Tax and Wealth Tax
Both inheritance tax and wealth tax were terminated in Sweden in 2007. This is an advantage for clients planning to leave assets to their children, as they don’t have to worry about gift and estate/succession taxes outside the U.S.
As a result, the U.S. also abolished the estate tax treaty between Sweden and the U.S. in 2008. This will increase the need for cross-border financial planning when married to a non-U.S. citizen.
Estate Planning
Although there’s no inheritance or estate tax, you should be cautious about what U.S. estate planning tools you’ll use to title your assets. You don’t want to have your assets frozen or stuck in probate. Additionally, some U.S. estate planning tools don’t translate easily to the Swedish tax system.
For example, U.S. trusts aren’t recognized in Sweden, and U.S. estate planning designations such as joint with rights of survivorship (JTWROS) or transfer on death (TOD) could potentially create additional complications upon death.
If a revocable U.S. trust is the route that best fits your needs, expert outside Swedish counsel is recommended. In Sweden, any trust distribution could also be taxed at the highest marginal tax rate of 55%. Unlike U.S. retirement accounts, this is a grey area, as no official ruling has been made regarding U.S. trusts, so it’s important to work with someone local to help you navigate these complexities.
Having multiple wills is an option if U.S. and Swedish estate planning lawyers ensure local probate rules are followed. A consideration to be mindful of is the forced succession regime that exists in Sweden regardless of the lack of succession or estate tax.
At a minimum, we recommend having a will in place, as well as financial and healthcare powers of attorney in both the U.S. and Sweden. Our in-house team of lawyers can assist you with this.
This article isn’t legal or tax advice. Please consult with your attorney and tax lawyer regarding local tax and estate law.
