After the tax reform in 1994 Sweden is very well suited for the location of a holding company. The nominal tax rate is 28%. The effective tax rate is approximately 26% if appropriations are made to untaxed reserves.

A holding company is taxed as an ordinary company and no special rules apply to holding companies.

Dividends received on holding in Swedish companies are tax exempted. Dividends from holding in foreign companies are tax exempted if they originate from a treaty country or otherwise, if the profit from which the dividend is paid has been subject to tax with at least 15%.

The Swedish CFC legislation gives Sweden the right to tax profits in a tax haven company owned to at least 50 per cent of the votes are controlled by residents of Sweden.

Capital gains are taxed as ordinary income.

An ex-change of share for share is tax exempted. The new shares inherit the acquisition cost for the shares sold.

A major advantage for location in Sweden is the internal rules for group contributions. Interest paid by the parent can be offset against profits in the subsidiary by way of group contributions. The subsidiary is allowed a deduction for profits distributed to the parent company. In the parent company the received profit will be taxed as ordinary income and offset against the interest paid.

Sweden has no thin capitalization rules which makes it advantageous to use the result from the Swedish operations to finance the foreign investments with debt in the holding company.

Furthermore, Sweden has an extensive tax treaty network with no or very low withholding taxes.

As from 1995 Sweden does not impose any capital taxes or stamp taxes on the formation of a new company, the increase of share capital, the issue of new shares or capital contributions.

Capital contribution can be made conditional or unconditional. A conditional contribution can be repaid without tax consequences. Such a repayment is not regarded as a dividend and thus not subject to Swedish WHT.

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.

For further information please contact Staffan Andersson Price Waterhouse Skattejurister AB - Stockholm +46 8 723 98 00, or enter text search 'Price Waterhouse' and 'Business Monitor'.