This country-specific Q&A provides an overview of Tax laws and regulations applicable in Sweden.
How often is tax law amended and what are the processes for such amendments?
Swedish Tax Law is not amended at a specific date. But, amendments and/or tax proposals are generally included in the Swedish Government’s fall and spring budgets. However, tax proposals are not limited to the Government budgets and may also be proposed in bills covering specific tax issues.
Most legislative proposals presented to Parliament are initiated by the Government. However, members of Parliament and the various parliamentary committees may also submit new legislative proposals to Parliament. Before a legislative proposal is presented to Parliament, the proposal is circulated for comment to relevant consultation bodies. These bodies may be central government agencies, local government authorities or other bodies, including non-governmental organizations, whose activities may be affected by the proposal.
What are the principal procedural obligations of a taxpayer, that is, the maintenance of records over what period and how regularly must it file a return or accounts?
Swedish taxpayers, both individuals and companies, are obliged to file an annual income tax return. For individuals the filing date for the income tax return is normally 2 May of the year after the calendar year.
. For companies the filing deadline vary depending on when the company’s financial year end, July 1 (calendar year), 1 November (January-April), 15 December (May- June) or 1 March (July-August). If a company files its income tax return electronically, the deadline is postponed by one month.
VAT returns must be filed, and tax paid on a monthly, quarterly or an annual basis, depending on the company’s turnover.
Employers must file employer tax returns covering social security charges and taxes withheld from the employees renumeration monthly.
From a Swedish legal perspective, Swedish companies must prepare financial statements for each financial year. In principle, the books and records for tax purposes must be maintained for seven years. Private tax payers have only a limited obligation to maintain records for tax purposes.
Who are the key regulatory authorities? How easy is it to deal with them and how long does it take to resolve standard issues?
The key regulatory authorities in Sweden are the Swedish Ministry of Finance, the Council for Advance Tax Rulings and the Swedish Tax Agency.
The Swedish Ministry of Finance is the main tax authority in terms of preparing draft tax bills. It also negotiates Sweden’s double taxation treaties.
The Council for Advance Tax Rulings is a Swedish government agency that is a part of the Ministry of Finance. Tax payers may apply for a legally binding advance tax ruling with respect to the tax consequences of a planned transaction.
The Swedish Tax Agency manages civil registration of private individuals and collects taxes such as personal income tax, corporate tax, VAT and excise tax. The Swedish Tax Agency is accountable to the government but operates as an autonomous public authority. Further, the Swedish Tax Agency issues guidelines for the interpretation of tax provisions and rules.
The time needed to resolve tax issues vary, generally depending on the scope and complexity of the issue. Standard issues can often be resolved directly with the Swedish Tax Agency. However, in some cases with complex matters a process may take up to several months.
Are tax disputes capable of adjudication by a court, tribunal or body independent of the tax authority, and how long should a taxpayer expect such proceedings to take?
Taxes are assessed by the Swedish Tax Agency. A taxpayer may apply for reassessments and/or appeal the Swedish Tax Agency’s decision six years after the expiry of the calendar year during which the financial year ended. The extended six-year period can generally be applied by the Swedish Tax Agency to the disadvantage of the taxpayer in cases of erroneous or misleading information have been provided by the taxpayer or the taxpayer’s omission of information. Appeals can be made to the Administrative Court, onwards to the Administrative Court of Appeal and, in case granted a leave to appeal, onwards to the Supreme Administrative Court. Leave to appeal is only granted in approx. two percent of the cases. Generally, a leave to appeal is only granted if there is an uncertainty concerning the interpretation of tax law.
Tax disputes in Court generally take several years to be resolved.
Are there set dates for payment of tax, provisionally or in arrears, and what happens with amounts of tax in dispute with the regulatory authority?
Income taxes are collected under a preliminary tax system. A company’s preliminary tax liability is determined by a preliminary tax assessment based either on the latest available final tax assessment or on a preliminary tax return filed by the company. The preliminary taxes are payable in monthly instalments. Once a tax assessment has been made by the Swedish Tax Agency, any balance owed by the taxpayer is payable in 90 days. Interest is payable if taxes withheld do not cover the final tax liability.
For individuals, preliminary taxes are withheld by the employer. Income taxes not covered by the preliminary taxes withheld must be paid within 90 days after the final tax statement is issued. Interest is payable if taxes withheld do not cover the final tax liability.
Assessed taxes subject to appeal are due and enforceable. However, the taxpayer may appeal for a respite with payment of appealed taxes.
Is taxpayer data recognised as highly confidential and adequately safeguarded against disclosure to third parties, including other parts of the Government? Is it a signatory (or does it propose to become a signatory) to the Common Reporting Standard? And/or does it maintain (or intend to maintain) a public Register of beneficial ownership?
The data relating to tax matters are subject to a statutory non-disclosure requirement which basically stipulates that the Swedish Tax Agency cannot disclose any data they gained knowledge of during the tax proceedings to any third party including other public authorities. Information included in a decision made by the Tax Agency is however not protected. Exchange of information and disclosure of facts between inter-governmental authorities may be permitted in some cases relating to law enforcement and criminal proceedings.
Sweden is a signatory of the Common Reporting Standard providing for the automatic exchange of information between member countries on financial accounts of non-residents. Swedish corporations must disclose their beneficial ownership information to the Swedish Companies Registration Office. The Swedish Companies Registration Office has developed an e-service to enable searches of information in the register.
What are the tests for residence of the main business structures (including transparent entities)?
Legal entities are resident in Sweden if they are incorporated in Sweden or, if incorporation has not been made in Sweden, the seat of the board or management is in Sweden or the entity due toother circumstances are deemed to be a Swedish entity.
Transparent entities (partnerships) are not taxpayers in Sweden (other than for social security charges and VAT, as the case may be). A transparent entity’s income is allocated to the direct and indirect partners.
Have you found the policing of cross border transactions within an international group to be a target of the tax authorities’ attention and in what ways?
Cross-border transactions within an international group of companies are a main focus of the Swedish Tax Agency. International reorganizations, transfer prices and the related documentation are often challenged by the Swedish Tax Agency in audits. If the documentation requirements are not met, the tax authorities are in principle authorized to estimate the respective prices which in almost all cases will lead to a higher tax liability.
Is there a CFC or Thin Cap regime? Is there a transfer pricing regime and is it possible to obtain an advance pricing agreement?
Sweden’s CFC provisions aim at taxing a Swedish resident shareholder for shareholdings in low-taxed foreign entities. A Swedish resident shareholder with a holding in a CFC entity will annually be taxed for its ownership portion of the CFC’s income, according to provisions applicable to a Swedish corporation. For a corporation, the portion will be taxed at the Swedish corporate tax rate. Only holdings, direct or indirect through other foreign entities, corresponding to at least 25% (capital or voting rights) in the foreign entity could lead to CFC taxation. A foreign company is considered low taxed if the income in the company, calculated in accordance with Swedish provisions, is taxed at a rate below 55 percent of the Swedish corporate income tax rate (i.e. 11.8% in 2020). However, if the foreign entity is resident in an approved country, the shareholder is not subject to CFC taxation. Approved countries appear in an official “black/white” list. Under certain circumstances, active EEA entities are not considered low taxed.
Thin Cap regime
Sweden does not have a Thin Cap regime for tax purposes.
However, substantial interest deduction restrictions apply. New interest deduction limitation rules entered into force on 1 January 2019. The new rules include targeted and general restrictions on deduction for interest expenses and provisions for hybrid arrangements.
The targeted rules apply to interest expense on intra-group loans and interest is only deductible if (i) the beneficial owner of the interest is resident within the EEA or a treaty country, or (ii) the interest is subject to a tax rate of at least 10 percent. Even if these requirements are met, interest is non-deductible if the purpose of the intra-group loan is deemed to be exclusively or almost exclusively (90-95%) for the group to achieve a substantial tax benefit. The burden of proof is with the taxpayer. Further, where the purpose of the loan is to finance an intra-group acquisition of shares, the acquisition must substantially be motivated by sound business reasons for the interest to be deductible.
The general restriction covers both related and third-party interest expenses. The general rule applies to negative net interest expense, calculated as the difference between interest income and interest expense (for this purpose being interest expenses not restricted by other rules) and limits the interest deductibility to 30 percent of a tax-adjusted EBITDA with an exemption for a negative interest of up to 5MSEK, which is allowed to be deducted regardless of the EBITDA rule.
Advance pricing arrangements
Advance pricing agreements (APAs) are possible in Sweden and are governed by the Act on Advance Pricing Arrangements in International Transactions. The Swedish Tax Agency is the competent authority for such applications. Under the act, bilateral and multilateral APAs are possible. The act applies to both Swedish and foreign entities, the latter provided a permanent establishment exists in Sweden. APAs cannot cover simple matters or minor transactions. A SEK 150,000 fee for per country is levied for the filing and negotiation of an APA.
Is there a general anti-avoidance rule (GAAR) and, if so, in your experience, how would you describe its application by the tax authority? Eg is the enforcement of the GAAR commonly litigated, is it raised by tax authorities in negotiations only etc?
Sweden has had a GAAR in the Swedish Anti-Avoidance Act for many years. A transaction may be disregarded if (i) it produces a substantial tax benefit, (ii) the taxpayer is directly or indirectly part of the transaction, (iii) the tax benefit can be considered the predominant reason for the transaction, and (iv) taxation based on the transaction would violate the purpose of the tax rules.
The Swedish Anti-Avoidance Act is applied by the Administrative Court after a request from the Swedish Tax Agency.
Have any of the OECD BEPs recommendations been implemented or are any planned to be implemented and if so, which ones?
Sweden generally supports the BEPS action plan. Sweden has in some form implemented or already had rules or practices in place concerning BEPS Actions 2 (Hybrid Mismatch Arrangements), 3 (CFC), 4 (Interest Deductions), 8-10 (Transfer Pricing), 12 (Mandatory Disclosure Rules), 13 (CbCR) and 15 (MLI). Further, Sweden has no harmful tax practices (Action 5).
In your view, how has BEPS impacted on the government’s tax policies?
While Sweden has many rules and practices of the BEPS Actions in place, it is still reviewing existing laws for specific additional changes necessary to be in line with the BEPS Project.
Does the tax system broadly follow the recognised OECD Model? Does it have taxation of; a) business profits, b) employment income and pensions, c) VAT (or other indirect tax), d) savings income and royalties, e) income from land, f) capital gains, g) stamp and/or capital duties. If so, what are the current rates and are they flat or graduated?
The Swedish tax system follows the recognized OECD Model. Tax frameworks for companies compare favorably with other OECD nations. Corporate tax rate is low by international standards and is also based solely on a company’s annual profit. No municipal of local income taxes applies to Swedish companies. The Swedish tax system provides for the taxation of the following:
Resident companies are taxed on worldwide income. Non-residents are taxed on business income from real estate and a permanent establishment in Sweden, income derived from the disposal of a condominium and dividend income from Swedish associations. A royalty payment made to a foreign recipient is deemed to constitute a permanent establishment for the foreign recipient and is taxed accordingly. The corporate income tax rate is 21.4% and will be reduced to 20.6% in 2021.
The most important items of exempt income are, under certain conditions, dividends and capital gains from the sale or other disposition of shares in Swedish and foreign companies.
Employment income and pensions
Income from employment includes all income relating to work performed, e.g. cash reimbursements (such as salary payments, sickness allowances and pensions), and benefits (e.g. company car, free travel and housing benefits).
Deductions are allowed for costs directly related to the work performed such as travel costs to and from work.
Income from employment is subject to municipal and state tax. The municipal tax amounts to 29-35 percent depending on where you reside. State tax is levied with a flat rate of 20 percent on income exceeding certain thresholds. Taxation of employment is generally levied through employer withholding.
VAT applies on the supply of goods and services. A standard VAT rate of 25% applies, whereas certain supplies may be taxed at a reduced rate of 12% or 6%. Certain supplies, such as construction services, are subject to reversed charge. Further, the transfer and letting of real estate is as a main rule exempt from VAT. However, under certain conditions it is possible to be voluntarily liable to VAT for the letting of real estate.
Important exemptions include the leasing and transfer of immovable property. Moreover, inventory equipment and other assets belonging to a business may be exempt from VAT if they are transferred in conjunction with the transfer of the business or part thereof, or in conjunction with a merger or a similar transaction.
Savings Income and Royalties
For companies, interest and royalties are subject to standard 21.4 CIT at payee level and are generally deductible for the payer.
Income derived from savings by an individual, such as interest, is taxed at a standard rate of 30%.
Income from land
For companies, income from letting of land is subject to standard 21.4% CIT.
For individuals, income from the letting of the private home is subject to certain deductions. The individual may make a standard deduction of SEK 40,000. Remaining income is taxed at 30%.
Capital gains realized by companies are in principle taxed at the standard 21.4% CIT rate. However, certain exemptions apply. An exemption is e.g. available for capital gains realized on shares the meet the requirements for being deemed business related (näringsbetingade) under Swedish tax law.
For individuals the standard tax rate for capital income is 30%. However, on dividends received from qualified shares in closely held companies specific rules are applied. For capital income up to a certain dividend allowance cap the tax rate is 20%, and for amounts above the tax rate vary between 29 – 55%.
The effective tax rate is lower than the standard tax rate of 30% for certain types of capital gains, such as gains on certain securities (25% rate) and gains on real estate and condominium (22%). For capital gains on the sale of shares in closely held companies the tax rates vary between 20 – 55%.
Stamp duty is levied on direct transfers of land. The tax rate for companies is 4.25% and 1.5% for individuals. No stamp duty is levied upon the indirect transfer of land, e.g. by transferring the shares of a company owning land.
Is the charge to business tax levied on, broadly, the revenue profits of a business as computed according to the principles of commercial accountancy?
The business profits calculated on the basis of the Swedish GAAP accounts are the basis for the calculation of the taxable income for corporations, partnerships and individual entrepreneurs. Certain differences in the depreciation of assets, deductibility of expenses and other items need be taken into account for tax purposes.
Are different vehicles for carrying on business, such as companies, partnerships, trusts, etc, recognised as taxable entities? What entities are transparent for tax purposes and why are they used?
Swedish tax law differs between tax transparent entities, such as partnerships, and non-transparent entities, such as corporations. For income tax purposes the taxable income of a partnership is generally allocated to its partners in proportion to their interests held and taxed at the level of the partners. Partnerships are no longer used to the same extent in Sweden as about 15 years ago. This is most likely since partnerships cannot benefit from many of the tax rules that are deemed beneficial for corporations. However, partnerships are frequently used by different types of consultancy firms, such as law firms and realtors.
Companies are treated as separate from their shareholders. The taxable income is taxed at the level of the corporation.
Is liability to business taxation based upon a concepts of fiscal residence or registration? Is so what are the tests?
Swedish tax law distinguishes between unlimited resident taxation and limited non-resident taxation. In the first case, the taxpayer is subject to tax with the worldwide income, in the second case only with certain income from Swedish sources. A company is subject to unlimited taxation of its worldwide income if its statutory seat or place of effective management is in Sweden.
Individuals subject to unlimited resident taxation if they are resident in Sweden, their place of habitual abode in Sweden or are effectively connected (väsentlig anknytning) to Sweden.
Are there any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres, etc?
Sweden does neither have special taxation regimes for enterprise zones nor favorable tax regimes for financial services or co-ordination centers.
Are there any particular tax regimes applicable to intellectual property, such as patent box?
Sweden does have special tax regime with respect to intellectual property.
Is fiscal consolidation employed or a recognition of groups of corporates for tax purposes and are there any jurisdictional limitations on what can constitute a group for tax purposes? Is a group contribution system employed or how can losses be relieved across group companies otherwise?
In Sweden, consolidated balance sheets are not recognized for tax purposes. However, it is possible for a qualifying group to effectively offset operating losses of one Swedish company against operating profits of another Swedish company by way of group contributions, which are deductible for the contributor and taxable for the recipient. EEA companies are deemed as Swedish companies for these purposes if the recipient is taxable in Sweden.
A similar Swedish deduction is, under certain circumstances, also available for cross-border group relief at the Swedish parent’s level within the EEA for final foreign subsidiary losses.
Are there any withholding taxes?
Sweden does not levy withholding tax on any other income than dividends. Dividend paid to a nonresident shareholder is subject to a 30% withholding tax unless the rate is reduced, or an exemption applies under a tax treaty, Swedish domestic legislation or the EU parent-subsidiary directive. A specific anti-avoidance rule applies for withholding tax purposes. A legislative proposal for a new law on withholding tax on dividends has been referred for consultation by the Ministry of Finance on 29 April 2020.
However, a foreign recipient of royalty is deemed to have a Swedish permanent establishment and is subject to Swedish income tax on the royalties received.
Are there any recognised environmental taxes payable by businesses?
There are several taxes in Sweden, whose tax base is in dependency of the impact on the environment, e.g. various forms of energy taxes, waste taxes, tax on transportation, tax on natural resources and tax on chemicals.
Is dividend income received from resident and/or non-resident companies exempt from tax? If not how is it taxed?
Sweden has a participation exemption regime for dividends. This exemption applies to dividends received by a Swedish resident company from another resident company and to capital gains derived from the sale of shares in a resident company, provided the shares qualify as business-related (shares held as inventory do not qualify). Unquoted shares constituting fixed business assets are always deemed business related. Quoted shares that constitute fixed business assets are deemed business related if the participation is at least 10% of the company’s voting rights or is considered necessary for conducting the business of the company whose shares are held. In addition, quoted shares must be held for at least one year. In certain cases, the participation exemption may be extended to dividends received and capital gains derived from the sale of shares in a non-resident company. However, the features of the foreign entity must be similar to those of a Swedish limited liability company or a Swedish co-operative society (ekonomisk förening). Shares in an EU resident company can qualify as tax exempt even if the shares are held as inventory, provided the holding represents at least 10% of the capital. An exemption also applies for partnerships and holdings in partnerships. Even if qualifying for the participation exemption, dividends are not tax exempt if the dividend is treated as a tax-deductible expense in the country where the payer company is resident. Special rules apply to investment companies.
If you were advising an international group seeking to re-locate activities from the UK in anticipation of Brexit, what are the advantages and disadvantages offered by your jurisdiction?
Sweden has a world-class infrastructure, highly-skilled workforce, low level of corruption, little bureaucracy and a friendly business culture. Sweden excels in promoting the formation of new businesses and several global companies like Spotify, Klarna and King were all founded here.
Stockholm produces one of the highest numbers of billion-dollar tech companies per capita.
As a result of the Competition Act in 1993 big mergers and monopolies dominating the marked have been blocked which makes it easier for small startup businesses to succeed.
Sweden also has an extensive double tax treaty network reducing or eliminating withholding taxes. In addition, Sweden has participation exemption for dividends and qualified shareholdings in foreign companies and there is no wealth tax.
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