Taxes and contributions for sole traders
In a sole proprietorship - or sole trader as it is often called - you pay tax on the surplus of the company. The tax is called preliminary tax. You are responsible for paying your taxes and fees yourself. If you have a sole trader business, you are not employed in the company. Therefore, you cannot take a salary but make so-called owner's withdrawals. Here we explain the concepts and how they are related.
How to pay tax as a sole trader
1. Apply for F/FA-tax and VAT registration
When you start a business, you can apply for F-tax or FA-tax approval. If you operate a seasonal business, you only pay F-tax during the months when you have an income. The service also allows you to register your company for VAT and as an employer.
2. Calculate your tax
The Swedish Tax Agency's tax calculator helps you to estimate how much in income tax and social security contributions you must pay as a sole trader. Please note that the calculator is not comprehensive and gives an approximate result.
3. Owner's withdrawl
When you have a sole proprietorship, you cannot be employed in the company yourself. This means that you cannot draw a salary; instead, you make something called owner's withdrawals. You withdraw a sum of money from the company's bank account and record the withdrawal against the accounting account "Owner's Equity." Therefore, you can use the owner's withdrawals in the same way as a salary. It's only the name and approach that differ.
Questions and answers about owner's withdrawals
Do I pay taxes and social security contributions on owner's withdrawals?
No, you do not pay tax on the withdrawals you make. It is the surplus in your business that you pay income tax and social security contributions on.
Do owner's withdrawals affect the profit of the company?
No, they do not. The result is calculated, somewhat simplified, by taking your income minus your deductible costs. A surplus equals profit, and a deficit means a loss. The result determines how large withdrawals you can make from the business.
When/how do I pay tax on the profit?
You pay the tax continuously in the form of preliminary tax. It is based on the estimated surplus you have reported to the Swedish Tax Agency. In connection with the income declaration, you will receive your final tax assessment. The tax is adjusted depending on the company's actual result.
Do I need to pay tax on the profit even if I make no owner's withdrawals?
Yes, you must always pay tax and social security contributions on the surplus. This applies regardless of whether you withdraw the money from the company or leave it there.
How much is your own money?
How much will you be left with after tax is deducted? The film explains in a quick and simple way how VAT, deductions for expenses, tax and personal charges are connected. The film is in Swedish, but you can add English subtitles in the film settings. (length 2:36 minutes).
Declaration for a sole proprietorship in one minute
The film gives a simple explanation on how preliminary tax, income declaration and final tax statement are connected for those who have a sole proprietorship. The film is in Swedish, but you can add English subtitles in the film settings. (length: 1:26 minutes).
4. Submit your preliminary income tax return
Before each calendar year, you submit a preliminary income tax return to the Tax Agency with an estimate of your profit, i.e., the difference between revenue and expenses. The Tax Agency calculates your preliminary tax in advance based on your application for F-tax.
Information about submitting a preliminary income tax return at skatteverket.se
5. You pay tax on an ongoing basis
You pay preliminary tax in equal instalments every month during the tax year, normally on the 12th of each month. Throughout the year, you will keep regular accounts, which will be compiled in a financial statement at the end of the year. The financial statement provides the revenues and expenses for the income tax return. You pay taxes and other fees into your tax account. The tax account works like a regular bank account.
See the dates that apply to your business on the Tax Agency's Important Dates page
If the company performs better or worse than expected
If you discover, after starting your business, that you earn more or less than what was stated in your application for F-tax approval, you must submit a preliminary income tax return. In your preliminary income tax return, you enter your new profit/loss. Otherwise, you may risk having to pay residual tax when the preliminary tax is reconciled with the final tax. In the event of minor differences, you can make a supplementary preliminary tax payment at the beginning of the coming year.
Submit your preliminary income tax return on the Tax Agency's website (in Swedish)
6. Submit your tax return
When you file your income tax return, you report your company's revenues and expenses in an annex. The Tax Agency then reconciles your preliminary tax with your final tax.
7. You receive a tax assessment notice
After submitting your tax return, you will receive a tax assessment notice from the Tax Agency showing the final tax amount. If you have paid too much preliminary tax, you will be refunded the excess amount. If your final tax is more than what you have paid in preliminary tax, you have to pay the difference to the Tax Agency on your tax account instead.
Webinars for first-time taxpayers
The Tax Agency offers webinars for those who are declaring their sole trader businesses for the first time.