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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.

Published: 12 February 2022 16:17 CET
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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For members

WORKING IN SWEDEN

Half of those blocked by Sweden’s work permit salary threshold will be graduates

A new analysis by the Confederation of Swedish Enterprise has found that 51 percent of the labour migrants likely to be blocked by a new higher salary threshold will be graduates. Karin Johansson, the organisation's Deputy Director General, told The Local how this will hurt businesses.

Published: 22 April 2024 14:21 CEST
Half of those blocked by Sweden's work permit salary threshold will be graduates

When Migration Minister Maria Malmer Stenergard received the results of a government inquiry into setting the median salary as the threshold for new work permits, she said that highly qualified foreign workers would not be affected. 

“This is an important step in our work to tighten requirements for low-qualified labour migrants and at the same time to liberalise and improve the rules for highly qualified labour migration,” she said. “Sweden should be an attractive country for highly qualified workers.” 

But according to the confederation’s new analysis, published last week, graduates will in fact make up the majority of those blocked from coming to Sweden, if the government increases the minimum salary to be eligible for a work permit to 34,200 kronor a month from the 27,400 kronor a month threshold which came into force last November. 

“The politicians’ argument does not hold up,” Johansson told The Local. “More than 50 percent of those who have this kind of salary are skilled workers with a graduate background. These are the people that that the government has said that they really want to have in Sweden. So we are a little bit surprised that they are still going to implement this higher salary threshold.” 

Of those earning between 80 percent of the median salary (27,360 kronor) and the median salary (34,200 kronor), the study found that 30 percent were working in jobs that required “extended, university-level competence”, and a further 21 percent in jobs requiring “university-level education or higher”. 

“They are technicians and engineers, and many of the others are also really skilled workers that are hard to find on the Swedish labour market at the moment,” Johansson said. 

The proposals made by inquiry were put out for consultation in February, with the Confederation of Swedish Enterprise planning to submit its response later this week. 

Johansson said that further raising the threshold risked exacerbating the serious labour shortage already suffered by Swedish companies. 

"In our recruitment survey, we have discovered that 30 percent of all planned hires never get made because companies cannot find the right people," she said. "Many companies are simply having to say 'no' to businesses. They can't expand. So, of course, it will have an impact on the Swedish economy if they now increase the salary threshold. We know that there will be fewer people coming from abroad to work in Sweden." 

Johansson said she had little faith in the exemption system proposed by the inquiry, under which the the Swedish Public Employment Service will draw up a list of proposed job descriptions or professions to be exempted, with the Migration Agency then vetting the list before sending it on to the government for a final decision. 

"The decision of who will be exempted will be in some way a political one, and in our experience, it's the companies that know best what kind of people they need," she said. "So we are not in favour of that kind of solution. But, of course, it's better than nothing." 

She said that companies were already starting to lobby politicians to ensure that the skills and professions they need to source internationally will be on the list of exemptions, a lobbying effort she predicted would get only more intense if and when the new higher salary requirement comes into force next June.  

"If you have a regulation, not every company can have an exemption. You need to say 'no' sometimes, and that will be hard for companies to accept," she predicted. "And then they will lobby against the government, so it will be messy. Certainly, it will be messy." 

Although there are as yet no statistics showing the impact of raising the minimum salary for a work permit to 80 percent of the median salary last November, Johansson said that her members were already reporting that some of their foreign employees were not having their work permits renewed. 

"What we are hearing is that many of the contracts companies have with labour from third countries have not been prolonged and the workers have left," she said. 

Rather than hiring replacements in Sweden, as the government has hoped, many companies were instead reducing the scale of their operations, she said. 

"The final solution is to say 'no' to business and many companies are doing that," she said. "If you take restaurants, for example, you might have noticed that many have shortened their opening hours, they have changed the menus so it's easier with fewer people in the kitchen. And also shops, the service sector, they have fewer staff."

To give a specific example, she said that Woolpower, a company based in Östersund that makes thermal underwear, supplying the Swedish Armed Forces, had been struggling to recruit internationally. 

"They have seamstresses from more than 20 different countries and it's more or less impossible to find a seamstress in Sweden today," she said. "It's really hard for them to manage the situation at the moment and they are a huge supplier to Swedish defence." 

She said that the new restrictions on hiring internationally were also forcing existing employees and also company owners to work harder.  

"Current employees need to work longer hours than they have done and if you're a small business, you, as an owner, will work more than you have done before," she said. 

The best solution, she said, would be to abolish the salary thresholds and return to Sweden's former work permit system, which required that international hires receive the salary and other benefits required under collective bargaining agreements with unions. 

But she said that the government's reliance on the support of the Sweden Democrats party, enshrined in the Tidö Agreement, meant this was unlikely to happen. 

"This is the result of the Tidö Agreement, and you if you take away one single piece of this agreement, I think maybe everything will fall apart. So I think it's hard. When we discuss this with the different parties, they all agree that they want to push ahead with it. But it's the Sweden Democrats who put this on the table when they made their agreement." 

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