How to Declare Rental Income in a Swedish Tax Return

A not uncommon question for expats living in Sweden is how rental income should be declared in the Swedish tax return. In practice, this question most often concerns rental income derived from renting out a home located outside of Sweden, such as a former residence or an investment property retained after relocation.

While the basic principles of Swedish taxation are relatively straightforward, the application of those principles in cross-border situations can be complex. The tax treatment depends on tax residency, the classification of the property under Swedish tax law, the applicable tax rates, and, in some cases, the provisions of an applicable tax treaty.

Is rental income from renting out a home abroad subject to Swedish tax?

The starting point under Swedish tax law is the individual’s tax residency status.

If you are a tax resident in Sweden, you are subject to unlimited tax liability. This means that Sweden taxes your worldwide income, including rental income, regardless of whether the rented property is located in Sweden or abroad. The location of the property therefore does not, in itself, exclude Swedish taxation once tax residency has been established.

If you are a non tax resident in Sweden, Sweden’s taxing rights are limited. In such cases, rental income from a home located outside Sweden is generally not subject to Swedish tax.

It should be noted that determining tax residency can be complex, particularly for individuals who have recently moved to or from Sweden or who maintain ties to more than one country. In such cases, domestic Swedish rules must often be assessed together with any applicable tax treaty.

Can tax treaties limit Sweden’s right to tax rental income?

Even if you are tax resident in Sweden under domestic law, Sweden’s right to tax rental income from abroad may be limited or excluded under an applicable tax treaty.

Tax treaties allocate taxing rights between states and are intended to prevent double taxation. In many treaties, income from immovable property is primarily allocated to the state in which the property is located. Where this is the case, Sweden may be prevented from taxing the rental income, or may only tax it in a limited manner.

Treaty protection does not apply automatically. In practice, the treaty position must be correctly assessed and actively claimed in the Swedish tax return, often requiring professional assistance.

What tax rate applies to rental income in Sweden?

The applicable tax rate depends on how the rented home is classified under Swedish tax law.

Classification of the rented home

Under Swedish tax law, a rented home may generally be classified as either:

• a private capital asset, or

• a business asset

This classification is decisive, as it determines both how the income is taxed and what deductions are available.

Rental income from a private capital asset

If the home is classified as a private capital asset, the rental income is taxed as capital income at a flat rate of 30 percent.

Rental income from a business asset

If the home is classified as a business asset, the rental income is taxed as earned income and is subject to progressive tax rates, typically ranging from approximately 30 to 55 percent depending on the individual’s overall income situation. In addition, such income will in most cases also be subject to Swedish social security contributions.

How is the classification determined?

The classification of a rented home is one of the more complex aspects of Swedish rental income taxation and must be assessed on a case-by-case basis. The assessment is based on Swedish case law and the preparatory works to the legislation.

In simplified terms, the analysis focuses on how the home is currently used and how the owner intends to use the home within a foreseeable future. Factors such as the duration of the rental, the nature of the rental activity, and the overall context in which the property is held may all be relevant.

For expats with foreign properties, additional complications may arise where the form of ownership or use does not have a clear equivalent under Swedish tax law, requiring a careful legal assessment.

What deductions can be made?

The deductions available depend directly on whether the home is classified as a private capital asset or a business asset. If the home is classified as a private capital asset, only a limited number of standardized deductions are available. These deductions depend on the type of home and the form of ownership, which can create practical difficulties in cross-border situations.

If the home is classified as a business asset, expenses incurred in relation to the letting may generally be deducted, provided that they are attributable to the rental activity.

Interest costs are generally deductible regardless of how the home is classified. Mortgage repayments, i.e. amortization, are generally not deductible.

What form should be used when declaring rental income in the Swedish tax return?

Rental income from a business asset

If the home is classified as a business asset, rental income must be declared using the NE form. This form is complex, even for Swedish taxpayers, which is why professional assistance is often advisable.

Rental income from a private capital asset

If the home is classified as a private capital asset, the taxable surplus after deductions should be reported in box 7.2 of the main Swedish tax return (INK1). A supplementary calculation form is available for determining deductions, namely form SKV 2199.