Israel-Sweden Tax Treaty

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.

5-year rule: Swedish citizens and foreigners who have been resident in Sweden for at least ten years are generally considered tax residents until they can demonstrate that they have severed all significant ties with Sweden. After leaving Sweden, individuals may need to provide evidence that they are no longer tax residents.

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

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 1^st 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, any transfer of payment to a non-Israeli resident is subject to 25% of withholding tax. The tax authority can allow, under certain circumstances, to reduces or dismiss the withholding tax. Our firm handles withholding tax matters with the Israeli Tax Authority.

Due to the fact that both countries have a tax treaty with each other, one can submit a declaration form (2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax), and under certain circumstances, there is a possibility to transfer the payment without the withholding tax and the approval of the Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our office handles the requirements of the foreign banks, such as an accountant’s approval regarding the payment of taxes and examines additional actions required in light of the uniform standard of CRS between the countries – automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

The banks raise many difficulties and charge high fees for converting shekels into other currencies, so it is important to consult before transferring the funds – 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