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MONEY

How does Swedish income tax compare to the other Nordic countries?

Sweden has a reputation for high taxes, but how does the income tax system compare with its Scandinavian neighbours? Here's a look at the details.

Published: 15 October 2020 12:32 CEST
How does Swedish income tax compare to the other Nordic countries?
Is tax in the Nordics really as high as everyone says? Photo: Susanne Walström/imagebank.sweden.se

We've compared the Swedish income tax system and tax rates with those in neighbouring Denmark and Norway.

There's no straightforward answer to which country is more expensive – the overall income tax rate a person pays depends on individual circumstances – but the analysis shows some interesting differences, as well as similarities, between the three countries.

In Sweden, a national tax (statlig skatt) of 20 percent is only paid on annual income over 509,300 Swedish kronor (49,100 euros) as of 2020. If you earn less than the lower limit, the national tax is not applicable. As of 2020, there is only one income band for higher earners, after an additional five percent tax (called värnskatt) for the highest earners was scrapped. 

All wage earners will pay a local or municipal tax, whether or not they reach the threshold for national tax. This consists of two parts: the tax you pay to the municipality (kommun) where you live and the region. So if you for example live in Malmö, your taxes go to Malmö City Council and are used to fund, for example, schools, and Region Skåne, which is responsible for healthcare.

The average municipal tax rate in Sweden is currently 32 percent, but it can reach as high as 35 percent depending on where you live.

READ ALSO: MAP: Here's how much tax you'll have to pay in Sweden in 2020

So your general tax rate will vary somewhere between 30 and 55 percent, depending on your income and where in the country you live. But deduction rules can enable you to reduce your overall tax rate, including by earning a fair bit more than the 509,300 kronor limit without actually having to pay the national tax.

The basic deduction – how much you can earn before calculating municipal and national tax – shifts a bit depending on income but also age. It is between 13,900 and 36,500 kronor annually for under-65s, with a fixed amount of 20,100 kronor for low income earners. 

Expenses incurred during fulfilment of employment can generally be deducted from the income on which you are taxed. These include things like travel expenses, car expenses, living allowances on business trips, necessary literature and tools of the trade. For travel between home and work, expenses must exceed 11,000 kronor to be deductible.


Photo: Isabell Höjman/TT

Income tax in Denmark is divided into a number of components, of which the most important are the two state taxes, basic and top tax (bundskat and topskat); municipal tax and labour market tax (AM-bidrag).

The simplest of these, the labour market tax, comprises 8 percent of personal income.

The state taxes consist of the basic tax of 12.14 percent (in 2020). Earnings over the topskat threshold of 531,000 Danish kroner (72,300 euros) are taxed at a rate of 15 percent. The maximum overall tax rate for this top margin of income cannot exceed 52.06 percent (in 2020).

Municipal tax is the personal income tax which covers municipal services. The amount paid by individuals is dependent on the municipality in which they live and municipalities generally decide their own rates within limits set by the government. As a result, the municipal tax rate can range between about 22 and 27 percent depending on address. The average municipal tax rate in 2019 was 24.93 percent.

Denmark also has a small church tax, which is applied at a flat rate. The exact rate depends on the municipality, but averages at 0.674 percent. Only members of the Church of Denmark (Folkekirken) pay this tax, so foreigners who have moved to the country in adulthood (as well as people of other religions) generally won't see it on their tax slips.

Municipal tax is added to the other basic taxes, AM-bidrag and bundskat, as well as topskat for high earners, to calculate an individual's overall income tax payment.As well as income from employment, other types of personal income are included in the tax calculation. These can include pension distributions, social security benefits, property earnings, remuneration for advisory assistance and dividends from Danish companies.

A complex list and system of deductions (fradrag) is used by the Danish tax model, with deductions applicable to the various types of income or tax base.

A key deduction is for employment expenses. Up to 10.5 percent of employment income up to a limit of 39,400 kroner (in 2020) can be deducted from the taxable income. Other deductions can be given for charitable contributions, child support maintenance and union and a-kasse membership fees. Losses on debt are not generally deductible.

Norway's general income tax (skatt på alminnelig intekt) has a flat rate of 22 percent. This covers not only income from employment, but also from business and capital. Tax allowances, expenses, and certain losses are deductible.

The general income tax in Norway is divided by three recipients: county tax, municipal tax and state tax.

READ ALSO: Taxes in Norway: Everything you need to know about how much tax people pay

In addition to the flat rate general income tax, bracket tax (trinnskatt) is added for personal income of higher earners.

In 2020 (as in 2019), personal income between 180,800-254,500 Norwegian kroner (16,700-23,480 euros) is subject to a bracket tax of 1.9 percent. This increases to 4.2 percent for income of 254,500-639,750 kroner (23,480-59,000 euros); 13.2 percent for 639,750-999,550 kroner (59,000-92,200 euros) and 16.2 percent for personal income above this upper limit.

Benefits in kind and pensions, as well as income from employment, are liable to personal income tax.

A number of deductions can be applied to the income against which tax is calculated. These include the personal deduction (personfradrag) of 51,300 kroner; and a minimum deduction (minstefradrag) designed to cover standard expenses connected to employment. Other costs like charity and union contributions are also deductible.

Sources: PWC (1) (2) (3), SCB, Regjeringen, Skat, Skatteverket (1), (2)

Member comments

  1. The article does not give anything – no comparison between the countries, no analysis, it does not even answer the question put in the title.

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MONEY

How to protect your Swedish savings when the stock market tumbles

Recent stock market developments have made consumers in Sweden worried about the savings they have invested in the market.

Published: 5 August 2024 14:44 CEST
How to protect your Swedish savings when the stock market tumbles

Stock market volatility can be unsettling, especially when it hits close to home.

On Monday, the Stockholm stock exchange mirrored global market turmoil, with the OMXS index dropping 4.8 percent in morning trading. By 11 am, there was a slight recovery, but the index remained 2.6 percent down.

READ MORE: Stockholm stock exchange opens in the red amid global market jitters

Big names in Swedish industry weren’t spared: Boliden, a major mining company, dropped 3 percent, defence giant Saab fell 1.5 percent, and engineering firm Sandvik declined by 2.6 percent. In the banking sector, SEB took a 2.4 percent hit, while Swedbank dropped 3.6 percent.

This turbulence in the Swedish market came after significant drops in Japan’s Nikkei 225 index, which experienced its most significant one-day fall since the 1987 Black Monday Crash, and similar declines in markets across South Korea, Frankfurt, London, and anticipated losses on Wall Street.

In these uncertain times, many Swedish consumers with money invested in the market wonder whether they should do something to safeguard their savings.

Avoid impulsive decisions, expert warns

Stock market volatility can raise concerns about the safety of your savings, but according to SEB household economist Américo Fernández, there’s no need to panic.

“Should they be worried? I mean, no. I would say that this is how the stock market works: there’s a lot of uncertainty and risk connected,” he told The Local. 

“When you have savings on the global stock exchanges, this will happen, especially when we’ve had at least six months of really, really good returns – maybe even too good. Then, this is a little bit expected.

“But of course, it’s always dramatic when we have such developments in the stock market in just one or two days.”

Slow and steady wins the (investment) race

For those wondering how to protect themselves against such crashes, Fernández emphasised a consistent and steady approach to investing.

“The most common thing, the best strategy for the broad masses, is to save on a monthly basis. And this is what many Swedes do; our surveys show that 9 out of 10 Swedes save on the stock market every month. This is precisely what you should do: invest in a mutual fund, which is quite common in Sweden,” he said.

“In circumstances such as these, you buy more at a lower price, instead of timing the stock market, which is almost impossible, continue your monthly investments through mutual funds. That’s a good way of diversifying your portfolio.”

READ ALSO: Will the krona’s decline stop Riksbank from cutting rates?

Ignore the alarmist headlines

The SEB household economist also advised against reacting hastily to alarming headlines.

“Another thing that households should be aware of is that when you see alarming headlines, you should sit and calmly ride the wave out.

“It’s understandable that a lot of people are affected by herd mentality when we have these negative headlines. Everyone, but especially households with tiny savings, acts and sells, and then they buy again when the headlines are positive, when the stock exchange is at high levels…

“That is the opposite of what you should do. Try to neglect these things and be cool in these circumstances, even though it seems bad and hurts your wallet. However, if it hurts your wallet too much, that might be a signal that you have too much money in the stock market (laughs), which can be common for younger investors. Although they have had it pretty good recently,” he noted.

This advice is not only applicable to Sweden but also relevant across Scandinavia, according to Fernández.

“I think it’s applicable. Across Scandinavia, all Nordic countries save a lot of money on the stock exchange, partially because the pension system isn’t fully funded by the government,” he said.

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