Taxes

Introduction

 Today Swedish tax rates are at competitive levels with those of other Western European countries after a major tax reform. Here are some main features of the Swedish tax system:

• Corporate tax rates second lowest in Europe.
• Personal taxes comparable to European levels.
• No restrictions on remitting profits abroad.
• Efficient, easily accessible tax administration.
• Experienced international accounting firms.

As a result of a major tax reform in 1991, Sweden's personal tax rates have been lowered to levels that are comparable to those in the rest of Europe, while corporate tax rates are Europe's second lowest. For businesses, there are no restrictions on remitting profits abroad and no restrictions on deducting corporate interest expenses. The Swedish tax administration is efficient, very accessible, and most helpful in assisting international corporations and foreign residents. English is no problem. A large number of highly experienced accounting firms, deeply knowledgeable in international taxation matters, are readily available to serve corporations and individuals. (See appendix for list of largest accounting firms.) These are some of the features of Sweden's new, competitive tax situation.

Administration
The Swedish tax system is relatively non-bureaucratic. The National Tax Board (Riksskatteverket) supervises and has overall responsibility for the tax system. All of Sweden's 24 counties have a Tax Authority (Skattemyndighet), each of which handles taxation within its region. Each Authority has special sections to serve large business and provide legal and administrative assistance.

The National Tax Board issues regulations, provides advice and makes rulings that are applied by the county Tax Authorities. The National Tax Board is an administrative authority operating independently of the Government. It is governed exclusively by laws, ordinances and general instructions. Individual tax matters are resolved by the National Tax Board and the county Tax Authorities without involvement of the Government. The National Tax Board publishes a number of timely booklets, brochures and information notices in English covering the most important tax matters.

The county Tax Authorities operate local Tax Offices that provide a number of services: Processing all income tax, value-added tax and tax collection returns, making tax withholding assessments on wages, businesses and legal entities, handling questions of value-added tax and employer contributions; carrying out real estate tax assessments; controlling and auditing tax returns; registering local population; and administering general elections.

Companies and individuals can easily get information from the local office or from county tax specialists, in person or by phone.

State, Municipalities' Source of Income
The primary sources of revenue for the Swedish State are value-added taxes (contributing 33 percent of the total state revenue in fiscal year 1993/94), employers' social security contributions (17 percent), excise duties (16 percent), and income taxes (8 percent). The remaining revenues are from various fees, charges, licenses, etc.

The main source of revenue for Sweden's 288 municipalities are income taxes paid by individuals. The tax rate averages about 30 percent.

Corporate Taxes
Tax regulations are generally the same for both corporations (aktiebolag) and unincorporated, individually-owned businesses. All profit is taxable, including income from capital belonging to the business.

Sweden's corporate income tax rate of 28 percent is levied on total net corporate profit.

Companies can make pre-tax allocations to untaxed reserves, which are subject to tax when utilized. Untaxed reserves cannot be distributed as dividends. If a company reports a loss, certain untaxed reserves can be used to cover the loss without being taxed. This allocation possibility makes the effective corporate tax rate about 26 percent on undistributed profits.

Capital gains are taxed as normal corporate profit. Capital losses are generally deductible against corporate profit. Losses may normally be carried forward indefinitely. There are some restrictions on losses carried forward by money-losing companies acquired by new owners.

Taxable income is calculated on generally accepted international auditing standards. Swedish annual reports and financial statements are noted for a high degree of informative disclosure, and are based on universally-accepted principles of historical costs, accrual accounting, immediate recognition of loss risks, and not crediting income until actually earned.

Deductible expenses cover everything necessary to maintain and develop a business. However, as in most countries, there are some limitations on entertainment deductions.

Inventories are valued on the first-in, first out (FIFO) principle. When the acquisition cost is used for an entire inventory, 97 percent of the value is declared.

Depreciation is permitted annually on assets invested in a business

Depreciation on equipment can be calculated in either of two ways: A regressive method, in which depreciation is 30 percent of the equipment's residual value per year; or 20 percent of the acquisition value per year. Equipment with a short business life and equipment of small value (under SEK 10,000) may be depreciated directly.

Buildings are depreciated on a straight-line basis at 2-5 percent of their acquisition value, depending on use.

Employers' social security contributions, which amount to about 33 percent of payroll, are deductible from taxable income.

Dividends
There are no restrictions on the amount of dividends a Swedish corporation may transfer to foreign owners or shareholders. Sweden has no foreign exchange controls or restrictions.

Dividends issued to foreign shareholders are subject to a 30 percent withholding tax, but this is reduced through double-taxation treaties with some 70 nations. These treaties normally allow a withholding tax rate of 0-5 percent on non-portfolio Swedish holdings by foreigners.

Profits from a Swedish branch of a foreign company may be remitted abroad without being subject to withholding tax or a branch tax. Although branches of foreign companies are, in principle, subject to a net worth tax on assets invested in Sweden, this is considered discriminatory by treaty law and is thus not applied.

Value-Added Tax
Swedish value-added tax (VAT) regulations are harmonized with the VAT directives of the EU.

Known in Swedish as Moms (short for Mervärdeskatt), VAT is charged at a rate of 25 percent on sales of goods and services. As of 1996, a lower tax rate of 12 percent is applied to food products, hotel services, passenger transportation and import of works of art. VAT is 6 percent on newspapers and admissions to cinemas.

The main items exempt from VAT are medical, dental and social care; sale of ships and aircraft; sale of real estate; education; banking and insurance services; concerts; aircraft fuel; and inventories and equipment in connection with the sale or transfer of an entire business.

Sellers of goods and service must clearly indicate the VAT on invoices or equivalent. VAT is always included in retail prices and advertisements.

If a corporation's sales exceed SEK 1 million annually, VAT is reported separately to the income tax return, and is paid each month to the tax authorities. If sales are below SEK 1 million, VAT is declared in the income tax return and preliminary tax is paid each month to the authorities. Partnerships always declare VAT separately each month.

Virtually all companies register for VAT liability and refunds. Application forms are supplied when a corporation or trading partnership registers, as required, with the Swedish Patent and Registration Office.

VAT on Import of Goods and Services
VAT is payable on the import of taxable goods and services from outside the EU. The rate of VAT on imports is 25 percent, or 12 percent of the taxable base. The taxable rate is the dutiable value of the goods plus any customs duty or other tax or charge other than VAT. VAT on imports is handled by the Swedish Customs Office.

VAT is also paid when a service is imported from a country outside the EU. This is known as "acquisition taxation" or "reverse charge". The purchaser of the services is obliged to pay VAT at a rate of 25 percent of the invoice amount. If invoiced in a foreign currency, the amount is translated into Swedish kronor at the exchange rate on the invoice date.

Services liable to import VAT include the transfer or assignments of copyrights, patents, licenses, trademarks, etc; advertising services; consultancy services; product development; designing; legal services; auditing; typing and translation; data processing; bank and financial services; leasing of goods (except transport); staff supply; and similar forms of services.

If the purchaser is subject to tax and the payments for services imported exceed SEK 1 million annually, VAT is reported separately to income tax. Where sales do not exceed SEK 1 million, VAT is reported on the income tax return.

Exports of goods and services to countries outside the EU are exempt from VAT.

VAT Refunds and Deductions
VAT paid on purchases is refunded by the State or allowed for tax deductions, when the purchases are necessary for a business.

VAT for Newly-Started Businesses
Newly-started businesses may apply to tax authorities for a refund of VAT paid even if the company, in an establishment phase, has not had any turnover. To qualify for the refund, investments must be made in machinery or other assets. This means that a company may be compensated for VAT paid on purchases before the business is in full operation.

Complete, detailed laws and regulations regarding VAT are found in the National Tax Board publication Value-Added Tax in EU Trade (RSV 558).

Personal Income Taxes
Individuals must file tax returns each year for income on wages and capital.

As a result of the recent tax reforms, and because of computerized record-keeping and nationwide data networks, filing has been made extremely simple for individuals with relatively uncomplicated income situations. Individuals receive a two-page suggested tax form, which lists earnings from employment, pension payments, interest paid by banks, dividends paid by publicly-traded corporations, etc. Preliminary taxes withheld by employers, banks and brokers are also pre-printed. Tax payments due, or refunds to be paid, are pre-calculated. If necessary, an individual can make changes, corrections or additions on the form. He or she signs the form and sends it in. Of Sweden's 7 million tax returns, about 5.5 million are of the new, simplified form.

Taxes on Wage Income
Income on wages is taxed by municipalities and the State. Municipal tax rates vary by municipality, ranging from 26 percent to 35 percent, and averaging around 30 percent. Most taxpayers pay only municipal income taxes and SEK 200 in a nominal state tax. High-income individuals also pay 25 percent in state taxes on taxable income exceeding SEK 203,900 (in 1996).

Wage income includes salaries, pensions, annuities, severance pay, sickness allowances, benefits or "perks" provided by employers, income from hobbies, etc.

Pensioners are taxed according to rules for ordinary income earners. However, some special deductions are allowed.

Deductions are very limited. There are no standard deductions. Only 30 percent of interest payments on a home mortgage are deductable. Investment savings in pension schemes are deductable up to one half of a basic amount. The basic amount, which is adjusted annually to reflect the cost of living, is SEK 36,200 in 1996 and SEK 36,300 in 1997.

The few other deductions available include costs of travel to and from work that exceed SEK 6,000, costs of materials and tools needed for a job, but only those that exceed SEK 1,000, and social insurance fees paid by employees (3.95 percent health insurance fee and 1 percent pension fee, in 1996). However, social insurance fees are paid only on income up to 7.5 times a basic amount, or SEK 276,000 in 1996.

Taxes on Capital Income
Only private persons pay tax on capital income. Income from capital includes interest income, stock dividends, capital gains and losses from the sale of stock, bonds, real estate, personal belongings and similar assets, and income from rental of private residences.

Income from capital is taxed by the State at a flat rate of 30 percent, regardless of any other income a taxpayer may have.

Deductions are allowed for interest costs and other expenses connected with capital income.

Only 70 percent of capital losses on unlisted securities are deductible. If losses exceed income, a tax reduction is calculated and deducted from total income tax. The reduction is 30 percent of the net loss up to a maximum of SEK 100,000. If the net loss is greater than SEK 100,000, the reduction is SEK 30,000 for the first SEK 100,000 and 21 percent on any amount exceeding SEK 100,000. Tax reductions cannot be carried forward to be used in later years.

Shares
The entire capital gain from sale of shares is taxable, no matter how long the shares are held. The gain is based on the actual acquisition cost as estimated according to the so-called averaging method. When publicly listed shares are sold, a taxpayer may instead choose to estimate the gain based on 80 percent of the sales price.

Capital losses on listed shares and other shares may be offset entirely against capital gains on similar securities in the same year. Deductions for any remaining net losses and on capital losses of shares not publicly listed are limited to 70 percent.

Dividends from special tax-incentive mutual funds are taxed at two-thirds. In calculating capital gains, only two-thirds of any gains or losses are taken into consideration.

Bonds
Capital losses on listed bonds are fully deductible. Capital losses on listed Swedish bonds are treated as an interest expense.

Entire capital gains are taxable on the sale of so-called premium bonds (non-interest bearing state bonds that serve as a lottery ticket). Prize-winnings from such bond drawings are free of income tax.

Personal Wealth Tax
Personal wealth with a total value exceeding SEK 800,000 (to be increased to SEK 900,000 in 1997), is taxed at a rate of 1.5 percent. Wealth includes real estate, stocks and bonds, cash, jewelry, art, pleasure boats, cars, etc. The value of real estate is based on its tax assessed value and the value of stocks and bonds is the full market value (as of 1996).

Personal Property
The entire profit on the sale of personal property, such as household goods, jewelry, art, etc., is taxable, regardless of how long it has been owned. But property is subject to capital gains tax only if total gains during a year exceed SEK 50,000.

When calculating gains, actual costs may be deducted. Alternatively, 25 percent of the net sales price may be deducted. Capital losses are not deductible.

Property not held for personal use, such as unmounted gems, is taxable in its entirety when sold. Deductions are permitted only for actual sales expenses. Capital losses are 70 percent deductible.

Real Estate Taxes
Real estate is subject to a state tax, which was 1.7 percent of assessed value in 1996. There are no municipal real estate taxes.

Newly-built homes, with an assessment year of 1991 or later, are exempt from the real estate tax for the first five years after completion of construction. During the following five years, the real estate tax is half the normal tax.

Mortgage interest and rental payments for leasehold sites are deducted from income from capital. A net capital loss entitles a taxpayer to a tax reduction.

When selling a permanent residence, only 50 percent of the capital gain is taxable, while 50 percent of a capital loss is deductible.

A seller of a permanent residence may defer paying the tax on the gain if he or she buys a new home to reside in within one year of the sale.

Income from leasing or renting private residences is reported and taxed as income from capital. A number of deductions are allowed, but may never exceed leasing income.

Excise Taxes
Sweden currently has 15 different excise taxes or duties on products and services, ranging from advertising to pesticides. The largest and most important are on fuels, electric power, alcohol, and tobacco.

The fuel tax is applied primarily to gasoline, oil, coal and liquefied petroleum gas. Taxes are based on energy, carbon dioxide, and sulfur. Gasoline is taxed about SEK 3.60 per liter for energy, and SEK 0.86 per liter for carbon dioxide. Fuel oil has an energy tax of SEK 729 to SEK 2,096 per cubic meter, and a carbon dioxide tax of SEK 1,054 per cubic meter, a sulfur tax of SEK 27 per cubic meter for each tenth weight percent sulfide in the fuel oil. Lower taxes are applied for some special uses. (Tax rates quoted here are valid as of July 1, 1997.)

Electric power is normally taxed at a rate of SEK 0.107 per kWh, but in certain regions it is taxed at SEK 0.074 per kWh. However, electric power used in manufacturing processes are exempt from the tax.

In addition, a special tax of SEK 0.032 per kWh is applied to energy produced by nuclear power plants. A tax of SEK 0.03-0.05 per kWh is also applied to electricity produced at older hydroelectric plants. Roughly 50 percent of Sweden's electricity is generated by the nation's 12 nuclear reactors, and 40 percent from hydroelectric plants, with the remainder imported or from fossil fuels or waste products. (The tax rates for electric power quoted here are valid as of July 1, 1997.)

Alcohol taxes are traditionally very high in Sweden, the result of a strong historic temperance movement. The tax depends on alcohol content. For beer, it is SEK 1.21-2.38 per liter, for wine and liqueurs SEK 9.21-44.51 per liter, and for spirits SEK 485.04 per liter of pure alcohol.

Tobacco tax is SEK 0.52 per cigarette (or SEK 10.40 per pack) plus 15 percent of the retail price, and SEK 0.35 per cigar and cigarillo. Pipe tobacco is taxed at a rate of SEK 384 per kilogram, snuff at
SEK 75 per kilogram, and chewing tobacco at SEK 123 per kilogram.

Most passenger cars are not subject to sales tax. For heavy vehicles such as trucks it is a minimum of SEK 6,000 (as of October 1, 1996). New cars and other light vehicles are also taxed with a scrapping fee of SEK 1,300.

© 1996 by Invest in Sweden Agency