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:
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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.
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