Taxing forex trading profits is complicated because most traders make hundreds or even thousands of transactions yearly and have a combination of profitable and unprofitable trades settled in various currencies.
The rules and opinions on taxing forex trading profit vary throughout Europe. Some countries, like Sweden, have specific rules for taxing forex profits. Meanwhile, in other EU countries, like the Czech Republic, forex trading profits would be taxed under miscellaneous income.
Luckily, Skatteverket, the Swedish Tax Office, has prepared clear guidance on calculating profits or losses from currency trading profits. This article describes how to calculate capital gains per regulations and opinions published by the Swedish Tax Office in the context of forex trading.
Like most countries, Sweden has capital gains tax, which is applied to income that cannot be attributed to the provision of services, i.e. profits from investments. Sweden’s capital gains tax is a 30% flat rate.
In Sweden, profits from trading foreign currencies and currency derivatives, such as CFDs, futures and options, are taxed as capital gains. Swedish tax residents must report their capital gains in Form K4. Profits from currency trading are declared under section C for Market-listed bonds, currency, etc.
⚠️ Profits from trading precious metals or cryptocurrencies shall be declared under section D in Form K4.
There are several rules to understand when calculating income from currency trading activities.
The Swedish tax year is from the 1st of January to the 31st of December. Each settlement of a transaction is treated as a separate taxable event. For example, if you open a position on the 20th of December 2022 and close it on the 10th of January 2023, you’d report that transaction in your 2023 declaration.
⚠️ The deadline for submitting tax returns in Sweden is the 2nd of May.
Calculate cost amount
When you complete Form K4, you do not report each transaction. Instead, you aggregate all transactions for each instrument traded in the reporting period by calculating the average opening and closing prices and dividing the total purchase price by the volume you owned at the time of sale. This procedure is called “genomsnittligt omkostnadsbelopp”, which means average cost amount in Swedish.
For example, if you opened a long position of 100,000 EUR/USD at 1.0505 and opened another 50,000 at 1.0608, you should calculate the average entry price as (100,000 * 1.0505) + (50,000 * 1.0608) / 150,000 = 1.05393.
💡By using the average cost amount calculation, profits and losses for a particular investment are netted.
Calculating the profit or loss
Calculating the profit or loss for your tax return is as simple as the opening price minus the closing price. However, you should also consider any profits or losses incurred from swaps and the costs of trading commissions too.
Convert to Swedish krona
Tax declarations need to be completed in Swedish krona. However, you don’t simply convert the foreign currency settlement received into SEK. Both the purchase price and sale price must be converted. Doing so increases the accuracy of the accuracy of calculating the capital gain as theoretically, you could make a profit in USD but a loss in SEK due to exchange rate fluctuations.
If your trading account is already denominated in Swedish krona, it makes life much easier as all trades will be calculated in SEK based on the spot exchange rate. This way, you know exactly how much SEK you gained or lost.
If your trading account is denominated in another currency, such as USD, then you can use the exchange rate you received from the financial institution when withdrawing USD profits to your SEK bank account, providing the withdrawal occurs within 30 days of the settlement date.
In all other cases, you must source the SEK conversion rate from the Riksbank’s website by searching for the exchange rate on the specific date the position was closed.
Declaring capital losses
In Sweden, capital losses can be offset against capital gains within the same tax year. During a tax year, you have the opportunity to offset 70% of your capital losses against your capital gains. For example, if you had an investment which generated a 10,000 SEK net profit and another which resulted in a 3,000 SEK net loss, you can deduct 2,100 SEK so you only pay capital gains loss on 7,900.
Suppose your capital losses exceed your gains. In that case, you can seek a tax deduction for the remaining losses against your other taxable income, such as your salary. When your losses surpass the income generated from your capital gains, it results in what is known as a deficit (referred to as “Underskott” in Swedish). A deficit of up to 100,000 SEK entitles you to a 30% tax reduction on your state and municipal taxes, which include your salary tax. Deficits exceeding 100,000 SEK can qualify for a 21% tax reduction.
⚠️ Losses that cannot be utilised in the year they occurred cannot be carried forward for offset in subsequent years.
The Swedish Tax Office has also published detailed guidance on taxing contracts for difference. The procedure for accounting taxable income is consistent between currency and CFD trading. However, CFD transactions should be reported in different sections of Form K.
For example, CFDs, where the underlying instrument is shares or indices, should be reported in section C; cryptocurrencies and commodities, such as gold or oil, are reported in section D. Bonds, such as the US 10 YR treasury bond, are reported in section C with currencies.
Understanding Swedish tax regulations is essential for anyone engaged in forex trading in Sweden, as compliance with these guidelines ensures accurate and lawful taxation of your forex trading profits. This guide serves as an introduction to capital gains taxes when trading forex in Sweden. We urge all traders to seek professional tax advice to avoid penalties.
Does Scandinavian Capital Markets perform tax withholding on my behalf?
No. We do not submit tax data on your behalf. However, we can help collect the information required to complete your tax return from your trading account.