Tax Compliance

Many enterprises and professionals establishing themselves on the Swedish market have a hard time acquainting themselves with the Swedish tax system, and mistakes can be very costly even several years after the fact.
Most of Sweden’s workforce is employed by businesses or other legal entities, and by Swedish law all permanently established entities are obligated to administrate the taxes of their employees. The Swedish monthly taxes on labor can be divided into two categories.
  1. social taxes, which are owed by employers and self-employed individuals; and
  2. preliminary personal income tax, which the employer is to pay on behalf of the employee. Self-employed individuals generally administrate their own personal income taxes.
A permanently established legal entity must pay social fees corresponding with 31.42% of their employees’ gross salaries and benefits, while non-permanently established businesses pay 21.77% (eff. 2016). After the end of each fiscal year the employer must file a so called KU10 report for each of their employees, detailing all remuneration which the employer has paid the employee during the year. This report serves to establish the employee’s final personal income tax with regard to their employment for a given employer. Similar reports are filed by banks and investments funds with regards to their clients, and limited companies regarding their shareholders. Self-employed individuals are, on the other hand, to report their income or losses through a separate process.
The Swedish employees of non-permanently established companies are generally to administrate their own personal income taxes by first filing a preliminary income tax declaration and then paying their taxes on a monthly basis based on the instructions they are given by Skatteverket (the Swedish Tax Authority). The employer can, however, choose to administrate the tax payments themselves or appoint a Swedish agent to do so in their place. With regards to the social taxes, the presumption is that they will be paid even by non-permanently established employers, but here as well the parties can reach an agreement to the effect that the employee is to administrate the social fee payments. In this case the employee must file an employer tax registration in his or her own name, and even then no agreement can entirely free an employer from the Swedish obligation to pay social taxes. If the employee fails to pay the correct fees Skatteverket can choose to demand the money directly from the foreign employer which can then only try to regain whatever funds they provided their employee for this purpose.
Employees and self-employed individuals who come to Sweden from abroad to work can, if there is an applicable social insurance treaty, also apply for a certificate of coverage which allows them to pay either part or the whole of their social taxes in their home country, which would also be the country to issue the certificate. Individuals who have an income from Sweden without being classified as Swedish residents, for example by living outside Sweden or residing in Sweden for a period shorter than 6 months, can also apply to pay the so-called SINK tax instead of the normal Swedish personal income tax. The SINK tax is always set to 20% but does not allow the tax payer to benefit from any tax deductions or tax refunds.
Each individual who pays Swedish personal income tax can apply for whatever deductions they have a right to through their personal income tax declaration, which must be turned in before the 2nd of May the year after the income was earned. If the tax declaration shows that the preliminary tax taken out is lower than the final tax assessment the individual will have to pay in the difference to Skatteverket, but in most cases the preliminary taxes taken out are sufficiently high for the tax subject to receive a small tax return even if no deductions are to be made. Failure to turn in the personal income declaration on time will lead to a fine of between SEK 1250 and SEK 3750 depending on how many months it takes before the declaration is turned in.
The preliminary income tax of companies is determined by their latest preliminary income declaration, the first of which is turned in as part of their tax registration, and then adjusted after the end of each year through the company’s corporate income tax declaration where deductions can be made for the legitimate costs of running the enterprise.
If no tax declaration is received, or Skatteverket has reason to believe a tax subject’s income has been higher than they claim, the authority can make a discretionary decision (sköntaxering) about how much tax they are to take out. Such a decision generally stands until the tax subject can provided better documentation regarding their income and expenses.
The payment of personal income tax is always the responsibility of the individual and if an employer fails to withhold the correct taxes their employee generally gets an unpleasant surprise when the time comes to file a personal income tax declaration. The Employer can, however, be fined 5% of the missing withholding tax by Skatteverket. The normal interest on unpaid taxes and social fees is currently 1.25% per year, but if an individual fails to comply with Skatteverket’s demand for payment or is subject to discretionary taxation this interest rate can be raised to 16.25% per year (eff. 2016).
If an individual or a company has been found giving untruthful information in their tax declaration in a way which decreases their income tax, or becomes subject to discretionary taxation, a fine corresponding with 40% of the evaded taxes can be taken out on top of the normal tax rate if Skatteverket deems it reasonable. The same type of fine with regards to VAT or employer declarations filed by companies or self-employed people is 20%. If the untruthful information given is of such that Skatteverket should have been able to see through it based on the information they routinely collect this fine is limited to 10% in the case of income tax and 5% in the case of VAT and social fees. If an income is found to have been declared in the wrong year Skatteverket can take out a fine of 2-10%, depending on the circumstances and the time periods involved. Individuals who have been found guilty of svartjobb (intentionally unreported labor) can be fined 40% of the unreported salaries by Skatteverket, and both the employee and the employer risk being prosecuted for tax evasion. Employees can avoid penalties if they can show that they took the salary in the belief that the taxes had been paid, which can generally be done by showing detailed employment contracts and pay slips.
The act of intentionally attempting to evade taxes through an untruthful written statement or failure to file correct declarations can also be subject to criminal prosecution, with sentences varying from minor fines up to a maximum of 6 years’ imprisonment depending on the severity of the crime. Originally the same tax code violation could earn the culprit both fines from Skatteverket and a later criminal prosecution, but after a ruling from the Court of Justice of the European Union the Swedish authorities have to choose which of these two penalties they wish to apply in each given case, though a criminal court can still impose both fines, confiscation of assets and prison sentences as long as no previous fines have been handed out for the same offence.
One way of avoiding fines and criminal prosecution for past tax violations is to voluntarily report the incident to Skatteverket and pay the correct taxes with interest before Skatteverket starts an investigation into the matter, since such voluntary correction by Swedish law absolves the culprit of any tax crime they have committed. If no such correction is made the statute of limitation for most tax crimes is set to 5 years, but for grovt skattebrott (severe tax crime) the statute of limitation is set to 10 years.