Direct taxation of businesses
i Tax on profitsDetermination of taxable profit
The profit or loss of a limited company is (somewhat simplified) as a general rule calculated in accordance with Swedish generally accepted accounting principles. To determine the taxable result, certain tax adjustments are made; these include transfers to and from certain untaxed reserves, group contributions with fiscal effect, and non-taxable and non-deductible income and costs, as specified in the Income Tax Act. Examples of non-taxable income include dividend distributions and capital gains covered by the relevant participation exemption rules and write-ups on financial assets. Examples of non-deductible costs include general taxes, write-downs on financial assets, certain interest expenses, association fees and, in principle, all business entertainment.
Furthermore, depreciation of machinery and equipment and real property is subject to special tax rules. A deduction for depreciation of machinery and equipment is allowed at an annual rate of 20 per cent of the original acquisition cost or 30 per cent of the remaining non-depreciated value. An alternative 25 per cent declining balance method without correspondence to the books also exists. These rules also apply to the depreciation of, inter alia, concessions, patents, licences, trademarks, leases, acquired non-share-related goodwill and similar rights acquired from another party. A temporary deduction for machinery and equipment have been introduced. For machinery and equipment purchased and delivered in 2021, a 3.9 per cent tax deduction of the purchase price will be allowed, provided the machinery and equipment is still held by the same company throughout 2022.
In respect of real estate, deductions for depreciation of buildings are allowed at various rates between 2 and 5 per cent annually, depending on the type of building. For new rental buildings, an additional 2 per cent per annum may, as of 1 January 2019, be deducted over the first six years. Land is a non-depreciable asset.
Capital and income
Income earned by a limited company is subject to a national corporate income tax rate of 20.6 per cent as of 1 January 2021. The tax rate is applicable to all taxable income, including capital gains (tax-exempt gains exist: see Section V). Income earned by a partnership, including capital gains, is taxed at the level of its owners and the tax rate is dependent on their tax status.
Tax losses are as a main rule carried forward indefinitely (no carry-back exists) and may be offset against any taxable income. However, losses on real estate and shares not tax-exempt under the participation exemption regime may only be offset against gains on the same type of assets.
Losses carried forward may be restricted following a direct or indirect change of control of a company. Where there are such changes, an amount limitation rule implies that all tax losses carried forward exceeding 200 per cent of the purchase price are permanently forfeited. For the purpose of this calculation, the purchase price must be reduced by capital contributions made to the loss company during the current and two financial years preceding the change of control. Furthermore, a legislative proposal was introduced on 10 June 2020, proposing that a special restriction rule be introduced which means that the possibility of utilising losses carried forward will cease after a change of ownership, if the losses in view of the circumstances can be assumed to have been the predominant reason for the change of ownership. When assessing the reason for the change of control, special consideration shall be given to whether the acquirer has through the change of ownership received assets or rights other than cash and receivables from companies that were part of the same group as the loss-making company before the change of ownership, and if the company conducts business. The proposal will be enacted into law with effect as of 11 June 2020.
Under an offset restriction rule, tax losses carried forward that are not forfeited by the application of the amount limitation rule cannot be offset against profits in any company belonging to the buyer’s group during the year in question and for five years following the year of acquisition. The offset restriction applies not only to an acquisition of a company with losses carried forward, but also when a group containing such a company acquires another company.
When the change of control concerns companies that prior to the change of control were in the same group, the offset restriction rule is normally not applicable. Furthermore, the amount limitation rule is normally not applicable when a controlling company, prior to the change of control, was in the same group as the loss-carrying company.
The above-described amount limitation rule may also be applicable in mergers unless the absorbing company has the decisive influence over the dissolved company. Furthermore, unless the companies are entitled to exchange group contributions with fiscal effect the year prior to the merger, the losses carried forward that are not forfeited as a result of the application of the amount limitation rule cannot be utilised against the absorbing company’s own profits or against group contributions during the year in which the merger is completed and for five subsequent years (merger restriction).
As noted above, income earned by a limited company is subject to a national corporate income tax rate of 20.6 per cent as of 1 January 2021. Income earned by partnerships is taxed at the level of its owners.
Limited liability companies normally pay income tax on a monthly basis based upon a preliminary declaration of income. After the close of the book year, the company submits a tax return to the Swedish Tax Agency that establishes the company’s final income tax for the year. The filing date is dependent on when the book year ends.
|Book year ending||Filing date|
|31 January, 28 February, 31 March or 30 April||1 November, if filed on paper; 1 December, if filed electronically|
|31 May or 30 June||15 December, if filed on paper; 17 January, if filed electronically|
|31 July or 31 August||1 March, if filed on paper; 1 April if filed electronically|
|30 September, 31 October, 30 November or 31 December||1 July, if filed on paper; 1 August if filed electronically|
The Tax Agency’s decision regarding income tax may be appealed to an administrative court. Such an appeal should be sent to the Tax Agency, not the court, at which point the Agency will make an obligatory reassessment of its decision. If the Agency does not find a reason to overturn its decision, the appeal will be forwarded to the court.
The administrative court’s decision may be appealed to the administrative court of appeal. The administrative court of appeal’s decision may then be appealed to the Supreme Administrative Court. For the Supreme Administrative Court to hear the case, a review dispensation is required, because the Supreme Administrative Court establishes precedent and generally only hears cases in which the appeal is important as guidance for the application of the law.
Tax subjects may ask the Tax Agency for a written response to tax questions. Such written responses are not formally binding. However, according to the Tax Agency, it is intended that it will treat them as binding provided that the tax subjects involved have provided all relevant information and are not using the answer for tax planning purposes, and unless the Supreme Administrative Court delivers case law demonstrating that the Tax Agency’s interpretation was wrong.
The Swedish tax system also provides for the possibility to obtain a formally binding advance ruling regarding a specific tax question. Such a ruling is delivered by the Council for Advance Tax Rulings, an independent public authority. Both the Tax Agency and the taxpayer may appeal the advance ruling to the Supreme Administrative Court without review dispensation.
The statute of limitation for the Tax Agency to review taxpayers’ tax returns is normally six years but can in most situations be shortened to two years by filing open disclosures.
Council Directive (EU) 2018/822 (DAC6) entered into force on 25 June 2018. DAC6 introduces obligations relating to ‘reportable cross-border arrangements’ and the automatic exchange of information on such arrangements between the competent authorities of EU Member States and to the European Commission. In January 2020, the Swedish government submitted a proposal for the implementation of DAC6 and the proposal was accepted on 3 June 2020.
For a tax arrangement to be reportable it must contain a cross-border element and involve at least one ‘hallmark’ indicating a risk of tax avoidance. The Swedish Tax Agency has issued guidance on how to interpret the hallmarks.3 The reporting deadline is 30 days.
The administration of taxes has further been affected by covid-19 insofar as the possibility to postpone payment of certain taxes has been introduced. A postponement can be granted normally for 1–2 months and in exceptional cases, up to 4 months. If utilised, the postponements carries an interest of 1.25 per cent.
Consolidated balance sheets are not recognised for tax purposes in Sweden. Instead, a tax consolidation system is used (i.e., a method of group contributions with fiscal effect between companies within the same corporate group where the ownership chain exceeds 90 per cent of the share capital). When these rules are applied, transfers of taxable income within an affiliated group are enabled. The group contributions are taxable in the receiving company and tax deductible in the paying company, which means that taxable profits can be shifted to a loss company in the same group to be offset against the tax losses.
The group contributions require that there are enough distributable reserves in the providing company, as group contributions are considered dividends for company law purposes. In profitable companies with no negative equity, this should not present a problem as long as no more than the yearly profit is contributed.
ii Other relevant taxes
The Swedish VAT system is harmonised with the EU rules. A general VAT rate of 25 per cent is chargeable on most goods and services. Reduced rates apply to a few goods and services, such as hotel accommodation, foodstuffs, restaurant meals and non-alcoholic or low-alcohol drinks (12 per cent), as well as to the transport of passengers, books, newspapers and most cultural events and art sold by the artist (6 per cent). Most financial and insurance service providers are exempt from VAT, and this is normally also the case for healthcare, dental care, social care and schools. VAT returns are filed and tax is paid monthly, quarterly or yearly depending on turnover.
As a member of the European Union, Sweden is also part of the customs union enforcing the Community Customs Code. Most EU customs duties are calculated as a percentage of the value of the goods being imported. All imported goods must be classified according to the EU customs tariff and the duty rates applied depend on the ‘economic sensitivity’ of the goods. The actual duty rate to be applied also depends on, inter alia, the country of origin of the product and free trade agreements.
Sweden levies a real estate transfer tax (stamp duty) on most transfers of real estate. Most legal persons pay 4.25 per cent; natural persons and tenant owner associations pay 1.5 per cent tax on a base that consists of the higher of the consideration paid or the tax assessment value of the real estate. Real estate transfer tax on an intra-group transfer of real estate may usually be deferred provided the real estate, the buyer and seller remain in the same group. Real estate transferred through a merger, a demerger or real estate reallotments are currently not subject to real estate transfer tax.
Real estate tax on commercial properties totals approximately 0.2 to 1 per cent of the tax assessment value (normally 1 per cent) depending on the type of property. The tax assessment value is supposed to equal 75 per cent of a conservative estimate of the fair market value. Properties deemed to have ‘socially beneficial purposes’ (such as, for example, schools and hospitals) are classified as ‘special units’ and exempt from real estate tax.
Social security charges payable on remuneration to employees (or by the self-employed) are normally levied at 31.42 per cent. Social security charges are deductible for corporate tax purposes.
Pension benefits beyond the mandatory system are customary in most Swedish employers. A special salary tax is normally levied at a rate of 24.26 per cent on these additional pension premiums and commitments. These taxes are deductible for corporate tax purposes.
Sweden does not impose taxes on gifts, and net wealth and inheritance tax do not exist.