A foreign company, that is, a company created under a foreign law and registered in the foreign country, has only a limited tax liability even if its management and control are in Sweden. It is subject to tax on only the following three kinds of Swedish-source income:

- Business income effectively connected with immovable property or a permanent establishment in Sweden;
- Business income realised through the sale of shares in a Swedish housing association; and
- Profit from shares of Swedish co-operative societies.

Refunds of taxes deducted in earlier tax years are also subject to tax.

Controlled Foreign Companies (CFC)

Under Swedish CFC-legislation, the tax authorities may under certain circumstances look-through a foreign entity for tax purposes and tax a Swedish resident shareholder in such a company on a current basis. A Swedish resident shareholder or participant in a foreign legal entity is liable for Swedish taxes on its share of the foreign legal entity's worldwide profit if either:

- The owner or participant is liable for tax on its share of profit in the foreign legal entity's country of residence, or
- At the end of the income year at least 10% of the capital or voting rights on the foreign legal entity is controlled by the company alone or together with certain related companies, and at least 50% of the capital or voting rights inthe foreign legal entity is controlled directly or indirectly by Swedish residents.

The CFC-legislation, however, is not applicable if either:

- The foreign legal entity is subject to tax in its home country that is similar with the Swedish tax to which the entity would have been subject if its income had been earned in Sweden by a company resident in Sweden (according to official statements, an income tax of 10% or more on the foreign entity's profits, computed in accordance with Swedish law, would be similar with Swedish tax), or
- If the foreign legal entity is resident in a country included in the Swedish legislative "white list". Presently all the tax treaty countries except Australia, Cyprus, Malaysia, Malta, Spain and Thailand are included in the list.

Imports

Non-resident companies without a permanent establishment in Sweden are not subject to income tax on imports. Imports from countries outside of EC are subject to import VAT, for additional information on import duties.

Branches

The tax levied on the few branches of foreign companies in Sweden is the same as that imposed on limited liability companies, with these exceptions:
- Branch profits remitted to the head office are not subject to withholding tax or branch remittance tax, in contrast to the dividend distributions from Swedish companies.
- Branches of foreign companies are taxed on net worth invested in Sweden at a rate of 1.5% a year, regardless of their parent's form of organisation. However, most of Sweden's tax treaties exempt foreign branches from this tax.

Portfolio Income

In general, a withholding tax of 30% is levied on dividends paid to a foreign shareholder. However, Sweden's numerous double tax treaties, provide for a reduced withholding tax (see Withholding tax). No withholding tax is levied on payments abroad of interest or royalties.

The contents of this article are intended as a general guide to the subject matter. Specialist advice should be sought for your specific circumstances.

For further information contact Per Snellman on Tel: +468 613 9000 0r Fax: +468 791 7511; or enter a text search 'Ernst & Young' and 'Business Monitor'.