Sweden enacted a major tax reform with effect from January 1,1991, and since then there has been several conforming adjustments of the tax system. The tax reform broadened the tax bases for both corporate and individual income tax purposes at the same time as the nominal income tax rates were reduced. The current corporate tax rate in Sweden is one of the lowest in Western Europe. The 1991 tax reform also broadened the tax base for the value-added tax. The intention of the current Government is to continue with the tax reform whereby no tax increases are expected in the near future.

Foreign investors should, however, be aware of the high rates of social security taxes, which are mainly paid by employers.

Corporate Rates and Effective Rate After Distribution

The nominal rate of corporate income tax is 28%. The income tax rate is a flat state income tax and no local income tax are levied on corporate profits. Income from all business activities is aggregated as one source of income and corporate income tax is levied on the total net corporate income. Capital gains are thereby taxed as normal corporate income and capital losses are generally deductible against corporate income. However, special rules apply to the calculation of the amount of capital gains and losses included in the corporate income and the deduction of losses on portfolio shares is restricted as such losses only are deductible against gains on portfolio shares. Capital losses on portfolio shares may be carried forward until offset against appropriate capital gains. Ordinary losses may be carried forward indefinitely. With the profit-based profit allocation reserve the effective corporate tax rate on both undistributed and distributed profits is approximately 23%.

A dividend received by one Swedish company from another Swedish company is exempt from taxation if the recipient owns at least 25% of the payer's voting power at year end. Dividends issued to a foreign shareholder are subject to a 30% withholding tax, but this amount is always reduced if one of Sweden's double tax treaties is applicable. Branch profits remitted abroad are not subject to withholding tax or branch tax. Although branches are subject to net worth tax on assets invested in Sweden, this tax normally do not apply as Sweden's income tax treaties generally exempt branches from this tax.

Individual Rates and Expatriate Taxation

Three different sources of income are recognised: income from employment, income from business and income from capital. Until it reaches a certain threshold amount, income from employment is subject only to municipal tax at an average rate of 31% plus a national tax of SEK 100. Income above the threshold is subject to municipal tax plus a 25% national tax. Income from business consists of self-employed income and royalty income net of deductible expenses and is taxed at the same rates as income from employment. Income from capital is generally taxed at 30% except for gains on the sale of a primary residence that are taxed at 15%. A portion of capital losses, which varies depending on the asset generating the loss, may be deducted against capital gains and capital income. If the result is a net capital loss, a portion may be credited against national, local and real estate tax.

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

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