Swedish companies are taxable on their worldwide income, except as otherwise provided by the Swedish tax treaties (see Tax Treaties) and specific exemptions.

A dividend issued by a foreign company is exempt from tax in Sweden if both of the following apply:
- The dividend would have been exempt from Swedish tax under internal rules for dividend exemptions between resident companies.
- The distributing company is subject to income tax in its own country in an amount comparable to that for which a Swedish company would have been liable had the income been derived by a Swedish company. A tax of 15%, computed in accordance with Swedish rules, is considered to be comparable.

There is also a presumption rule, where the foreign income tax is presumed to be comparable with the Swedish corporate tax if the foreign corporation is resident in a country with which Sweden has concluded a tax treaty and has been subject to the normal corporate tax in that country. Also, if a double tax treaty exempts dividends paid by a foreign company, this exemption applies even if the income is not exempted according to Swedish internal rules.

If the receiving company cannot prove that the foreign tax is comparable to the Swedish tax, a 13% tax credit is allowed, which represents a deemed underlying foreign tax. Foreign withholding tax paid may also be credited against the Swedish tax. The 13% tax credit does not apply on portfolio investments, i.e. the share holding is less than 25% at year end or the recipient or an affiliated company is not engaged in a related business.

Foreign Subsidiaries

Dividends received from foreign subsidiaries are normally exempt from tax as explained under the preceding heading.

Branches

Losses of a foreign branch, as calculated for Swedish tax purposes, may generally be offset against all Swedish taxable profits except capital gains on securities held as portfolio investments. However, foreign branch losses may not be offset against Swedish profits if the branch is located in a country having an income tax treaty with Sweden that exempts the foreign branch's profits from Swedish tax.

Foreign income tax levied on foreign branch profits may, subject to the general limitation on foreign tax credits, be credited against the Swedish income tax, except if the branch income is exempted according to an applicable income tax treaty.

Portfolio Income

Income from portfolio investments such as dividends and interest are generally taxed in Sweden, although the source country may, according to the applicable treaty, retain a limited right to tax such income. Foreign withholding tax may, subject to the general limitation on foreign tax credits be credited against the Swedish income tax.

Capital Gains

Foreign-source capital gains are taxable in Sweden. Foreign income tax and withholding tax may, subject to the general limitation on foreign tax credits be credited against the Swedish income 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.

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'.