Designed to meet the needs of international investors and residents alike, the Swedish tax structure bears the characteristic Nordic stamp of transparency and efficiency.
In fact, the Swedish tax agency (Skatteverket) is a highly trusted public body, and most Swedes are happy to pay high taxes in return for a well-functioning society with quality infrastructure, good public services and a universal safety net. Even the Swedish word for tax (skatt) comes with its own positive connotations because it's also the Swedish word for 'treasure'.
In June this year, the Swedish government approved a package of tax measures to improve transparency and counteract aggressive tax planning (in line with international efforts to tackle base erosion and profit shifting).
Among the measures approved were new rules to restrict the deduction of interest expenses to a maximum deductible net interest income of 30% of EBITDA for companies with a net interest income of more than SEK 5 million.
The package also included cuts to the corporate tax rate in two stages: from 22% to 21.4% starting 1 January 2019, then to 20.6% from 1 January 2021 (below the current EU average of 21.5%).
Favourable for holding companies
Sweden is among Europe's favourable jurisdictions for companies looking to set up a subsidiary, holding company or branch, due to tax exemptions on capital gains and intra-group dividends, and other competitive tax rules.
- Capital gains and dividends from business related shares are generally exempted from tax. The scope of the exemption is generous compared to other countries.
- The exemption can apply to shares held in, or dividends received from, Swedish and foreign companies.
Other key attributes of the Swedish tax environment include:
- No thin-capitalisation rules
- No withholding tax on interest
- No stamp duty or capital duties on share capital
- Lower tax rate for key foreign employees.
Meanwhile Sweden has unilateral tax treaties with more than 90 jurisdictions to help avoid double taxation.
While the Swedish tax framework is mostly clear and well structured, it's essential to have a good understanding of local regulations and requirements if you're looking to do business in Sweden. Working with local experts with this knowledge is recommended. Below is a brief overview to help you get started.
The Swedish tax year
While the calendar year applies for personal income tax, the year-end for a company may be fixed at the end of any calendar month (as long as the taxable period comprises 12 calendar months and ends on the last day of a month). The deadline for submitting tax returns is six months after the end of the fiscal year for paper returns, and seven months for electronic returns. Most Swedish companies follow the calendar year, and therefore need to submit their tax returns by 1 July (paper returns) or 1 August (electronic returns).
All Swedish entity types need to be registered with the Swedish tax agency for tax purposes. If your business is liable for VAT, you must register for VAT. If you have employees (including yourself if you are working for a limited liability company) you need to register as an employer for Pay As You Earn (PAYE).
Corporate Income Tax (CIT)
Low by international standards, the Swedish CIT rate is currently 22% but is set to drop further in 2019 and 2021 (as mentioned above). The effective rate can be even lower if companies choose to make deductible annual appropriations to a tax allocation reserve (periodiseringsfond) of up to 25% of their profit. CIT is based solely on a company's annual profit; no license tax or local corporate tax is payable.
Companies liable to pay corporate income tax in Sweden must pay preliminary tax during the taxable year. To calculate how much tax is payable, the company must submit a preliminary tax return. The Swedish tax agency then notifies the company on how much tax should be paid each month. For more information, see detail on the European Union website.
Value Added Tax (VAT)
Sweden's standard VAT rate is 25%. For items such as food, hotel accommodation, restaurant and catering services (except for alcoholic drinks), camping and cultural and sporting events, a reduced rate of 12% applies. Newspapers, books, magazines and public transport attract a lower VAT rate of 6%. Services such as medical and dental care, social services, banking and financial services are exempt from VAT.
Social security contributions
For 2018, the employer social security contribution rates in Sweden are as follows:
- Pension insurance - 10.21%
- Health insurance - 4.35%
- Unemployment insurance - 2.64%
- Surviving dependants' pension insurance - 0.7%
- Parenthood insurance - 2.6%
- Workplace accident insurance - 0.2%
- General salary tax - 10.72%
For employees, only a creditable 7% pension contribution on gross income up to SEK 504,375 is required. For the self-employed, however, the total contribution is 28.97% including the same components as that of employer contributions.
Real estate tax
The owner of property or site leasehold in Sweden is liable for real estate tax. The property may be classified as industrial (0.5% real estate tax) or commercial (1% real estate tax).
Sweden does not levy withholding tax on interest payments, royalties, technical service fees or branch remittance tax. Dividends paid to a non-resident company, however, are subject to a 30% withholding tax unless the rate is reduced or an exemption applies under a tax treaty or other legislation/regulations.
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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.