Sweden has implemented new participation exemption rules, making Sweden a competitive country for the establishment of holding companies. In general capital gains on shares held for business purposes are exempt from capital gains taxation. The regime is based on the concept that dividends and capital gains on foreign participations are exempt from tax under the same conditions as capital gains and dividends related to Swedish shares.

A Swedish Holding Company can provide major advantages, making Sweden a competitive Holding Company Jurisdiction, for example:A Swedish company is generally not subject to capital gains taxation on sale of shares held for business purposes in Swedish and foreign companies.

  • A Swedish company is generally not subject to tax on dividends derived from Swedish and foreign subsidiaries.
  • A Swedish company may normally distribute dividends to a foreign company (except to companies in low tax countries) without any Swedish withholding tax being levied.
  • The Swedish corporate tax is relatively low, 28 %. The effective corporate tax is often even lower through the possibility of using profit allocation reserves.
  • Interest paid by a Swedish company is fully deductible. In addition, Sweden does not withhold tax on interest payments.

No taxes or duties are levied at the incorporation

  • No taxes or duties are levied at the incorporation of a Swedish holding company or on capital increases or contributions.
  • Sweden has an extensive network of Tax Treaties with other countries.
  • There are possibilities to tax-equalize the profits and losses of different Group companies in Sweden through the use of group contributions.
  • The Swedish tax regime permits losses to be carried forward indefinitely.

PARTICIPATION EXEMPTION RULES

Taxation of Capital Gains on Sale of Shares

A Swedish company is exempt from capital gains taxation on sale of shares held for business purposes. The term "held for business purposes" implies the following:

  • unlisted shares are always considered to be held for business purposes
  • listed shares are considered to be held for business purposes if;
  • a company holds at least 10 % of the voting rights in the other company, or
  • the shares are held for organizational purposes, in the course of the business.

There is no minimum holding period to obtain the tax exemption on disposal of unlisted shares, but there is a one-year holding requirement for listed shares.

Shares in Swedish companies as well as in foreign companies may qualify as shares held for business purposes. Shares held for business purposes in foreign companies qualify for tax exemption provided that the foreign company is subject to taxation comparable to the Swedish taxation. According to official statements an income tax rate of at least 15 %, computed in accordance with Swedish accounting and tax rules, is comparable to the Swedish corporate tax. In addition, the foreign income tax rate is regarded as comparable if the foreign distributing company is resident in a country with which Sweden has concluded a Tax Treaty.

As a consequence capital losses on shares held for business purposes are not tax deductible.

Shell companies - Restrictive legislation

To avoid transactions with shell companies, legislation regarding such companies has been implemented. If applicable, the result is that compensation received for the shares is taxable, (the basis for such taxation is in other words not limited to the capital gain). Provided certain conditions are met it is however possible to avoid such taxation. It is important to consider whether the rules might be applicable in a specific situation.

Taxation of Dividend Income

Dividends are exempt from tax provided that the shares are held for business purposes, according to the definition described above.

Dividends received from foreign companies are tax exempt if the shares are held for business purposes, according to the definition. There is no minimum holding period to obtain tax exemption on dividends on unlisted shares. There is a one-year holding requirement for listed shares. The one-year holding period may be met subsequent to the time the dividends are declared.

Withholding tax

According to domestic rules, there is a 30 % withholding tax on dividends paid to non-residents. This withholding tax rate is normally reduced to 5 % or nil if the dividends are received by a company in a country with which Sweden has concluded a Tax Treaty. There is generally no withholding tax on dividends from a Swedish company to a company within the EEA.

CONTROLLED FOREIGN COMPANIES LEGISLATION (CFC)

As from January 1st, 2004 new Controlled Foreign Companies (CFC) legislation has been implemented in Sweden.

CFC-taxation occurs only if the shareholder in Sweden holds at least 25 % of the foreign legal entity’s capital or votes directly or indirectly and the income of the foreign legal entity is subject to "low taxation". A foreign legal entity is considered to be subject to low taxation if the income tax rate in the resident state is less than 15,4 %, calculated in accordance with Swedish tax law. However, if the foreign legal entity is a tax resident in a country which is represented on a "White List", the Swedish shareholder will not be subject to CFC-taxation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.