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Israel-Sweden Tax Treaty

Israel-Sweden Tax Treaty

Israel-Sweden Tax Treaty

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CET; UTC+01:00
Stockholm
Swedish
10.61 million
Swedish Krona (SEK)
+46
.se

Recent news

Comprehensive Changes to Special Income Tax Law
On December 5, 2024 the Swedish Official Gazette published Law No. SFS 2024:1207, introducing changes to the special income tax for non-residents, effective January 1, 2025. The law broadens taxable income categories to include salaries, pensions, unemployment benefits, and occupational injury compensation. Board members' compensation will be taxable regardless of where the business operates. Pensions become taxable under specific conditions, with thresholds in place. Maritime income will be taxable for work on Swedish or certain foreign merchant ships, and cross-border work is taxable if foreign work accounts for less than half of the year’s total working time.
Personal Income Tax Threshold Amended
On November 19, 2024 Sweden raised the taxable income threshold to 625,800 kronor (US$56,988). The new threshold will be effective as of January 1, 2025.
Limited Tax Liability for Non-Citizen Moving Abroad
On November 6, 2024 the Swedish Tax Court issued Advance Notice No. 32-24/D, clarifying the tax liability of foreign citizens leaving Sweden. The case involved a taxpayer who lived in Sweden briefly from 2005 to 2006 and again starting in 2022, before planning to move to Great Britain. His only connection to Sweden after the move would be his partial ownership of, and board membership in, a company operating there. The Tax Agency argued this constituted a substantial connection under the Income Tax Act. However, the court ruled that despite his influence on the company, his limited time in Sweden and foreign citizenship meant he wouldn’t have unlimited tax liability after moving.
Sweden - New VAT Law Proposes Key Changes
On October 29, 2024 the Swedish Official Gazette announced Law No. SFS 2024:942, which changes the VAT Act. The law makes several important updates. It defines who is considered a taxable person and what transactions are taxable. Small businesses earning under 120,000 Swedish kronor (about $11,279) in Sweden or 100,000 kronor ($9,398) in the EU will not have to pay VAT. It also exempts some transactions, like intra-Union deliveries and exports, and sets a 12% tax on certain artworks and antiques. Additionally, the law explains how to deduct input tax and outlines the process for handling exemptions and appeals. These changes will take effect on January 1, 2025.
New Guidance on Input VAT
On October 7, 2024 the Swedish Tax Agency updated its guidance to align with a recent European Court of Justice (ECJ) ruling on the deductibility of input VAT for goods or services used in ways other than originally planned. The new guidance emphasizes that actual use is more important than intent. For example, input VAT paid for consulting services related to a market survey intended for acquiring shares in another company is deductible, even if the acquisition doesn’t happen, as long as it is connected to economic activity. However, VAT paid on loan payments is not deductible if the intended investments were not made, and the loan amount is fully paid to the group's parent company.
Government Announces 2025 Income Tax Cuts
Sweden plans to cut income taxes in 2025 to help households hit by rising prices and borrowing costs. The measure, part of next year’s budget, will cost around 13.5 billion kronor ($1.31 billion), with another 4.4 billion kronor allocated to make some stock and mutual fund savings tax-exempt. The government aims to support households after declaring victory over inflation, which previously limited spending to avoid worsening price increases. The full budget, including 60 billion kronor for additional support and infrastructure, will be presented on September 19, 2024.
New VAT Exemption Rules for Temporarily Imported Goods
On June 24 2024 the Swedish Tax Agency released Statement No. 8-2956586, explaining when goods temporarily imported into Sweden can be exempt from VAT. The statement was issued in response to a taxpayer's question about when goods transferred to Sweden for temporary use in providing services could be exempt from VAT. The Tax Agency explained that, when a business moves goods between EU countries for business purposes, it counts as a taxable transfer, like selling goods, and is treated as an intra-Union acquisition. However, bringing goods into Sweden from another country isn’t considered a taxable transfer if certain criteria are met: the goods must be used to provide services in Sweden, used temporarily, and transported from the service provider’s home country. If these conditions are not met or change, the initially exempt transport can be retrospectively deemed a taxable transfer.
New Guidelines on Foreign Tax Deductions
On June 20, 2024 the Swedish Tax Agency issued Clarification No. 8-2936141 explaining the deduction and calculation of foreign taxes for individuals with numerous income sources taxed abroad. According to the Clarification, both direct and common costs are to be considered when assessing foreign taxes. It provided with the confirmation that foreign tax deductions are based on income before deducting common expenses. Furthermore, the foreign tax on income taxed by Sweden cannot exceed the tax already paid abroad and tax reductions must be distributed among the applicable taxes and fees they are meant to reduce.
The Tax Agency Upgrades Guidance on VAT for Mortgage Sales
The Swedish Tax Agency recently upgraded its guidance on VAT treatment for mortgage sales. The modification clarifies a recent European Court of Justice (ECJ) ruling which explaines that arranging auctions for pledged goods wasn't considered a secondary or supporting activity to the main task of providing credit that is secured by the pledge. Consequently, these services don't qualify for the VAT exemption applicable to credit-granting services.
Sweden Tax Authority Clarifies VAT Rules for Business Transfers
The Swedish Tax Agency on February 2024, following Statement No. 8-2785199, has clarified VAT rules for business transfers. The statement establishes that the transfer of business assets is not considered a delivery of goods or services unless deductible tax is owed or a refund is granted. Additionally, it highlights that the right of deduction is tax-exempt for outgoing transactions, regardless of tax status, and does not require deduction restrictions. Similarly, it clarifies that transferring a mixed-activity business is not considered a supply of goods or services under certain conditions. Lastly, it is stipulated that assets, aside from current assets, are exempt from tax liability if the taxable individual can demonstrate that the input tax was not entirely deductible at the time of acquisition.

Israel - Sweden relations

Since the ending of the Napoleonic Wars in the early 1800’s, Sweden has retained its status as a neutral country. Serving a large role in establishing the United Nations, Sweden has been known for its meaningful contributions towards humanitarian work and efforts to fight poverty and promote sustainability. Sweden has demonstrated a commitment towards peacekeeping and international cooperation.

There is a positive diplomatic relationship between Sweden and Israel. Both countries are members are the United Nations and participate in global humanitarian groups. Both countries share commercial and trade ties; In 2021, Israel exported $147 million primarily of technology to Sweden. In the same year, Sweden exported roughly $539 million to Israel which mostly consisted of machinery.

Details about Israel’s embassy in the Sweden

Address: Strandvägen 58, Box 14006, 104 40 Stockholm
Phone: 46 (0) 8 – 528 06 500
Website: Click Here
Email: cnsinfo@stockholm.mfa.gov.il

Details about Sweden Embassy in Israel

Address: Adgar 360, 24 tr. 2, Hashlosha St Tel Aviv
Phone: +972 3 718 00 00
Website: Click Here
E-mail: ambassaden.tel-aviv@gov.se

Business activity in Sweden

Sweden possesses an extremely diverse and prosperous business environment which places a strong emphasis on technology, innovation, and sustainability. The country’s economy primarily relies on manufacturing and engineering, technology, and renewable energy. Additionally, with exports making up roughly one third of the country’s GDP, Sweden depends heavily upon free international trade to support its economy.

The manufacturing and engineering sector plays an essential role in Sweden’s economy. Companies in this industry specialize in producing industrial machines, automotive parts, and telecommunications equipment. Bringing in over $110 billion, this sector amounts for roughly 20% of Sweden’s GDP which creates approximately 1 million jobs.

In attempts to minimize their environment footprint, Sweden has been dedicated to sustainability and made tremendous progress in transitioning to cleaner renewable energy resources. Using hydro and solar power for electricity, and bioenergy for heating, Sweden has been able to transition roughly 65% of its power usage using renewable sources.

Bilateral agreements between Sweden and Israel

  1. Double Taxation Agreement
  2. Convention on Social Security

Convention on Social Security

In 1983, a social security treaty between Israel and Sweden entered into force, the purpose of which is to try and prevent a situation of duplication of social security between the two countries.

To read the document detailing the treaty in Hebrew press here.

Convention on the Prevention of Double Taxation between Israel – Sweden

The original agreement between the Governments of Israel and Sweden regarding the avoidance of double taxation was signed in 1959 and entered into force in 1960.

To read the agreement in English click here.

Applicability of the MLI

Sweden and Israel have signed the MLI, which means that there is an automatic exchange of information between the two countries. Sweden and Israel signed the MLI in 2017. Sweden ratified it in 2018, and Israel in 2019.

Residency for tax purposes in Sweden

Residence of an individual

The tax residency of an individual in Sweden is primarily determined based on their physical presence, permanent home, personal ties, and economic interests in the country.

If an individual is in Sweden for six consecutive months or more, they are considered to be a resident of Sweden and are listed in the Swedish population residency.

183-day rule – A person living abroad to work in Sweden is exempt from taxes if they stay less than 183 days.

Residency of a company

A company is considered to be a tax resident in Sweden if it is incorporated in Sweden. The concept of a permanent establishment (PE) is used to define a fixed location where a business operates. This can include various types of establishments like management offices, branches, workshops, or factories. If a foreign company has a permanent establishment in Sweden, any income generated from activities conducted through that establishment is liable to be taxed in Sweden.

To Learn about how a company is considered a resident of Israel read here.

The tax system in Sweden

The Swedish Tax Authority is called The Swedish Tax Agency (Skatteverket).

Income taxation: 0%-32%

Taxation of companies and branches:20.6%

VAT: 25%

Capital gains tax: 0%/30%

Withholding Tax

Internal tax rateIsrael Internal tax rateTreaty Withholding Tax
Personal Income tax (Tax brackets)

0-613,900 SEK- 0%

Over 613,900 SEK- 20%

Up to 50%
Corporate income tax20.6%23%
Capital gains tax rate30%25%-30% (plus exceptional income tax for high earners at 3%)
Branch tax20.6%23%

Withholding tax

(Non-Resident)

Dividends

25%25% or 30%0%

Interest

30%15%/25%/23%25%
Royalties20.6%23%-40%0%
VATStandard rate of 25%, 12% for food/restaurants, 6% books and transportation.17%
Inheritance TaxNANA

Inheritance tax and estate tax in Sweden

There is no inheritance or estate tax in Sweden.

Relocation

Sweden is home to 15,000-25,000 Jews, which is the largest Jewish community in Scandinavia. The Jewish community is represented by the Jewish Central Council. There are two Jewish elementary schools in Sweden, one in Stockholm, and the other in Gothenburg.

Sweden gives tax benefits for those relocating to the country who are experts or highly skilled in their respective field of work. An example is the Swedish Tax Relief called the “expert tax”, which keeps 25% of earned income tax free for up to 5 years.

Aside from financial benefits, Sweden offers various general benefits for relocation. These include great public transportation, high standard of living, lack of pollution, good healthcare, and favorable working conditions. These benefits are an indicator of why Sweden gets ranked annually in the top 10 for quality of life.

Real estate taxation in Sweden

Real estate taxation in Sweden involves several components which includes land tax, property tax, and capital gains tax which is based on the sale of property.

The property tax in Sweden is calculated annually based on the assessed value of the property. This tax rate is determined by the municipality and corresponds to a certain percentage of the assessed value. The maximum property tax is 0.75% which is paid by the registered owner on January 1st of each year.

The land tax is Sweden is also dependent on the specific municipality where the land is located, and the tax rate is determined by the assessed value of the land.

The capital gains tax is based upon the difference between what the property was sold for and how much it was bought for. This rate also takes into account inflation and other exemptions or expenses. Generally, the tax rate for individuals is 30%.

Transfer of funds from Israel to Sweden

According to section 170(a) of the Israeli Income Tax Ordinance, all payments transferred to non-Israeli residents are subject to a 25% withholding tax. However, this tax can be reduced or even waived if certain conditions are met.

As mentioned above, the countries have signed a tax treaty, that allows taxpayers to submit 2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax, to potentially transfer the payments without paying the withholding tax.

In addition to assisting with withholding tax matters, our firm also helps with other issues related to transferring funds abroad. This includes providing an accountant’s approval regarding the payment of taxes, reviewing additional actions required under the CRS standard, and more.

Moreover, banks often raise many difficulties and charge high fees for converting shekels into other currencies. Therefore, consulting with a specialist before transferring the funds is highly recommended, click here to contact us.

For more information on money transfers abroad, click here.

Types of business entities in Sweden

Business entities in Sweden are primarily composed of 4 different types: Sole trader, trading partnership/limited partnership, limited company and economic association.

  1. Economic Associations – provide a flexible and cooperative framework for individuals and businesses to collaborate and pursue economic goals collectively. Liability is limited to the capital invested. Need at least 3 people and one auditor to start an economic association. Small associations can choose a lay auditor, however for larger associations, the auditor must be an authorized public accountant.
  2. As a sole trader – you are fully responsible and liable for your company. One doesn’t need any starting capital required. To become a sole trader, you must register the business with Swedish Tax Agency.
  3. A limited partnership – is a type of business entity that consists of two types of partners, a general partner and limited partner. The general partner has full control over the management and decision making over the company’s operations. Limited partners on the other hand have no control over decision making in the company and their liability is limited to the amount of capital invested.
  4. A limited company – is the most common form of business entity in Sweden and is used for commercial activities. A limited company is independent from its owners and acts as a separate legal entity. Similar to the limited partners mentioned above, the shareholders of a limited company have limited liability based on their capital invested. The company is managed by an appointed board of directors who make the decisions for the company and have legal responsibilities. Lastly, a limited company is required to maintain accurate and up to date financial records and prepare financial statements. In order to set up a limited company, one must do it through the Swedish Companies Registration Office which can be found here.

Incentive laws in Sweden

Sweden has established various incentive laws in the country in order to attract individuals and companies to relocate to Sweden.

The country offers generous tax incentives to encourage research and development activities. These can include deductions for R&D related expenses, reduced social security contributions, and possibly a tax credit for qualifying expenses.

The Swedish Government offers information, financial support, and advisory services in order to attract investment opportunities. Programs like Invest Sweden or the Swedish Agency for economic and regional growth are excellent resources which offer incentives such as those mentioned previously.

Additionally, Sweden offers more specific incentive laws based on the industry or situation. For more information click here.

Sweden Double Tax Treaties

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