Amended Rules On Allocation Of Deductible VAT

The Swedish Ministry of Finance published a memo in December 2025 proposing that the allocation key for deductible input VAT in mixed businesses shall be based on turnover. On 11 June 2026, the government moved the proposal forward by presenting its referral to the Swedish Council on Legislation regarding amendments to the Swedish VAT Act (2023:200). See the referral here.

Currently, the main rule is that input VAT on joint costs in mixed businesses, i.e., businesses containing VAT liable transactions as well as VAT exempt transactions, is deductible based on reasonable grounds. The Swedish Supreme Administrative Court (“HFD”) has however held, with reference to the direct effect of the VAT Directive, that a taxable person cannot be denied the option to calculate the deductible proportion based on turnover (HFD 2023 ref. 45 and HFD 2024 not. 41, both cases previously reported on by Schjødt).

In line with those rulings, the referral introduces a main rule whereby input VAT on joint costs shall be allocated based on turnover, with a separate proportion for each line of business where there are several. For input VAT on goods and services used for buildings, the allocation shall instead be based on area, and for certain financial activities, turnover from certain taxable transactions shall be excluded. Both deviations yield where the ordinary calculation gives a more accurate picture of actual use. The deductible proportion shall be determined annually as a percentage, rounded up to the nearest whole number in accordance with article 175.1 of the VAT Directive, or to two decimals where determined for a line of business or under the financial activities rules.

The proposed amendments are set to come into effect on 1 January 2027, with a bill expected to be presented to the Swedish Parliament during the autumn of 2026 (but will depend on final outcome of the Swedish general election and the new government).