1 Basic framework
1.1 Is there a single tax regime or is the regime multi-level (eg, federal, state, city)?
There is a single national corporate tax regime in Sweden. Sweden does not apply any local income tax on corporations, as all corporate taxes are levied at a national level.
1.2 What taxes (and rates) apply to corporate entities which are tax resident in your jurisdiction?
Corporations that are registered with the Swedish Companies Registration Office are Swedish tax residents and are taxed on their worldwide income. Non-resident corporations are subject to national income tax for income derived in Sweden through a permanent establishment, real estate in Sweden, income from Swedish economic associations, royalties and a few other sources.
The corporate national income tax rate is 21.4% for 2020; this will be reduced to 20.6% from 2021 onwards.
Other taxes to which companies are subject include value added tax, social security contributions and real property tax.
1.3 Is taxation based on revenue, profits, specific trade income, deemed profits or some other tax base?
A company's taxation is based on its accounting records, prepared according to Generally Accepted Accounting Principles. That means the company's financial statements should be the starting point to determine the taxable base, with applicable tax adjustments, as the tax legislation differs in some respects from the bookkeeping. Tax is then levied on the determined taxable base.
1.4 Is there a different treatment based on the nature of the taxable income (eg, gains on assets as opposed to trading income or dividend income)?
All income of corporations is treated as a business activity. Expenses acquired to maintain or earn income are generally deductible against the income to determine the taxable base.
Dividend income and gains deriving from divestment of shares may be tax free under the Swedish participation exemption regime.
1.5 Is the regime a worldwide or territorial regime, or a mixture?
The taxable base is calculated on companies' worldwide income.
1.6 Can losses be utilised and/or carried forward for tax purposes, and must these all be intra-jurisdiction (ie, foreign losses cannot be utilised domestically and vice versa)?
As a general rule, tax losses can be carried forward indefinitely. Restrictions may apply in case of a change of ownership (direct/indirect). A change of ownership occurs when one company obtains a controlling influence in another (eg, by acquiring more than 50% of the voting power or through agreement or similar). Restrictions apply to the carry-forward of losses incurred in financial years prior to that in which the change of ownership occurs. Losses arising in the financial year in which the ownership change occurs are not affected. Two types of restrictions may apply in case of a change of ownership: a group contribution restriction and an amount restriction.
There are also restrictions in relation to mergers.
1.7 Is there a concept of beneficial ownership of taxable income or is it only the named or legal owner of the income that is taxed?
There is no legal definition of ‘beneficial ownership' in Sweden, although the term is applied in double taxation treaties and a similar expression in Swedish is used in the interest deduction limitation rules (see question 5.3).
1.8 Do the rates change depending on the income or balance-sheet size of the taxpayer?
No, the rates do not change for Swedish entities.
1.9 Are entities other than companies subject to corporate taxes (eg, partnerships or trusts)?
Profits generated by partnerships are taxed by the partners separately. The partners are also liable for debts that the partnership cannot pay. The partnership is a tax subject with regard to value added tax, real estate tax and special salary tax on pension costs. However, the rules of taxation of partnerships and corporations are largely the same.
Sole proprietorships are the business activities of individual entrepreneurs and are taxed by the owner on a basis similar to a limited liability corporation.
Trusts that are classified as Swedish legal entities are taxed as corporations.
2 Special regimes
2.1 What special regimes exist (eg, for fund entities, enterprise zones, free trade zones, investment in particular sectors such as oil and gas or other natural resources, shipping, insurance, securitisation, real estate or intellectual property)?
Sweden has no special tax regimes. Certain forms of tax relief are available in some areas (eg, R&D, renewable energy, housing property investments), but are not classified as special tax regimes.
2.2 Is relief available for corporate reorganisations or intra-group transfers of companies and other assets? Please include details of any participation regime.
Capital gains that arise when a Swedish company sells shares held for business purposes are normally non-taxable under the participation exemption rules. The same principles apply for dividends distributed from holding of shares for business purposes.
Shares are generally considered to be held for business purposes if they:
- are not listed (in the case of foreign shares, the company must also be equivalent to a Swedish limited liability company);
- where listed, have been held for at least one year and at least 10% of the votes of the company are held; or
- are linked with the business carried on by the owner.
For a foreign company to be equivalent to a Swedish company, it must be equivalent in terms of both taxation and legal structure. With regard to taxation, the foreign company must be liable to tax on its profits in the country in which it is incorporated (the tax rate is generally not important). With regard to legal structure, the foreign company's legal structure should be similar to that of a Swedish limited liability company.
2.3 Can a taxpayer elect for alternative taxation regimes (eg, different ways to calculate the taxable base, such as revenue-based versus profits based or cash basis versus accounts basis)?
Swedish corporations cannot elect to apply a different taxation regime.
2.4 What are the rules for taxing corporates with different functional or reporting currency from that of the jurisdiction in which they are resident?
The main rule is that Swedish corporations should use the Swedish krona as its accounting currency. Foreign currency transactions must be converted into Swedish kronor. There are several options for how these conversions can be done.
Income tax returns and other control statements submitted to the Swedish Tax Agency must be in Swedish krona. If a corporation uses the euro as its accounting currency, special conversion rules apply. The Swedish Tax Agency posts on its website the average exchange rate between the euro and the Swedish krona that applies for each financial year.
2.5 How are intangibles taxed?
Goodwill and intangibles that have been developed by the corporation itself are not deductible. Goodwill and intangibles that have arisen through an asset transfer and have consequently been acquired from someone else may be amortised for tax purposes by applying the same principles as for the deprecation of equipment and inventory.
Sweden has no patent box regime.
2.6 Are corporate-level deductions available for contributions to pensions?
As a main rule, pension costs borne by an employer for an employee are deductible for the employer to the extent that they do not exceed the lower of:
- 35% of the employee's salary; and
- 10 price base amounts (SEK 47,300 x 10 = SEK 473,000 for FY20).
If the pension cost exceeds the lowest of the two amounts, the excess amount is treated as non-deductible in the income tax return.
2.7 Are taxpayers from different sectors (eg, banking) subject to different or additional taxes or surtaxes?
Taxpayers in all sectors calculate their income from business activities according to the same general principles. However, certain differences may apply to deductibility rules and similar in certain sectors, such as banking.
2.8 Are there other surtaxes (eg, solidarity surtax, education tax, corporate net wealth tax, remittance tax)?
Sweden does not impose surtaxes. However, it does apply real property tax for both legal and individuals that own real property.
2.9 Are there any deemed deductions against corporate tax for equity?
3 Investment in capital assets
3.1 How is investment in capital assets treated – does tax treatment follow the accounts (eg, depreciation) or are there specific rules about the write-off for tax purposes of investment in capital assets?
The tax treatment does not follow the accounts on capital gains and losses. Instead, each asset is taxed according to the specific tax regulation that applies to that asset. Since taxation is not based on accounting, it is of no taxable importance how transactions are booked.
3.2 Are there research and development credits or other tax incentives for investment?
Employers can make deductions of up to 19.59% of social security contributions for people working on research and development (R&D). However, the total deduction for all employees working on R&D is limited to SEK 450,000 per month.
This applies to both Swedish and foreign companies that pay social security contributions in Sweden. It does not matter through what legal entity or to what extent the company conducts its business. One of the requirements to avail of the deduction is that the R&D constitute systematic and qualified work. Work is considered systematic and qualified when its results are used to develop new goods, services or production processes, or to substantially improve existing ones.
3.3 Are inventories subject to special tax or valuation rules?
Securities that constitute inventories because they are part of a securities business are taxed on the acquisition value or the fair value. A measurement at fair value means that changes in value are offset and affect the taxation as taxable income or deductible costs.
Inventories are subject to specific tax rules with regard to depreciation.
3.4 Are derivatives subject to any specific tax rules?
Financial futures and options are specifically defined in the Income Tax Act. They are not subject to special tax rules, but are taxed in accordance with the rules that apply to the underlying premise. Other derivatives, such as swaps agreements, are taxed depending on the extent to which they fall within any of the definitions contained in the tax legislation (eg, futures or options).
4 Cross-border treatment
4.1 On what basis are non-resident corporate entities subject to tax in your jurisdiction?
Non-resident corporate entities are subject to tax on income from a permanent establishment, real estate in Sweden and dividend distributions from Swedish companies.
Royalty payments from Sweden are not subject to withholding tax. However, the recipient is deemed to have a permanent establishment for tax purposes in Sweden. Hence, Swedish royalty income is taxed as if the company were tax resident in Sweden and therefore subject to Swedish local taxation in accordance with Swedish domestic law or the agreed tax treaty rate.
4.2 What withholding or excise taxes apply to payments by corporate taxpayers to non-residents?
As a general rule, foreign companies are liable to 30% Swedish withholding tax on dividend distributions from Swedish companies. There are certain exceptions to this rule in which the withholding tax rate can be reduced from 30% to 0% based on domestic Swedish legislation, the EU Parent-Subsidiary Directive or an applicable tax treaty.
4.3 Do double or multilateral tax treaties override domestic tax treatments?
Yes, double and multilateral tax treaties are incorporated into Swedish law and override the domestic legislation, provided that the treaty does not extend the tax liability stipulated in the domestic legislation. In interpretation of such laws, the tax treaty will take precedence.
4.4 In the absence of treaties, is there unilateral relief or credits for foreign taxes?
It is possible to credit foreign tax under the domestic tax legislation.
4.5 Do inbound corporate entities obtain a step-up in asset basis for tax purposes?
Assets are valued in accordance with several different principles, which may lead to a step-up when migrating a business to Sweden.
4.6 Are there exit taxes (for disposed-of assets or companies changing residence)?
If the tax liability for income from a business activity in Sweden ceases in whole or in part, or if the business is transferred to another country, the company is liable to exit taxes. This means that the disposal of assets or services is calculated and taxed in accordance with their market value.
5.1 Are there anti-avoidance rules applicable to corporate taxpayers – if so, are these case law (jurisprudence) or statutory, or both?
Yes, statutory anti-avoidance rules are applicable to corporate taxpayers. There are also anti-avoidance rules based on jurisprudence.
5.2 What are the main ‘general purpose' anti-avoidance rules or regimes, based on either statute or cases?
Sweden imposes anti-avoidance rules primarily for transactions that have been carried out to achieve substantial tax benefits. Certain transactions may therefore be considered invalid if the following tax avoidance criteria are met:
- The transaction has resulted in a substantial tax benefit;
- The taxpayer directly or indirectly participated in the transaction;
- The reason for implementing the transaction was primarily the tax benefit realised; and
- The transaction conflicts with the purpose of the rules that have been surpassed or are directly applicable.
5.3 What are the major anti-avoidance tax rules (eg, controlled foreign companies, transfer pricing (including thin capitalisation), anti-hybrid rules, limitations on losses or interest deductions)?
Controlled foreign companies (CFCs): The Swedish CFC rules states that Swedish companies that control a non-Swedish company can, if the income is considered to be low taxed and certain other conditions are met, be subject to Swedish taxation on the income generated in the non-Swedish company. To be subject to the CFC rules, the Swedish company must have a controlling influence over the foreign company (ie, 25% of the shares or voting rights). Income is regarded as low-taxed if it is not subject to taxation at all, or if it is subject to taxation at a rate below 11.77% for 2020 (55% of the current corporate income tax rate of 21.4%. For 2021, the threshold will be 11.33% (as the corporate income tax rate will be reduced to 20.6%). The net income in the foreign company should be calculated based on Swedish tax rules, with minor exceptions on tax allocation reserves and tax losses carried forward, among other things. Even if the net income is subject to taxation at a rate below 11.77%, there are exceptions from CFC taxation if the foreign entity is tax resident in a geographic area covered by Appendix 39a of the Income Tax Act (‘the white list'), unless any of the exceptions stated in the list applies (‘the exception from the exception').
Interest deductions: On 1 January 2019 Sweden introduced new rules on interest deductions. The new rules are applicable to both external and internal loan arrangements.
Interest on intra-group loans may be deductible if the beneficial owner of the interest income is tax resident in:
- the European Economic Area (EEA); or
- a state outside the EEA with which Sweden has entered into a double tax treaty which is not limited to certain income, provided that the company is covered by the treaty.
Otherwise, the beneficial owner of the interest income must be taxed at a minimum rate of 10%, where the interest income was its sole income and the debt was not created "exclusively or almost exclusively" to create a substantial tax benefit for the group.
To the extent that a deduction is allowed under the above conditions, the new rules include a general interest limitation rule which applies to all loans (internal as well as external), permitting only a 30% deduction of tax earnings before interest, tax, depreciation and amortisation (EBITDA). However, the EBITDA interest limitation rule will apply only to net interest costs exceeding SEK 5 million at a group level.
See question 1.6 regarding loss restrictions.
The Swedish anti-hybrid rules generally apply to most transactions between associated entities that result in double deductions, or the deduction of allowances without the corresponding income being taxed. The Swedish rules are in accordance with the EU Directives on hybrid mismatches (2016/1164 and 2017/952).
5.4 Is a ruling process available for specific corporate tax issues or desired domestic or cross-border tax treatments?
Corporations and individuals can apply to the Swedish Board of Advance Tax Rulings for an advance ruling on tax issues. The ruling is binding on both the courts and the Swedish Tax Agency if the taxpayer chooses to apply the measures accordingly.
Swedish taxpayers can apply for advance pricing agreements for their transfer pricing arrangements. These can be unilateral, bilateral or multilateral, and are based and aligned with the works of the Organisation for Economic Co-operation and Development (OECD).
5.5 Is there a transfer pricing regime?
The transfer pricing regime in Sweden conforms with the OECD Guidelines. Sweden hence applies the arm's-length principle to intra-group transactions. Accepted transfer pricing methods include cost plus, comparable uncontrolled price, profit split, transactional net margin method and resale price method.
If certain provisions are fulfilled, legal entities must prepare transfer pricing documentation, which aims to ensure that the intra-group transactions of multinational enterprises adhere to the arm's-length principle.
5.6 Are there statutory limitation periods?
Yes, the statute of limitations is six years from the end of the income tax year (the tax year corresponds to the financial year).
6.1 What are the deadlines for filing company tax returns and paying the relevant tax?
All corporate entities must file an annual income tax return. The submission date is determined by the corporation's financial year. Corporations with financial years ending in December 2019 must submit their tax return on 1 July 2020 in the case of a hard-copy return and 3 August 2020 for digital returns.
6.2 What penalties exist for non-compliance, at corporate and executive level?
For corporate income tax purposes, tax penalties are levied at a maximum rate of 40% of the tax not paid due to incorrect or insufficient information. However, if the incorrect or insufficient information concerns a timing issue, tax penalties are levied at a rate of 10%.
If the income tax return is incomplete or is not submitted, the Swedish Tax Agency may decide on the amount payable based on the available information.
The late filing fee for a corporate income tax return is SEK 6,250, with an additional SEK 6,250 if the late filing exceeds three months.
6.3 Is there a regime for reporting information at an international or other supranational level (eg, country-by-country reporting)?
Multinational enterprises with an annual global turnover that is greater than SEK 7 billion must submit a country-by-country report every year in one jurisdiction. All Swedish corporations that are part of such a group must notify the Swedish Tax Agency of which corporation will be submitting the report and the jurisdiction in which this will be submitted. In some cases the Swedish company itself will be responsible for preparing the report and submitting it to the Swedish Tax Agency.
7.1 Is tax consolidation permitted, on either a tax liability or payment basis, or both?
Swedish corporations cannot elect to consolidate financial statements for tax purposes. Tax consolidation is instead achieved through the exchange of group contributions. Group contributions are taxable for the receiver and tax deductible for the payer and will thus imply a transfer of untaxed profits. The requirements include the following:
- There must have been more than 90% ownership throughout the corporate chain between the receiver and the payer for the entire financial year or since the subsidiary commenced its business activities;
- The companies in the corporate chain between the receiver and the payer should be Swedish limited liability companies, foreign companies with their domicile in the European Economic Area or foreign companies that are resident in a state that has concluded a tax treaty with Sweden which includes an anti-discrimination clause;
- The receiver and the payer must file their corporate income tax returns at the same time; and
- Both the receiver and the payer must include and make full disclosure of the contribution in their corporate income tax returns.
In addition, a group contribution requires a transfer of value to be recognised from a tax perspective (eg, a transfer of cash or recognition of debt/receivable in the balance sheet of the companies).
Both upstream and downstream group contributions can be made. However, upstream group contributions require sufficient distributable reserves in the contributing company.
8 Indirect taxes
8.1 What indirect taxes (eg, goods or service tax, consumption tax, broadcasting tax, value added tax, excise tax) could a corporate taxpayer be exposed to?
Sweden levies value added tax (VAT) on goods and services in accordance with EU regulations. The general VAT rate is 25%, with a reduced rate of 12% for food, restaurants, catering, some repairs of goods, hotels and other tourism services. A reduced rate of 6% applies to concert tickets and newspapers, among other things. VAT is not levied on, for example, prescription medicines, certain financial services and insurance premiums.
Stamp duty is levied on sales of real property, at a rate of 1.5% for individuals and 4.25% for legal entities, and is calculated based on the highest of the assessment for taxes on real property and purchase price.
8.2 Are transfer or other taxes due in relation to the transfer of interests in corporate entities?
Sweden does not apply any transfer taxes.
9 Trends and predictions
9.1 How would you describe the current tax landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
The Swedish government, in line with the Organisation for Economic Cooperation and Development and the European Union, currently focuses on tax evasion, avoidance and abuse. Recent important legislation that has affected the Swedish tax landscape includes:
- the implementation of EU Directive 2011/16 on Cross-Border Tax Arrangements, introducing mandatory disclosure for certain cross-border transactions;
- new earnings before interest, tax, depreciation and amortisation-based rules on interest deduction limitations; and
- the implementation of the economic employer concept.
The government has also proposed a new withholding tax act, which will impact on dividend distributions and similar cross-border payments from Swedish corporates.
10 Tips and traps
10.1 What are your top tips for navigating the tax regime and what potential sticking points would you highlight?
The Swedish tax landscape has evolved significantly in recent years. Due to the government and the Swedish Tax Agency's recent focus on tax abuse, particularly in relation to cross-border transactions, it is important to think ahead and plan accordingly when dealing with Swedish taxation, to avoid any immediate or future pitfalls.
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.