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WORKING IN SWEDEN

IN NUMBERS: How freelance profits in Sweden compare to actual salaries

Employers in Sweden pay taxes and pension payments for each employee, so if you go freelance, you end up having to pay them yourself. The accountancy firm Frivision has estimated for The Local how profits from a solo company correspond to a salary as an employed person.

Woman working on laptop from sofa
Freelancing has plenty of perks, but make sure you've done your sums right or you could get a nasty shock when tax season comes. Photo: Margareta Bloom Sandebäck/imagebank.sweden.se

Tobias Ryberg, director of Frivision, says that people who decide to go freelance or work as a self-employed consultant can be tempted to see the payments that come in from clients as earnings. But this can cause problems if they haven’t budgeted for the taxes and social fees that they’ll need to pay later, either at the end of the month, quarterly or yearly. 

“It’s easy to think that everything you earn is your income,” he told The Local.

“But in fact, you have a lot of taxes, so in the worst case, people end up spending all the money they’ve made, and then they are behind with taxes, sometimes forever, so that’s a potential trap.”

Employees in Sweden are required to make a seven percent contribution to unemployment insurance, pensions, family benefits, and health insurance, while employers contribute 31.42 percent. 

When you go freelance, whether you set up a one-person company or register for “F-skatt”, Sweden’s sole trader tax system, you have to pay these contributions yourself (albeit at a slightly reduced rate). 

This means, Ryberg estimates, that you need to make a net profit of 500,000 a year at your company to have the same effective salary as an employee earning 31,705 a month (or 380,460 kronor a year). 

Here are Frivision’s numbers: 

READ ALSO: 

So what should foreigners bear in mind before going freelance or setting up a one-person business? 

"First, you need to know what your cost base is and if you need some materials. For example, if you're a photographer you need expensive cameras and to budget for travel costs," Ryberg said. 

"Then if you want to make, say, 30,000 kronor a month in salary, you need to know that the company must bring in about 40,000 kronor in net profit, because you will pay all these additional taxes and welfare payments."

It's also important to note that the above figures don't take holiday into account. While employees in Sweden get at least 25 days of paid annual leave, plus public holidays, freelancers and self-employed people need to budget for this themselves. 

And if you're comparing with a specific salary, for example when judging whether it's worth quitting a job to go freelance or weighing up a job offer and a freelance agreement, remember to look at the entire compensation package. With many jobs in Sweden, this will include an employee pension and possible extra perks such as a contribution to fitness and wellness expenses (frikshetsbidrag) which you'll need to cover using your profits as a self-employed person. Of course, as a self-employed person there are some tax deductions you can make yourself as well.

Another tip from Ryberg is to have at least one reliable customer when starting out, if you can, to maintain some level of regular recurring income.

"If you're a freelance journalist, you for example know that 'I will work with this newspaper', so you have a customer base." 

And finally, it is probably a good idea to save up a cash buffer so that you can survive any lean months that come your way. 

"What do you do if you don't get any revenue next month? You need to make some kind of appropriate security planning according to your level of comfort. Some people are okay not to know, but others might want to have a good buffer tougher to feel safe and secure." 

And should you set up your own company or pay F-skatt? 

Ryberg generally recommends that clients set up their own company. This means if the business goes bankrupt, they are protected. It can also be more tax-efficient, particularly for high earners such as computer programmers and consultants. And, it also means you can avail yourself of government schemes, like the support packages for businesses introduced during the pandemic. 

For those on lower incomes, the total tax take can be slightly lower for someone on F-skatt, but he believes that the advantages above generally outweigh this. If you're unsure, it may be worth seeking personalised advice from an accountant.

Member comments

  1. “How freelance profits in Sweden COMPARE to actual salaries” Compare being the key word. Still waiting for the comparison part of the article between EMPLOYEES and entrepreneurs.
    Stating facts and showing company tax fees is not really a comparison, isn’t it?

  2. The title of the article looked promising but the quality of it is very poor. For the first, I agree with John.Smith that no comparison is actually made.
    Then, some things in the article do not make any sense. For example, the author states “Employees in Sweden are required to make a seven percent contribution to unemployment insurance, pensions, family benefits, and health insurance, while employers contribute 31.42 percent. ” What 7% contribution are you talking about? I had been working as an employee in Sweden (before getting into sole trader) for more than 10 years but never heard about that.
    The structure of the article and its content just shows that the author has very poor understanding of the Swedish tax system for employees and sole traders. The phrase “And should you set up your own company or pay F-skatt? ” just shows it clearly.

  3. A very rough rule-of-thumb is that a freelancer needs to have an annual ‘income’ of about 1 million SEK to be able to take out a reasonable monthly salary and to have at least some holiday when no income is being generated. Don’t forget as well that the Christmas/New Year period can mean at least two dead weeks with significantly reduced income, and Easter isn’t much better. In the summer, biz activity will abruptly slow down after Midsommar and nothing much will happen until mid-August. All of this needs to be budgeted for when starting your new business venture, depending of course on the particularities of your specific sector.

    If your plans for freelancing are long-term, I would recommend starting an aktiebolag so as to keep your business accounting totally separate from your personal finances. The minimum share capital is now only 25,000 SEK compared with the previous 50k and even 100k in the old days. Keeping an AB’s accounts is simplified tremendously with software such as Visma Bokföring and similar, and these days you are no longer legally required to have an auditor.

    If your business is very successful, an aktiebolag will also enable you to take out a dividend each year instead of a comfortable salary with the advantage that tax on dividends is only 20% compared with at least 30% on salaried income or even 50% if your salary exceeds 504,000 SEK. This results in people taking a maximum annual salary of 504k and then any further income as a dividend. Politicians are obviously aware of this and there are constant plans to close the loophole, although they themselves exploit the situation when they leave politics and enter the lucrative lecture circuit and similar.

    1. Forgot to mention that if you intend to freelance long-term, it is also very important to budget for contributing to a decent pension scheme. Your aktiebolag can do the contributing, but it will mean a relatively significant monthly cost depending on what you choose for scheme. On the other hand, it will be well worth it when you eventually retire. Your only regret will be not to have made higher contributions…

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WORKING IN SWEDEN

EXPLAINED: How will Sweden’s new work permit rules apply in practice?

Sweden's Migration Agency has now published guidance on the new work permit rules coming into force on June 1st. Here's what you need to know.

EXPLAINED: How will Sweden's new work permit rules apply in practice?

Sweden’s Migration Agency this week published its first guidance on the new rules coming in on June 1st for those seeking work permits. 

What are the most important new rules to know about as an applicant? 

  1. Work contract requirement. From June 1st, there is a new requirement to supply a copy of a signed employment contract (with some exceptions). Previously, you simply needed an offer of employment.
  2. Family support. From June 1st, there is a new requirement to show you can support any accompanying family members you bring to Sweden.
  3. Unlimited work permit extensions. You can now apply for a theoretically unlimited number of work permit extensions. Previously, if you had been issued a work permit for four out of the past seven years, you would be considered for permanent residency instead. 
  4. Visas for business trips. From June 1st, those waiting to have their work permits approved will be able to apply for a visa for business trip abroad. Previously, they were effectively trapped in Sweden. 
  5. Talent visa. The new rules include a new permit for highly educated people who want to come to Sweden to apply for work or start a business. 
  6. More leniency for employers’ mistakes. The new law requests that the Migration Agency refrain from revoking work permits if their employers’ have made minor mistakes that would make it unreasonable to do so. 

What are the most important rules to know about as an employer? 

  1. Obligation to report changed terms. Under the new rules, employers have a duty to report negative changes to the terms and conditions of employees awarded work permits. If they fail to do so they risk a fine. 
  2. Spot checks from Migration Agency. The agency is empowered to check that the terms of employment are followed. 

READ ALSO: Sweden’s new work permit law and the seven-year rule 

What effect will the new rules have on the waiting time to receive a permit? 

The Migration Agency in a press release warned that the new rules would increase demands on the agency by requiring it to handle more elements in its processing and control, which it said would increase the already long time it takes to handle permit applications. 

“We see that these are extensive changes that will require us to navigate more work steps and a more complex legislation. This is likely to affect our processing times for work permits,” Carl Bexelius, the agency’s head of legal affairs, said in a statement. 

The Swedish Migration Agency is currently hard at work on the preparations required to start applying the new rules and the increased controls on 1 June.

Do the new rules apply retroactively? 

Yes. The new rules will apply also to those who have already applied for a work permit or an extension. This means that even those applying before June 1st will need to meet all the new requirements. 

On the plus side, this means that if you are waiting for a response and expect a refusal because you have had two work permits and do not meet the requirements for permanent residency (the so-called seven-year rule) you will now probably be given an extension. 

On the downside, those who have already sent in applications may have to supplement their application by sending in a signed employment contract. 

READ ALSO: How will the new work permit law affect foreigners in Sweden? 

How much more lenient will the Migration Agency be of “minor deviations”? 

There have been many high-profile cases of talented workers in Sweden being expelled because of minor mistakes their employees have made, most often regarding insurance. The new law contains language saying that a temporary residence permit for work should not be revoked in “minor cases of deviations” or if a revocation appears unreasonable.

A big question has been how the Migration Agency will interpret this, and what they will count as “minor deviations”. 

“Already today, the practice developed in court gives us some room to deal with minor errors based on an overall assessment, but now we are getting legislation that makes it clear that minor deviations should not have to lead to decisions to expel people who are established in the labour market,”  Bexelius says. 

How high will the family maintenance requirement be? 

In a press release, Bexelius says that the rules on maintenance will be “similar to the rules that apply to other family immigration – but without a requirement for housing of a certain size and standard.

The maintenance requirement for family reunion in 2022 is that the person in Sweden should demonstrate that they have “regular work-related income” of  5,157 kronor for a stand-alone adult, 8,520 kronor for a spouse or sambo, 2,736 kronor for each child up until the age of six, and 3,150 kronor a month for each child over the age of seven. 

“Work-related income” can come from a salary, sickness benefit, an income-related pension, or unemployment insurance payments from an A-kassa. 

Does everyone need a work contract? 

No. The following do not need to present signed employment contracts: 

  • Holders of an EU Blue Card (a card for high-skilled and high-paid workers from outside the EU). 
  • Intra-Corporate Transfer (ICT) permits. Those employed by a non-EU country who are moving internally to work at the company’s Swedish offices do not need a new contract. 
  • Researchers.
  • Professional athletes.
  • Seasonal workers. For example, the berry pickers who travel from Thailand and other countries to work in Swedish forests. 
  • Au pairs. 
  • Trainees.
  • Volunteers under the European Solidarity Corps.
  • Summer jobs for young people (so-called Working Holiday visa).

 

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