Corporate tax in Sweden

Summary

Corporate Income Tax Rate (%) 22
Capital Gains Tax Rate (%) 22
Branch Tax Rate (%) 22
Withholding Tax (%)
Dividends 30 (a)
Interest 0
Royalties from Patents, Know-how, etc. 0 (b)
Branch Remittance Tax 0
Net Operating Losses (Years)
Carryback 0
Carryforward Unlimited

a) This withholding tax applies to nonresidents. In general, no withholding tax is imposed on dividends paid to a foreign company that is similar to a Swedish limited liability company (aktiebolag) and that is not regarded as a tax-haven company. If the payer is a company listed on the stock exchange, an exemp­tion is granted only if the recipient holds at least 10% of the voting rights of the payer for more than one year.

b) Royalties paid to nonresidents are not subject to withholding tax, but are taxed as Swedish-source income at the normal corporate rate of 22% of the net in­come. However, under most treaties, the tax rate is reduced. Sweden has en­acted legislation implementing the European Union (EU) directive on interest and royalties (2003/49/EC), effective from 1 January 2004. In implementing the directive, Sweden considered the most recent amendments adopted by the European Council.

Taxes on corporate income and gains

Corporate income tax. Income from all business activities is aggre­gated as one source of income — income from business. In prin­ciple, corporate income tax (CIT) is levied on all corporate in come of a company incorporated in Sweden (resident corporation), ex cept for certain domestic and foreign dividends (see Dividends). If a Swedish company markets abroad directly or through a branch office, the foreign profits are also subject to Swedish tax, unless a treaty provides otherwise. Nonresident corporations are subject to tax on Swedish-source income only.

Rate of tax. Companies pay CIT at a rate of 22%. No local income taxes are levied on corporate profits.

Capital gains. No separate regime exists for capital gains, but spe­cial rules apply to the calculation of the amount of capital gains and losses.

In general, capital gains on shares held for business purposes are exempt from tax (for details regarding shares held for business purposes, see Dividends). Effective from 1 January 2010, the par­ticipation exemption regime was expanded to cover interests in partnerships and shares held by partnerships. Corresponding losses on interests in partnerships are nondeductible. However, capital gains on interests in partnerships domiciled outside the European Economic Area (EEA) are not covered by the partici­pation exemption.

Taxable capital gains are aggregated with other corporate busi­ness income. Capital gains are subject to tax when transactions are closed, regardless of the holding period or when payment is received.

Administration. A company may choose its financial year, but is assigned an income year for tax filing purposes, depending on when the financial year ends. The following table provides the assigned income years and dates of filing of the tax return.

Financial year Assigned income year Filing of tax return
1 February–31 January,
1 March–28 February,
1 April–31 March or
1 May–30 April
1 May—30 April 1 November
1 June–31 May or
1 July–30 June
1 July—30 June 15 December
1 August–31 July or
1 September–31 August
1 September—31 August 1 March
1 October–30 September,
1 November–31 October,
1 December–30 November
or 1 January–31 December
1 January—31 December 1 July

A financial year may be extended for up to 18 months in certain circumstances, such as for a company’s first or last financial year or if a company changes its financial year.

Advance tax payments are made in monthly installments during the year to which they relate. The final tax assessment must be issued by the Swedish Tax Agency before the 15th day of the 12th month after the end of the assigned income year. Any balance of tax due must be paid within 90 days after the final tax assessment.

Dividends. In general, dividends received from Swedish compa­nies on shares held for business purposes are exempt from tax. Dividend distributions on other shares are fully taxable. Shares are deemed to be held for business purposes if they are not held as current assets and if any of the fol lowing conditions is satisfied:

  • The shares are unlisted.
  • The shares are listed and the recipient of the dividends owns at least 10% of the voting power of the payer for more than one year.
  • The shares are held for organizational purposes (important to the business of the holder or a company in the same group as the holder).

Dividends received from foreign companies are exempt from tax if the dividends satisfy the conditions for exemption with respect to dividends on shares in Swedish companies and if the distributing foreign company is equivalent to a Swedish limited liability com­pany (aktiebolag).

Shares held in a company resident in an EU member state are considered to be shares held for business purposes if both of the following conditions are satisfied:

  • The company owning the shares holds 10% or more of the share capital of the payer (it is irrelevant whether the shares are held as current assets).
  • The payer is listed in Council Directive 2015/121/EU (the Parent-Subsidiary Directive) and is required to pay one of the taxes listed in the directive.

Partnerships may receive tax-exempt dividends to the extent that the dividends would be exempt if received directly by the owners of the partnership interests.

However, if the distributing company is a foreign company that can deduct the dividend payment as interest or as a similar pay­ment, the dividend is not exempt for the Swedish receiving com­pany.

Foreign tax relief. Under Swedish law, a Swedish company may usually claim a credit against CIT liability for comparable taxes paid abroad. Sweden applies a so-called “overall” tax credit sys­tem. However, certain tax treaties may override internal foreign tax credit rules and instead exempt foreign-source income from Swedish tax.

Determination of trading income

General. Corporate income tax is based on taxable business income computed according to the accrual method of accounting. Tax able business income generally includes all worldwide income earned by a corporation. The major exceptions are capital gains and div­idends on shares held for business purposes (see Section B).

Inventories. Inventories are valued at the lower of acquisition cost or actual value. Acquisition cost is determined using the first-in, first-out (FIFO) method. An obsolescence provision of 3% is allow ed when using acquisition cost to value inventories.

Reserves. A profit allocation reserve allows a 25% deduction of the taxable income for the financial year. Each year’s reserve must be added back to taxable income no later than six years after the year of the deduction. The oldest remaining reserve must always be reversed first. The reserve is based on net income before tax and includes any amounts from the allocation reserve that are added back to taxable income.

Tax is imposed annually on fictitious interest income with respect to the deferred tax amounts.

Depreciation. Equipment with a life of three years or less may be written off in the year of purchase. Machinery and equipment may be written off either on a straight-line basis at 20% of cost annually or on a declining-balance basis at 30% of the current tax value. In any one year, the same method must be used for all machinery and equipment. However, companies can switch to a different method each year. The above methods may be used only if the same depreciation method is used in the financial state­ments. If this condition is not satisfied, a third method, which is also based on the remaining depreciable value, is available. Under this method, companies may choose any percentage, up to a max­imum of 25%. The same amortization rules that govern machin­ery apply to patents, trademarks, purchased good will and other intangible property.

Depreciation of buildings is straight-line over the building’s expect­ed life. In general, commercial buildings may be depreciated at 2% to 5% annually, factory buildings at 4% and office buildings at 2%. Buildings subject to greater wear and tear may be depre­ciated at higher rates.

If depreciable machinery and equipment are sold, the proceeds reduce the depreciable base for the remaining machinery and equipment.

Relief for losses. Losses may be carried forward indefinitely. Losses may not be carried back.

The tax law includes rules restricting the use of old tax losses of ac quired companies.

In general, the possibility of offsetting the losses of an acquired company through a group contribution (see Groups of compa­nies) may in certain circumstances be restricted during a five-year period. The rules also include a restriction under which the amount of losses that may be used is limited to twice the amount paid for the shares. Special restrictions also apply to the possibil­ity of using losses with respect to mergers.

Groups of companies. There is no consolidated treatment where by all companies in a group may be treated as a single taxable entity. However, rules permit income earned by companies in a corporate group to be distributed within the group through the use of group con tributions, which are deductible for the paying company and taxable income for the receiving company. In general, group con­tributions may be made between Swedish group companies if ownership of more than 90% exists during the entire financial year. This rule applies even if a foreign parent or subsidiary is in the group structure. A Swedish permanent establishment of a for­eign company resident in an EEA state is treated as a Swedish company for purposes of the group contribution rules.

In certain circumstances it is possible for Swedish companies to claim deductions of losses in foreign subsidiaries.

Other significant taxes

The following table describes other significant taxes.

Nature of tax Rate (%)
Value-added tax (VAT), on goods (including
imported goods but excluding exported goods)
and services, unless specifically exempt by
law; based on sales price excluding VAT
Standard tax rate 25
Rate on hotel services, food served in
restaurants and foodstuffs
12
Rate on books and newspapers, entry to
movie theaters, cultural and sports events,
passenger transportation and copyrights
6
Social security contributions, on salaries, wages
and the assessed value of benefits in kind;
paid by employer
General rate 31.42
Rate for employees aged up to 26 25.46
Special salary tax, on earnings not included in the base for social security contributions;
paid by the employer
24.26

Miscellaneous matters

Controlled foreign companies. A Swedish company that holds or controls, directly or indirectly, at least 25% of the capital or vot­ing rights of a foreign low-taxed entity (controlled foreign com­pany, or CFC) is subject to current taxation in Sweden on its share of the foreign entity’s worldwide profits if the ownership or control exists at the end of the Swedish company’s fiscal year. Foreign entities are considered to be low-taxed if their net income is taxed at a rate of less than 12.1% (55% of the effective corpo­rate income tax rate) on a base computed according to Swedish accounting and tax rules. However, the CFC rules do not apply to foreign entities that are resident and subject to corporate income tax in jurisdictions on the so-called “white list.” If Sweden has entered into a tax treaty with a jurisdiction on the white list, an additional requirement for the exemption is that the foreign entity and its income must be eligible for treaty benefits.

Anti-avoidance legislation. A general anti-avoidance act applies in Sweden. The act is considered a source of insecurity to taxpayers because it limits the predictability of the tax law. Under the act, a transaction may be adjusted for tax purposes if all of the follow­ing conditions are met:

  • The transaction, alone or together with other transactions, is part of a procedure that provides a substantial tax advantage to the taxpayer.
  • The taxpayer, directly or indirectly, participated in the transac­tion or transactions.
  • Taking into account all of the circumstances, the tax advantage can be considered to be the predominant reason for the proce­dure.
  • A tax assessment based on the procedure would be in conflict with the purpose of the tax law, as it appears from the general design of the tax rules, the rules that are directly applicable or the rules that have been circumvented through the procedure.

Transfer pricing. The Swedish transfer-pricing regulation is based on the arm’s-length principle. As a result, in general, the transfer-pricing guidelines of the Organisation for Economic Co-operation and Development (OECD) apply. The Swedish Tax Agency may adjust the income of an enterprise if its taxable income in Sweden is reduced as a result of contractual provisions that differ from those that would be agreed to by unrelated parties and if the fol lowing three additional conditions are met:

  • The party to which the income is transferred is not subject to tax in Sweden.
  • It is reasonably established that a community of economic inter­est exists between the parties.
  • It is clear from the circumstances that the contractual provisions were not agreed upon for reasons other than the community of economic interest.

If the conditions under the law are met, the Swedish Tax Agency may increase the income of an enterprise by the amount of the reduction resulting from the contractual provisions that were not determined at arm’s length.

Under Swedish rules, a Swedish company must have formal transfer-pricing documentation in place with respect to cross-border transactions.

Debt-to-equity rules. No thin-capitalization rules exist in Sweden. However, the Companies Act requires the compulsory liquidation of a company if more than 50% of the share capital is lost without replacement of new capital.

Effective from 1 January 2013, the earlier Swedish interest de­duction limitation rules were expanded. The main rule now limits deductibility of interest expense relating to all loans between re­lated parties. However, the main rule has two exemptions, which are the 10% rule and the “business reasons exemption.”

The 10% rule provides that interest expenses are deductible if the interest income related to the loan is taxable at a rate of 10% in the hands of the beneficial owner of the interest income. To deter­mine whether the rate is 10%, the interest income is considered on a stand-alone basis; that is, as if the interest income is the only income recognized by the beneficial owner. In addition to satisfy­ing the 10% test, the taxpayer must show that the predominant reason for establishing the debt relationship is not to provide the group with a substantial tax advantage. Specific rules with respect to situations in which the recipient is subject to yield tax exist.

The “business reasons exemption” provides that interest expenses are deductible if the debt relationship is predominately motivated by business reasons. If the debt relationship relates to an acquisi­tion of shares or share-based instruments from a related com­pany, or to an acquisition of shares or share-based instruments in a company that becomes related after the acquisition, it is also required that the acquisition be motivated predominantly by busi­ness reasons. In addition, the beneficial owner of the income must be resident in an EEA state or, under certain circumstances, a state with which Sweden has a tax treaty. The rules also provide that it should be taken into consideration whether the financing could have been made through contributions by direct or indirect shareholders or by the lender.

Treaty withholding tax rates

Interest payments are not subject to withholding tax under Swedish internal law. Consequently, the table below provides treaty with­holding tax rates for dividends and royalties only. However, under Swedish domestic law, no dividend withholding tax is levied on dividends paid by a Swedish company to a “foreign company,” as defined under Swedish law, if certain holding requirements are met. A “foreign company” is defined as a foreign legal entity that is subject to taxation equivalent to that of a Swedish company. In addition, a foreign legal entity qualifies as a “foreign company” if it is resident and liable to income tax in a country with which Sweden has entered into a comprehensive tax treaty and if it is eligible for the treaty benefits.

Swedish domestic law on withholding tax contains an anti-avoidance rule. Under this rule, a person or entity that holds shares to provide an illegitimate tax advantage or reduction of withholding tax for someone else is subject to withholding tax. The anti-avoidance rule may also potentially apply to situations for which an exception from withholding tax would otherwise be available.

  Dividends    
Residence of recipient Normal treaty rate Reduced rate (b)(d) Royalties (a)
  % % %
Albania 15 5 5
Argentina 15 10 3/5/10/15 (g)
Australia 15 10
Austria 10 5 0/10 (h)
Bangladesh 15 10 10
Barbados 15 5 5
Belarus 10 5 (c) 3/5/10 (j)
Belgium 15 5 0
Bolivia 15 0 15
Bosnia and      
Herzegovina 15 5 0
Botswana 15 15
Brazil 25 25 (i)
Bulgaria 10 5
Canada 15 5 (c) 0/10
Chile 10 5 (c) 5/10 (k)
China 10 5 6/10 (k)
Cyprus 15 5 0
Czech Republic (e) 10 0 0/5 (l)
Denmark 15 0 0
Egypt 20 5 14
Estonia 15 5 5/10 (k)
Faroe Islands 15 0 0
Finland 15 0 0
France 15 0 0
Gambia 15 5 (c) 5/12.5 (m)
Georgia 10 0 0
Germany 15 0 0
Greece 0 5
Hungary 15 5 0
Iceland 15 0 0
India 10 10
Indonesia 15 10 10/15 (n)
Ireland 15 5 0
Israel 15 5 –/0 (o)
Italy 15 10 5
Jamaica 22.5 10 10
Japan 10 0 0
Kazakhstan 15 5 10
Kenya 25 15 20
Korea (South) 15 10 10/15
Latvia 15 5 5/10 (k)

 

 
Lithuania 15 5 5/10 (k)
Luxembourg 15 0 0
Macedonia 15 0 0
Malaysia 15 0 8
Malta 15 0 0
Mauritius 15 0 0
Mexico 15 5 (c) 10
Montenegro (f) 15 5 0
Namibia 15 5 (c) 5/15 (m)
Netherlands 15 0 0
New Zealand 15 10
Nigeria 10 7.5 7.5
Norway 15 0 0
Pakistan – (q) 15 10
Philippines 15 10 15
Poland 15 5 5
Portugal 10 0 10
Romania 10 5
Russian Federation 15 5 0
Serbia (f) 15 5 0
Singapore 15 10 0
Slovak Republic (e) 10 0 0/5 (l)
Slovenia (f) 15 5 0
South Africa 15 5 (c) 0
Spain 15 10 10
Sri Lanka 15 10
Switzerland 15 0 0
Taiwan 10 10
Tanzania 25 15 20
Thailand 20 15 15
Trinidad and Tobago 20 10 –/0/20 (r)
Tunisia 20 15 5/15 (p)
Turkey 20 15 10
Ukraine 10 5 (c) 0/10 (m)
United Kingdom 5 0 0
United States 15 0/5 0
Venezuela 10 5 7/10 (s)
Vietnam 15 10 (c) 5/15 (m)
Zambia 15 5 10
Zimbabwe 20 15 10
Non-treaty countries 30 0

a) Royalties paid to nonresidents are not subject to withholding tax but are taxed as Swedish-source income at the normal corporate tax rate of 22%. How ever, under certain treaties, the tax rate may be reduced.

b) The reduced tax rate applies if the parent company owns at least the mini­mum percentage of the paying company as prescribed by the relevant treaty.

c) The rate of tax is further reduced if specific conditions are satisfied.

d) Under Swedish domestic law, dividends paid to a “foreign company” (as de­fined under Swedish law) are exempt from withholding tax if the shares are held for business purposes. Unlisted shares in Swedish companies are nor­mally considered to be held for business purposes unless they are regarded as inventory. If the shares are listed, they must also be held for at least 12 months and the holding must amount to at least 10% of the voting rights. A special exemption also applies if the recipient fulfills the conditions in Article 2 of the EU Parent-Subsidiary Directive and if the holding is at least 10% of the share capital.

e) Sweden applies the treaty with the former Czechoslovakia to the Czech Republic and the Slovak Republic.

f) Sweden applies the treaty with the former Yugoslavia to Bosnia and Herze­govina, Croatia, Montenegro, Serbia and Slovenia.

g) The rates are 3% on news royalties, 5% for copyright (excluding films and certain other items) royalties, 10% for industrial royalties and 15% in other cases.

h) The higher rate applies if the Austrian company owns more than 50% of the capital of the Swedish company. The EU Interest and Royalties Directive may be more beneficial in this respect.

i) In practice, the domestic Swedish rate of 22% applies to all royalties because the treaty rate of 25%, which applies to trademarks, is higher and the treaty withholding tax rate of 15% for all other royalties has expired.

j) The rates are 3% for patent royalties, 5% for leasing royalties and 10% for other royalties.

k) The lower rate applies to leasing, and the higher rate applies to other royalties.

l) The rates are 0% for copyright royalties and 5% for other royalties.

m) The lower rate applies to industrial royalties.

n) The lower rate applies to leasing and know-how royalties.

o) The reduced treaty rate does not apply to mining royalties and cinemato­graphic film royalties.

p) The lower rate applies to copyright royalties.

q) The domestic rate applies.

r) The 0% rate applies to copyright royalties. The domestic rate applies to min­ing royalties. The 20% rate applies to all other royalties.

s) The 10% rate applies to copyright royalties.