DOING BUSINESS IN SWEDEN 2017

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1 DOING BUSINESS IN SWEDEN 2017

2 Editors: Africa: Ridha Hamzaoui, Emily Muyaa, Mei-June Soo Asia-Pacific: Mei-June Soo, Nina Umar, Ying Zhang Caribbean: Priscilla Lachman, Sandy van Thol Europe: Khadija Baggerman, Larisa Gerzova, Adrián Grant Hap, Marjolein Kinds, Ivana Kireta, Magdalena Olejnicka, Andreas Perdelwitz, Marnix Schellekens, Kristina Trouch, Ruxandra Vlasceanu Middle East: Ridha Hamzaoui, Mei-June Soo Latin America: Vanessa Arruda Ferreira, Maria Bocachica, Diana Calderon Manrique, Lydia Ogazón Juárez North America: John Rienstra, Julie Rogers-Glabush IBFD Visitors address: Rietlandpark DW Amsterdam The Netherlands Postal address: P.O. Box HE Amsterdam The Netherlands Tel.: IBFD All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the written prior permission of the publisher. Applications for permission to reproduce all or part of this publication should be directed to: permissions@ibfd.org. Disclaimer This publication has been carefully compiled by IBFD and/or its author, but no representation is made or warranty given (either express or implied) as to the completeness or accuracy of the information it contains. IBFD and/or the author are not liable for the information in this publication or any decision or consequence based on the use of it. IBFD and/or the author will not be liable for any direct or consequential damages arising from the use of the information contained in this publication. However, IBFD will be liable for damages that are the result of an intentional act (opzet) or gross negligence (grove schuld) on IBFD s part. In no event shall IBFD s total liability exceed the price of the ordered product. The information contained in this publication is not intended to be an advice on any particular matter. No subscriber or other reader should act on the basis of any matter contained in this publication without considering appropriate professional advice. Where photocopying of parts of this publication is permitted under article 16B of the 1912 Copyright Act jo. the Decree of 20 June 1974, Stb. 351, as amended by the Decree of 23 August 1985, Stb. 471, and article 17 of the 1912 Copyright Act, legally due fees must be paid to Stichting Reprorecht (P.O. Box 882, 1180 AW Amstelveen). Where the use of parts of this publication for the purpose of anthologies, readers and other compilations (article 16 of the 1912 Copyright Act) is concerned, one should address the publisher.

3 DOING BUSINESS IN ARGENTINA SWEDEN JANUARY

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5 DOING BUSINESS IN SWEDEN 2017 INTRODUCTION This publication has been prepared by the International Bureau of Fiscal Documentation (IBFD) on behalf of BDO Member Firms and their clients and prospective clients. Its aim is to provide the essential background information on the taxation aspects of setting up and running a business in this country. It is of use to anyone who is thinking of establishing a business in this country as a separate entity, as a branch of a foreign company or as a subsidiary of an existing foreign company. It also covers the essential background tax information for individuals considering coming to work or live permanently in this country. This publication covers the most common forms of business entity and the taxation aspects of running or working for such a business. For individual taxpayers, the important taxes to which individuals are likely to be subject are dealt with in some detail. We have endeavoured to include the most important issues, but it is not feasible to discuss every subject in comprehensive detail within this format. If you would like to know more, please contact the BDO Member Firm(s) with which you normally deal. Your adviser will be able to provide you with information on any further issues and on the impact of any legislation and developments subsequent to the date mentioned at the heading of each chapter. About BDO BDO is an international network of public accounting, tax and advisory firms which perform professional services under the name of BDO. The fee income of the member firms in the BDO network, including the members of their exclusive alliances, was US$7.6 billion in These firms have representation in 158 countries and territories, with over 67,700 people working out of 1,401 offices worldwide. BDO s brand promise is built upon our vision, to be the leader for exceptional client service always, and everywhere. When you choose to work with BDO you quickly discover why we re different from the rest. BDO offers a comprehensive collection of high quality tax services and assets designed to support exceptional performance, and all our tax engagements benefit from the hands-on involvement of experienced professionals, backed by world-class resources. We are agile enough to handle the biggest and the smallest names in the industries we serve, and our relationship-driven culture means that we can provide responsive and personalised advice to all our clients. We work hard to understand our clients businesses and ensure that we match both our service offering and our people to their complex individual needs. We believe that providing our clients with access to experienced professionals who are actively engaged in addressing their tax and business issues is the most reliable way to provide exceptional service, always with a strong focus on trust and transparency. Regardless of your location, size or international ambitions we can provide effective support as you expand into new areas of the world. In an ever-evolving economic environment, businesses need a global network that provides exceptional, bespoke service combined with local knowledge and expertise. BDO is uniquely positioned to serve this demand, providing effective support and a truly global integrated global footprint. 3

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7 DOING BUSINESS IN SWEDEN 2017 TABLE OF CONTENTS CORPORATE TAXATION... 9 ABBREVIATIONS... 9 INTRODUCTION CORPORATE INCOME TAX TYPE OF TAX SYSTEM TAXABLE PERSONS Residence TAXABLE INCOME General Exempt income Deductions Deductible expenses Non-deductible expenses Depreciation and amortization Reserves and provisions Tax allocation reserve Replacement reserve Pension reserves Provision for guarantee obligations CAPITAL GAINS Immovable property Shares LOSSES Ordinary losses Capital losses RATES Income and capital gains Withholding taxes on domestic payments INCENTIVES Tonnage tax ADMINISTRATION Taxable period Tax returns and assessment Payment of tax Rulings TRANSACTIONS BETWEEN RESIDENT COMPANIES GROUP TREATMENT INTERCOMPANY DIVIDENDS OTHER TAXES ON INCOME TAXES ON PAYROLL PAYROLL TAX SOCIAL SECURITY CONTRIBUTIONS TAXES ON CAPITAL NET WORTH TAX REAL ESTATE TAX INTERNATIONAL ASPECTS RESIDENT COMPANIES Foreign income and capital gains General Dividends

8 DOING BUSINESS IN SWEDEN 2017 TABLE OF CONTENTS Foreign losses Foreign capital Double taxation relief NON-RESIDENT COMPANIES Taxes on income and capital gains Taxes on capital Administration WITHHOLDING TAXES ON PAYMENTS TO NON-RESIDENT COMPANIES Dividends Interest Royalties Other Withholding tax rates chart ANTI-AVOIDANCE GENERAL TRANSFER PRICING THIN CAPITALIZATION CONTROLLED FOREIGN COMPANY OTHER ANTI-AVOIDANCE RULES Shell companies Closely held companies VALUE ADDED TAX GENERAL TAXABLE PERSONS TAXABLE EVENTS TAXABLE AMOUNT RATES EXEMPTIONS NON-RESIDENTS MISCELLANEOUS TAXES CAPITAL DUTY TRANSFER TAX Immovable property Shares, bonds and other securities STAMP DUTY CUSTOMS DUTY EXCISE DUTY INDIVIDUAL TAXATION ABBREVIATIONS INTRODUCTION INDIVIDUAL INCOME TAX TAXABLE PERSONS TAXABLE INCOME General Exempt income EMPLOYMENT INCOME Salary Benefits in kind Pension income Directors remuneration BUSINESS AND PROFESSIONAL INCOME INVESTMENT INCOME

9 TABLE OF CONTENTS DOING BUSINESS IN SWEDEN CAPITAL GAINS Immovable property Shares Other PERSONAL DEDUCTIONS, ALLOWANCES AND CREDITS Deductions Alimony Pension premiums Deduction for services Deduction for donations Allowances Credits LOSSES RATES Income and capital gains Withholding taxes ADMINISTRATION Taxable period Tax returns and assessment Payment of tax Rulings OTHER TAXES ON INCOME MUNICIPAL INCOME TAX SOCIAL SECURITY CONTRIBUTIONS EMPLOYED SELF-EMPLOYED TAXES ON CAPITAL NET WEALTH TAX REAL ESTATE TAX INHERITANCE AND GIFT TAXES TAXABLE PERSONS TAXABLE BASE PERSONAL ALLOWANCES RATES DOUBLE TAXATION RELIEF INTERNATIONAL ASPECTS RESIDENT INDIVIDUALS Foreign income and capital gains Foreign capital Double taxation relief EXPATRIATE INDIVIDUALS Inward expatriates Outward expatriates NON-RESIDENT INDIVIDUALS Taxes on income and capital gains Employment income Business and professional income Investment income Capital gains Taxes on capital Inheritance and gift taxes Administration KEY FEATURES

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11 CORPORATE TAXATION DOING BUSINESS IN SWEDEN 2017 SWEDEN This chapter is based on information available up to 19 January Abbreviations Abbreviation English definition Swedish definition ABL Company Law Aktiebolagslagen AvrL Foreign Tax Credit Law Avräkningslagen FSL Law on National Real Estate Tax Lag om statlig fastighetsskatt IL Income Tax Law Inkomstskattelagen KupL Withholding Tax Law Kupongskattelagen ML VAT Law Mervärdesskattelagen SAL Law on Social Security Contributions Lag om socialavgifter SFL Law on Tax Procedure Skatteförfarandelagen SFlyktL Law against Tax Avoidance Lag mot skatteflykt SSIL Stamp Duty Law Lag om stämpelskatt vid inskrivningsmyndigheter Introduction Corporate profits are subject to the national income tax. In addition, companies may be liable to social security contributions, real estate tax and to value added tax. For tax purposes Sweden comprises the territory of the country, including the territorial sea. The currency is the Swedish krona (SEK). 1. Corporate Income Tax 1.1. Type of tax system Companies are subject to national income tax on their worldwide income. Taxation of corporate profits follows the classical system. Double taxation may be eliminated or modified, in the case of corporate shareholders, by the participation exemption (see section 2.2.) Taxable persons The following types of corporate taxpayer are liable to the national income tax (chapters 6 and 7 of the IL): public and private companies registered in Sweden; economic associations registered in Sweden; foundations registered in Sweden or formed under Swedish law; and certain other associations and groups enumerated in the law. The above categories are subject to unlimited tax liability as residents. Certain foundations and enumerated types of activity are exempt from income tax, e.g. certain activities of non-profit associations and of national and local governments, certain government enterprises, churches, schools and hospitals. 9

12 DOING BUSINESS IN SWEDEN 2017 CORPORATE TAXATION A partnership is treated as a transparent entity for income tax purposes (i.e. all partnership income is taxed in the hands of the partners) (chapter 5, sections 1 and 3 of the IL). It is recognized as a separate taxable entity only with respect to the real estate tax (see section 5.2.) and the special salary tax on pension costs (see section 4.2.). A company or economic association whose exclusive or semi-exclusive activity is the management of securities or other similar movable property (an investment company) is taxed under a separate (deemed income) regime. Non-resident companies are subject to tax only insofar as they derive certain types of Swedish-source income, including business income effectively connected with immovable property or a permanent establishment in Sweden (see section 6.2.). This survey is restricted to Swedish-registered public companies (AB publ) and private companies (AB), and to similar non-resident companies Residence A company is resident in Sweden if it is registered with the Swedish Companies Registration Office (chapter 6, section 3 of the IL) Taxable income General Resident companies are taxable on their worldwide income (chapter 6, section 4 of the IL). All income of a company is categorized as business income which is, generally, computed on an accrual basis. Business income includes the company s income from all sources. It also includes capital gains other than the exempt gains on qualifying business-related holdings (see section ). Taxable business income of a company is determined by adding together the net result (income minus expenses and deductions) of each source. In general, capital gains derived by a company are included in its business income (see further section 1.4.). Sales proceeds of goodwill are taxable as business profits, regardless of whether it is disposed of in connection with the business Exempt income The following types of income are exempt (chapter 8 of the IL): qualifying intercompany dividends (see section 2.2.); dividends received by Swedish companies from shares in foreign legal entities, subject to certain conditions (see section ); capital gains on business-related shares (see section ) Deductions Deductible expenses All business expenses incurred in obtaining or safeguarding income subject to taxation are deductible (chapter 16, section 1 of the IL). Deductible expenses include wages, pensions and other remuneration to employees, as well as the special salary tax on pension costs and social security contributions (see section 4.2.) levied thereon. 10

13 CORPORATE TAXATION DOING BUSINESS IN SWEDEN 2017 Expenses for research and development which are (or can reasonably be assumed to be) of importance for the main business activity or the business as a whole are deductible. Interest expense is generally deductible. However, a limitation applies to interest paid between affiliated companies, including interest on loans from a foreign entity that is deemed to be an affiliated company (chapter 24, section 10 a-f of the IL). The limitation covers all debts to affiliated companies, irrespective of their purpose. Consequently, interest expense related to such loans is not deductible. The limitation, however, does not apply if: the interest income would have been taxed at a minimum rate of 10% in the residence state of the beneficial owner, assuming that such income were its only income (the 10%-rule ), unless the main reason for the loan structure is to obtain a substantial tax benefit; or the acquisition of the participation right as well as the underlying loan are motivated by business reasons (the business reason test ), but only if the income recipient is resident in another European Economic Area (EEA) country or a country which has a tax treaty with Sweden. For the purposes of the limitation, companies are deemed to be affiliated if: one company, by equity interest or otherwise, directly or indirectly, has substantial influence on the other company; or two companies are mainly controlled by the same company. Royalty fees paid between affiliated companies are deductible if such fees correspond to the amounts which would be payable in an arm s length transaction. See also section 7.2. Losses are deductible (see section 1.5.). Deductible taxes include indirect taxes (e.g. import duties) and foreign taxes not covered by unilateral or treaty relief provisions. For deduction of input VAT, see section Non-deductible expenses Some costs are not deductible, including bribes which would be illegal under criminal law and other illicit payments, fines and entertainment expenses in excess of certain limits (chapter 9, section 1 and chapter 16, section 2 of the IL). Direct taxes, other than the special salary tax on pension costs and social security contributions, are not deductible. Dividends paid are not deductible. With effect from 1 January 2017, representation expenses relating to lunch, dinner, dinner parties and refreshments are no longer deductible, unless such expenses relate to consumption of minor value Depreciation and amortization Machinery and equipment is normally depreciated by the declining-balance method (chapter 18, section 13 of the IL). The maximum depreciation allowance is 30% of the aggregate book value of all assets at the beginning of the tax year, plus the cost of assets acquired, less the amount received for assets disposed of during the year. Should a straight-line depreciation of 20% per annum on all assets result in a lower book value in any year, the annual depreciation allowance may be increased correspondingly. If the taxpayer can prove that the real value of machinery and equipment is lower than that resulting under the above-mentioned depreciation methods, depreciation may be allowed in an amount which reduces the book value to the real value. 11

14 DOING BUSINESS IN SWEDEN 2017 CORPORATE TAXATION Assets with a useful life not exceeding 3 years and assets of minor value (i.e. value not exceeding SEK 22,400 (for 2017)) may be depreciated in the year of acquisition.. Several types of intangible assets with limited economic life may be depreciated. Such assets include all types of intellectual property, trademarks, goodwill and leasing rights. The methods of depreciation are the same as those used for machinery and equipment. For buildings, only the straight-line method is permitted (chapter 19, sections 4 and 5 of the IL). In general, depreciation is based on the cost price and useful life. For 2016, the rates vary between 2% and 5% per annum as agreed by the taxpayer and the tax authorities. Buildings that are intended for use only during a few years may be written off in the year of acquisition Reserves and provisions Tax allocation reserve The taxpayer is allowed to create a tax allocation reserve by allocating to a reserve up to 25% of net profits (chapter 30, section 5 of the IL). The reserve must be reversed (i.e. added back to income), at the latest in the sixth year after the year the allocation has been made. A reversed reserve is not included in taxable income when new allocations are made. If a tax allocation reserve is in place, a deemed income rule applies. Under this rule, a deemed income equal to 72% of the interest rate on long-term government bonds (at the end of November in the previous tax year) multiplied by the opening balance of the accumulated tax allocation reserves at the beginning of the current tax year is added to taxable income Replacement reserve Replacement reserves may be created to cover damage caused by fire or other accidents to machinery and equipment, buildings and installations, as well as losses resulting from expropriation, or forced sale in lieu of expropriation, of such assets (chapter 31, sections 4 and 5 of the IL). The tax-deductible contributions to these reserves may not exceed any compensation received from an insurance company or the government, as the case may be. The reserves must be used to meet the cost of the repair and maintenance of the type of asset for which the reserves are created or for any extra depreciation affecting such assets. Such costs or depreciation are not deductible in the usual way, to prevent a double deduction. If the reserves are not used within 3 years, if they are used for unauthorized purposes or if the company is liquidated, goes bankrupt, sells or terminates its business or merges, the reserves are increased by a 30% penalty and added back to the profits. Imposition of the penalty may be waived and transfer of the reserves to a closely related company may be allowed in certain cases. Under an exit tax rule, amounts set aside in replacement reserves become immediately taxable, if a taxpayer ceases to be a tax resident of Sweden due to the application of a tax treaty. However, a company may apply for a tax deferment if its residence is moved from Sweden to another EEA country and Sweden loses its right to tax such amounts under the provisions of the treaty with that other EEA country. The deferral is granted for 1 year with a possibility of renewal if the requirements are still met. 12

15 CORPORATE TAXATION DOING BUSINESS IN SWEDEN Pension reserves Pensions may be provided for in various ways, e.g. by direct payment of pensions to former employees and their relatives, by contributions to a personnel or pension fund, by the payment of the necessary premiums to an insurance company and by the creation of a reserve on the balance sheet (chapter 16, section 17 of the IL). The creation of such a reserve is subject to certain legal requirements. For example, the actual pensions to be paid are subject to maximum amounts Provision for guarantee obligations Amounts reserved on the balance sheet to provide for future liabilities under guarantees given to customers may, in principle, be deducted for taxation purposes (chapter 16, sections 3-5 of the IL), subject to a general limit of the actual expenditure incurred on guarantees during the year and provided such actual expenditure is separately accounted for. The general limit need not apply if the taxpayer is able to prove that a larger provision is reasonable Capital gains In general, capital gains derived by a company are included in its business income (chapter 25 of the IL). Special rules apply to the computation of capital gains on immovable property (see section ). Gains on shares and other securities that do not qualify for the exemption for business-related holdings (see section ) are taxable as ordinary business income Immovable property With respect to immovable property owned by building contractors and other businesses in which immovable property constitutes inventory, any proceeds derived from its disposal are classified as business profits and taxed accordingly (chapter 25, section 12 of the IL). In other cases, the special capital gains provisions apply and the taxable gains are computed as the difference between the disposal proceeds and the acquisition cost. The disposal proceeds are determined as the actual net proceeds of the sale reduced by any expenses incurred in connection with the sale (stamp duties, agent s commission, etc.). The acquisition cost includes the actual amount paid and any costs of improvements, repairs and maintenance if these costs exceeded SEK 5,000 in any of the 5 years preceding the disposal. The amount so determined must be reduced by any depreciation allowances taken Shares Gains from the sale of shares or other securities not classified as inventory are either taxable under the special capital gains rules or are not subject to tax if they constitute a business-related holding (see below) (chapter 24, sections 13 and 14 of the IL). If shares and other securities are classified as inventory of the seller, any proceeds from their disposal are included in business profits. Taxable gains on shares and other securities are computed as the difference between the disposal proceeds on the one hand, and the acquisition cost and expenses incurred related to the disposal on the other hand. If identical shares or securities were purchased at different prices, the average purchase price of those shares or securities constitutes the basis for computing the capital gain. 13

16 DOING BUSINESS IN SWEDEN 2017 CORPORATE TAXATION In calculating the taxable capital gain on shares and other securities (excluding options) that are listed or quoted on a domestic or foreign stock exchange or market, the purchase price may be deemed to be 20% of the alienation price after the deduction of costs relating to the sale. If the actual cost or the average purchase price results in a more favourable tax position, the taxpayer may elect to use one of those amounts. If the shares are exchanged by a company and the holding is deemed to be business related (see below), any capital gain, including cash compensation, is exempt from tax. Unquoted shares are always deemed to be business-related holdings if they constitute fixed business assets. Quoted shares that constitute fixed business assets and have been owned, at the time of the sale, for at least 1 year qualify as business related if they (i) represent at least 10% of the company s voting rights or (ii) are otherwise considered necessary for the business conducted by the shareholding company or any of its affiliates. Subject to conditions, if shares (regardless of whether they are classified as inventory or not) are exchanged by a company or a partner in a Swedish partnership and a taxable capital gain arises, no tax is incurred until the shares received are sold or cease to exist. These rules also apply to holdings in partnerships resident in an EEA country. Special rules apply to investment companies Losses Ordinary losses Given that all types of income of companies form one category of business income, all ordinary losses may be set off against the business income of the current year. Any unused losses may be carried forward indefinitely (chapter 40 of the IL). Losses may be carried back through the dissolution of the tax allocation reserve (see section ). Losses must be determined in the tax period in which they were incurred and deducted from positive business income as soon as such income is available. In the case of a change in ownership of a company which has unused losses, restrictions apply with respect to the extent to which the loss company may utilize unused losses or may set them off against group contributions received (see section 2.1.). Restrictions apply to a merger where a company absorbs a wholly owned subsidiary having unused losses, upon bankruptcy or upon composition with creditors Capital losses Capital losses on business-related holdings (see section ) are not deductible. Other capital losses may generally be set off against positive business income in the current year (chapter 13, section 2 of the IL). However, losses incurred on the alienation of shares and other securities not related to the company s business (e.g. portfolio investment) may only be set off against gains on the same type of asset; any balance of such losses may be carried forward indefinitely to be set off against gains on the same type of asset. Losses on the disposal of immovable property can generally only be set off against capital gains arising on immovable property. 14

17 CORPORATE TAXATION DOING BUSINESS IN SWEDEN Rates Income and capital gains From 1 January 2013, the corporate income tax is imposed at a flat rate of 22% (26.3% before 2013) (chapter 65, section 10 of the IL). This rate also applies to capital gains Withholding taxes on domestic payments No withholding taxes are imposed on dividends, interest and royalties paid to resident companies. For the withholding tax on payments to non-resident companies, see section Incentives Tonnage tax With effect from 1 January 2017, a tonnage tax regime is introduced as an alternative to the normal corporate income tax regime. Shipping companies resident in Sweden may opt for the regime, subject to conditions. Qualifying ships are those (i) with gross tonnage of at least 100 tonnes, (ii) having their strategic and financial management in Sweden and (iii) mainly used for international transport or domestic transport in another country during the tax year. In addition, in order to qualify, at least 20% of the vessels in a fleet must be registered in Sweden or in another EU/EEA Member State (sections 5 and 6 of chapter 39b of the IL). The regime constitutes a form of State aid and is approved by the European Commission. The regime is available for renewable periods of 10 years. Further, the conditions for qualification for the tonnage tax regime require that the shipping company operates vessels for the transport of passengers or goods using vessels that are (i) owned by the shipping company, (ii) operated on a bareboat or a time charter basis, and (iii) strategically operated from Sweden. A vessel owned by the shipping company but operated by another company may qualify for the regime, provided that the other company operates the vessel for the same qualifying purpose as the shipping company that owns the vessel. If the vessel is chartered on a bareboat basis, the regime only applies if the charter period does not exceed 3 years. Under the tonnage tax regime, taxable income is calculated separately for each qualifying ship based on the ship s net tonnage and a fixed deemed taxable income amount computed per 100 tonnes. The fixed deemed taxable income amount is calculated by multiplying a percentage as provided by law with the basic amount adjusted annually (SEK 44,800 for 2017). The deemed taxable income per 100 tonnes per day ranges from SEK 2.46 to 9.59 (for 2017). No deductions or depreciation is allowed for ships under the tonnage tax regime. Taxable income computed accordingly is subject to corporate income tax at the ordinary rate (see section ). Net tonnage Percentage to be multiplied with the basic amount (SEK 44,800 for 2017) Deemed taxable income (SEK) per 100 net tonnage Up to 1, % ,001 10, % ,001 25, % 4.61 Over 25, %

18 DOING BUSINESS IN SWEDEN 2017 CORPORATE TAXATION 1.8. Administration Taxable period The taxable period is the financial year (chapter 1, section 15 of the IL) Tax returns and assessment Companies must file a tax return with the local or regional tax office at the end of their financial year (chapter 32, section 2 of the SFL). The financial year must end on 31 December, 30 April, 30 June, or 31 August (unless another date is permitted by the tax authorities). The filing deadlines for tax returns are as follows: Financial year ends on Filing date (paper form) Filing date (electronic form) 31 December 3 July 1 August 30 April 1 November 1 December 30 June 15 December 16 January 31 August 1 March 3 April An extension for filing tax returns may be granted by the tax authorities. Every company is issued a preliminary assessment, based on a preliminary return filed by the company before 1 December of the previous income year. This tax must be paid in monthly instalments. The final assessment based on the annual return is issued in December of the assessment year Payment of tax As stated above in section , the final assessment is based on the annual tax return is normally issued in December of the assessment year. The company s preliminary tax payments are credited against the final tax liability. If preliminary tax payments exceed the amount of final taxes due, refunds are made. Any balance due must be paid by a fixed due date within 90 days of the date of the final assessment (chapter 62, sections 4 and 5 of the SFL) Rulings Advance rulings may be requested by resident and non-resident companies on aspects of the assessment to corporate income tax, real estate tax (see section 5.2.) and VAT (see section 8.). Rulings may also be requested to ascertain whether or not the general anti-avoidance provision will be applied (see section 7.1.). With effect from 1 January 2016, advance rulings may also be requested regarding the application of the Withholding Tax Law (KupL). The Council for Advance Tax Rulings issues the advance rulings, which may also be issued upon application by the Swedish Tax Agency. Upon the applicant s request, the advance rulings are binding on the tax administration and the administrative courts, within the time frame stated in the ruling. The advance rulings are not binding on the taxpayer. 16

19 CORPORATE TAXATION DOING BUSINESS IN SWEDEN Transactions between Resident Companies 2.1. Group treatment In Sweden consolidated financial statements are not recognized for tax purposes. However, the law allows shifting of income through group contributions. In the case of a qualifying group contribution, the company paying such contribution is entitled to deduct the amount from its taxable income and the recipient company must include such contribution in its taxable income (chapter 35, section 2 of the IL). This means, inter alia, that losses of one company may be set off against profits of another company in the same group. A group of companies is formed where a company (parent company) holds (chapter 1, section 11 of the ABL): more than 50% of the voting power or shares in another company (subsidiary); or shares in a company in which it, according to an agreement, has more than 50% of the voting power. The most important conditions for an allowable group contribution are: both the paying and the recipient company are resident in an EEA country and are subject to tax in Sweden; the contribution received is taxable as income from a business carried on in Sweden and is not exempt by virtue of a tax treaty; the parent holds more than 90% of the shares of the subsidiary for the entire tax year, or since the subsidiary started conducting business; both companies must make full disclosure in their tax returns of the contribution in the same year; and neither company is an investment company or a private housing company. Additional requirements apply regarding group contributions from a subsidiary to its parent or from a subsidiary to another subsidiary. The group contribution rules also apply to a Swedish company that is resident in a foreign state by virtue of tax treaty provisions, but has a permanent establishment in Sweden. On 13 March 2009, the Supreme Administrative Court ruled that a resident company may deduct a group contribution paid to its subsidiary resident in another EU Member State, even though not all of the above-mentioned requirements are fulfilled, provided that the subsidiary could not use the loss in its state of residence. According to the court, this requirement would be met if the subsidiary is liquidated. The deductible amount cannot, however, exceed (i) the amount of the final loss of the subsidiary according to the rules in both countries in question, or (ii) the loss of the subsidiary in the previous year (i.e. the year before liquidation). A resident parent company may deduct final losses of its subsidiary resident in another EEA state. The deduction is only granted if the parent company holds at least 90% of the shares of the foreign subsidiary, and the subsidiary has been dissolved through liquidation. The final loss is calculated both before and after the liquidation according to the rules in the country of residence as well as according to Swedish law: the deductible amount is the lowest of these amounts The deduction cannot, however, exceed the taxable profits of the parent company in the relevant year. 17

20 DOING BUSINESS IN SWEDEN 2017 CORPORATE TAXATION 2.2. Intercompany dividends Dividends received by a resident company from another resident company on businessrelated (organizational) shares are exempt (chapter 24, section 13 of the IL). The exemption does not apply to dividends on shares held as inventory. Unquoted shares are always deemed to be business related (and qualify for the exemption) if they constitute fixed business assets. There is no minimum holding period for unquoted shares. Quoted shares that constitute fixed business assets are deemed to be business related if they (i) represent at least 10% of the company s voting rights or (ii) are otherwise considered necessary for the business conducted by the shareholding company or any of its affiliates. A further requirement for quoted shares is a minimum holding period of 1 year. In practice, however, if the holding period requirement is not (yet) met, the exemption is provisionally granted. In that case, the dividends become taxable if the shares are alienated or cease to be business related within 1 year of the date on which they qualified as business related. These rules also apply to holdings in partnerships resident in an EEA country. Special rules apply to investment companies. For foreign dividends received, see section ; for outbound dividends, see sections and Other Taxes on Income No income tax other than the national income tax is imposed on corporate taxpayers. 4. Taxes on Payroll 4.1. Payroll tax There are no payroll taxes Social security contributions Most social security contributions are paid by employers on behalf of their employees. The contributions are computed on the remuneration of each employee as adjusted by certain deductions, but without ceilings. The payments are deductible for income tax purposes. For 2017, the contributions are as follows (chapter 2, section 26 and chapter 3, section 13 of the SAL): Contribution for Rate (%) (1) retirement pension insurance (2) health insurance 4.35 (3) unemployment and other labour market measures 2.64 (4) survivor s pension insurance 0.7 (5) parenthood insurance 2.6 (6) occupational accident insurance 0.2 (7) general salary tax Total From 2014, a special reduction is available for employees who are engaged in research and development (R&D). The employer may claim a 10% reduction on the social security calculation base, up to a maximum of SEK 230,000 per month at the group level. Granting the reduction may not, however, lead to a situation where the social security 18

21 CORPORATE TAXATION DOING BUSINESS IN SWEDEN 2017 contributions payable would be less than the contribution for the retirement pension insurance of 10.21%. In order to claim the reduction, employees must be engaged in qualifying activities for a certain period of time and be between 25 and 65 years old. With effect from 1 July 2016, this age requirement is amended so that the employee must be younger than 65 years of age (i.e. born in 1951 or later). For the social security contributions payable by employees and individual entrepreneurs, see Individual Taxation section 3. A special salary tax on pension costs is imposed on employers who provide their employees with pensions (employers own pension plans). The tax rate is 24.26% computed on the expenses incurred by the employer. This tax is deductible for income tax purposes. For individuals born between 1938 and 1951, only the retirement pension insurance contribution (10.21%) and the special old-age salary tax (6.15%) are payable on the remuneration. For individuals born in 1937 or earlier, only the special old-age salary tax (6.15%) applies. With effect from 1 January 2017, self-employed persons who hire their first employee after 31 March 2016 must only pay the retirement pension insurance (10.21%) for the part of the monthly salary exceeding SEK 25,000 for the first 12 months of employment provided the employment lasts at least 3 months and the weekly working time is at least 20 hours per week. This incentive for hiring new personnel applies until 31 December Taxes on Capital 5.1. Net worth tax There is no net worth tax Real estate tax National real estate tax is levied on all types of immovable property that can be used as commercial premises and industrial property (section 1 of the FSL). The tax base is the assessed value of the property. The tax rate is 0.5% for industrial property and 1% for commercial premises. The tax is deductible for corporate income tax purposes. Immovable property used as dwellings is only subject to a fee payable to the municipality. However, new buildings containing dwellings constructed in the period are exempt from this fee for the first 5 years; for the following 5 years the fee for those buildings is reduced by 50%. With effect from 1 January 2013, the exemption is extended to the first 15 years for buildings constructed in 2012 or later. 6. International Aspects 6.1. Resident companies For the concept of residence, see section Foreign income and capital gains General A resident company is subject to tax on its worldwide income and capital gains. Foreign-source business income, foreign interest and royalties are thus fully taxable. The rules described in section 1.3. generally apply. 19

22 DOING BUSINESS IN SWEDEN 2017 CORPORATE TAXATION Subject to conditions, the deferral of tax on capital gains on transfers of shares within groups of companies and on the exchange of shares also applies to shares in non-resident companies (see section ) Dividends The general rule is that dividends received from abroad are included in taxable income at their gross amount, i.e. before deduction of any foreign withholding tax (chapter 6, section 4 of the IL). The same rule generally applies if there is a treaty in force between Sweden and the country of source. For relief of foreign (withholding) tax, see section The participation exemption (see section 2.2.) may be extended to dividends received from non-resident companies, either under Swedish domestic law or under a tax treaty. The exemption may be granted if the dividends would have been exempt had the distributing company been resident in Sweden. On 27 August 2015, the Swedish Tax Agency announced that dividends received from a foreign entity, which is resident in a country that does not levy corporate income tax, do not qualify for the participation exemption; the shares held in such entities are not regarded as business-related shares. In addition, on 29 October 2015, the Swedish Tax Agency expressed its view regarding the comparability of foreign entities having characteristics of both companies and partnerships to Swedish entities, for the purposes of the availability of the participation exemption. Accordingly, in order for such a foreign entity to be comparable to a Swedish company, all owners of a foreign entity must have limited liability for the obligations of the entity. However, when no such comparability of foreign entities having characteristics of both companies and partnerships to Swedish entities is established, the dividends received from such entities may nevertheless still qualify for the participation exemption under the EU Parent-Subsidiary Directive, provided the foreign entity has a legal form listed in the Annex to the Directive. Under the Swedish law implementing the provisions of the EU Parent-Subsidiary Directive, the treatment of inbound dividends is based on the general domestic rules governing the participation exemption (see section 2.2.) (chapter 24, section 13 of the IL). The exemption method is applied if the parent s holding is at least 10% of the subsidiary s capital (in Sweden and outside the European Union: at least 10% of the subsidiary s voting rights ), even if the shares constitute inventory of the parent (in Sweden and outside the European Union: shares held as inventory do not qualify). With effect from 1 January 2016, the participation exemption is not available for dividends received from non-resident companies (both EU and non-eu) if the dividends have been deductible for the paying company. If the dividends were partially deductible, the part which has been deductible is taxed, whereas the non-deductible part may be exempt Foreign losses Relief for losses incurred abroad through a foreign permanent establishment is immediately available through the inclusion of the worldwide results of the resident enterprise in its Swedish tax return. Under Swedish law, losses incurred by a foreign subsidiary cannot be offset against profits of the Swedish resident parent Foreign capital There is no net worth tax. The real estate tax and fee, see section 5.2., are not levied on property located abroad. 20

23 CORPORATE TAXATION DOING BUSINESS IN SWEDEN Double taxation relief According to unilateral relief provisions, foreign national, provincial and local income taxes imposed on foreign-source income may be credited against the Swedish national income tax, provided the foreign taxes are finally assessed or withheld (chapter 2, sections 8 and 9 of the AvrL). The credit may not exceed the Swedish income tax attributable to the foreign-source income (overall limitation). Any balance may be carried forward for 5 years. Special rules apply to income for which the shareholder of a controlled foreign entity is taxed under the CFC rules (see section 7.4.). Such shareholder is entitled to a credit for the income tax that the CFC has paid on the income. The credit is limited to the Swedish tax on the shareholder s proportion of the income. Any balance over the limitation may be carried forward for 5 years. Foreign preliminary or final taxes paid which are deemed to be expenses pertaining to taxable income in Sweden may be deducted in computing taxable income. To the extent such taxes are also eligible for credit relief, the available credit may also be deducted, but the available credit is then reduced by the amount of Swedish tax saved by the deduction. The possibility of deducting foreign taxes does not apply to taxes levied on income for which tax is levied under the CFC rules (see section 7.4.). For the participation exemption regime applicable on foreign dividends, see section The bilateral and multilateral tax treaties concluded by Sweden provide relief from double taxation of income and capital. If a tax treaty employs the credit method, the credit is granted according to the rules of domestic law. If an exemption applies, the foreign-source income is not subject to tax in Sweden, and the taxpayer may not deduct expenses incurred in obtaining the exempt income. See section for a list of tax treaties in force Non-resident companies Non-resident companies are those which are not registered in Sweden with the Swedish Companies Registration Office Taxes on income and capital gains Non-resident companies are subject to the national income tax on four kinds of Swedish source income, viz. (chapter 6, section 11 of the IL): business income effectively connected with immovable property or a permanent establishment in Sweden (including capital gains derived from the sale of immovable property and the sale of assets belonging to a permanent establishment in Sweden); capital gains realized through the sale of shares in a Swedish housing association; profit shares from Swedish economic associations; and any tax refunded in respect of which a corresponding deduction had been granted in an earlier tax year. Dividends paid to non-resident companies and effectively connected with a business carried on through a permanent establishment in Sweden may qualify for the participation exemption (see section 2.2.) in the hands of the company, provided that it is a resident of a state within the EEA. Otherwise, the dividends are included in the business income of the permanent establishment and taxed accordingly. Dividends derived 21

24 DOING BUSINESS IN SWEDEN 2017 CORPORATE TAXATION directly by a non-resident are subject to a final withholding tax on the gross amount (see section ). With effect from 1 January 2016, a general anti-avoidance rule regarding dividends paid to non-resident entities applies (see section 7.1.). For a non-resident company, interest income is only taxable if it is attributable to a Swedish permanent establishment or immovable property in Sweden. In those cases, such income is included in the general taxable income (there is no withholding tax on interest, see also section ). Royalties and other periodical payments for the use of tangible or intangible assets or rights paid by Swedish licensees to non-resident companies are normally regarded as income derived by the non-resident company from a permanent establishment in Sweden and, thus, subject to the national income tax by assessment on the net amount of royalties. If a treaty provides for a reduced tax rate, tax is levied on the gross amount of royalties at the reduced rates (see section ). Royalty payments may be tax exempt if the provisions of the EU Interest and Royalties Directive are applicable (see section ). Non-residents may deduct expenses related to their taxable income except for expenses related to dividends subject to withholding tax (see section ). The rate of the national income tax for non-resident companies is the same as for resident companies (see section ). The tax deferral on exchanges of shares applies not only when the transferor is a resident company, but also when a non-resident company transfers shares connected to a permanent establishment in Sweden (see section ). Non-resident companies are not subject to the national income tax on Swedish-source income to the extent that their shareholders have been taxed on the income under the Swedish CFC rules (see section 7.4.) Taxes on capital There is no net worth tax. Non-residents may be subject to the national real estate tax and the municipal fee (see section 5.2.) on property located in Sweden Administration Except for dividends received from resident companies, a non-resident company is taxed by assessment in respect of taxable Swedish-source income in the same manner as a resident company (see section 1.8.). For the final withholding tax on dividends, see section Withholding taxes on payments to non-resident companies Dividends A final withholding tax of 30% applies to dividends paid to non-residents, unless the domestic exemption applies (see below) or an exemption or a lower tax rate applies under a tax treaty (sections 1 and 5 of the KupL) (see section ). Under the rules governing the domestic exemption, dividends paid by a resident company to a foreign company on business-related (organizational) shares are exempt from withholding tax. A foreign company is defined as a foreign legal entity which is subject to a form of taxation in its country of residence which is similar to the taxation to which Swedish resident companies are subject. 22