International Tax Sweden Highlights In Plain English 1701 Pennsylvania Ave NW, Suite 200 Washington, DC. 20006, USA Phone : +1 202 792 6600 www.CastroAndCo.com Investment basics: Surtax – There is no surtax. Currency – Swedish Krona (SEK) Alternative minimum tax – There is no alternative minimum tax. Foreign exchange control – No Taxation of dividends – Dividends received Accounting principles/financial statements by a Swedish resident company from – Principles applied are in accordance another Swedish company normally are with the Annual Accounts Act, the Swedish exempt from tax, provided the shareholding Accounting Standards Board, the Swedish is business-related. Dividends received Financial Accounting Standards Council and from a nonresident company also may be the Swedish Institute of Authorized Public exempt if the shareholding is business- Accountants. related (see under “Participation exemption,” below). Even if qualifying for the exemption, Principal business entities – These are the dividends will not be exempt if the dividend private/public limited liability company (AB), payment is treated as a tax-deductible partnership (KB and HB), sole proprietorship, expense in the country of the payer and branch of a foreign company. company. Other dividends are included in Corporate taxation: business income and taxed at the corporate tax rate applicable for the financial year. Residence – A corporation is resident in Sweden if it is incorporated in accordance Capital gains – Capital gains derived from with the Companies Act. the sale of shares in a resident company normally are tax- exempt if the shareholding Basis – Residents are taxed on worldwide is business-related. The sale of shares held income. Nonresidents are taxed on business in a nonresident company also can qualify income from real estate or a permanent as tax-exempt if the features of the foreign establishment (PE) in Sweden, income company are similar to those of a Swedish derived from the disposal of a Swedish limited liability company or a Swedish housing association and dividend income economic association and the shareholding from shares in Swedish associations. A is business-related (see under “Participation royalty payment made to a foreign recipient exemption,” below). Taxable capital gains is deemed to constitute a PE for the foreign are regarded as other business income and recipient and is taxed accordingly. Branches taxed at the corporate tax rate applicable are taxed in the same way as subsidiaries. for the financial year. Taxable income – Corporation tax is Losses – Losses may be carried forward imposed on a company’s profit, which indefinitely. Restrictions apply after a consists of all types of income. Expenses direct or an indirect change of ownership. incurred in obtaining or safeguarding income The carryback of losses is not permitted, subject to tax normally are deductible. although the application of the tax allocation reserve may be viewed as a type Rate – 21.4% for financial years starting of loss carryback. after 31 December 2018 but before 1 January 2021. Foreign tax relief – Foreign tax paid may be credited against the Swedish tax on foreign income. Tax year – Corporations normally use a financial year consisting of a 12-month Participation exemption – The participation period ending on 31 December, 30 April, 30 exemption applies to dividends received June, or 31 August, but can use a 12-month by a Swedish resident company from period ending on the last day of any month another resident company and to capital of the year. gains derived from the sale of shares in a resident company, provided the shares Consolidated returns – Consolidated tax qualify as business-related (shares held returns are not allowed, but contributions as inventory do not qualify). Unquoted between Swedish group companies are shares constituting fixed business assets allowed under certain circumstances to always are deemed to be business- equalize profits and losses. related. Quoted shares that constitute fixed business assets are deemed to be Filing and payment – There are four business-related if the participation is at different dates for filing the annual least 10% of the company’s voting rights corporate income tax return: or is considered necessary for conducting • For companies with a financial year the business of the company whose shares ending between 31 January and 30 April, are held. In addition, quoted shares must the return is due on 1 November (paper be held for at least one year. In certain returns) or 1 December (electronic returns) cases, the participation exemption may of the calendar year in which the financial be extended to dividends received and year ended. capital gains derived from the sale of shares in a nonresident company. However, • For companies with a financial year the features of the foreign entity must be ending between 31 May and 30 June, similar to those of a Swedish limited liability the return is due on 15 December (paper company or economic association. Shares returns) of the calendar year in which in an EU resident company can qualify as the financial year ended or by 15 January tax-exempt even if the shares are held as (electronic returns) of the calendar year inventory, provided the holding represents after the calendar year in which the at least 10% of the capital. An exemption financial year ended. also exists for partnerships or holdings in partnerships. Special rules apply to • For companies with a financial year investment companies. Even if qualifying for ending between 31 July and 31 August, the the participation exemption, dividends will return is due on 1 March (paper returns) or not be tax exempt if the dividend payment 1 April (electronic returns) of the calendar is treated as a tax-deductible expense in year after the calendar year in which the the country where the payer company is financial year ended. resident. • For companies with a financial year Holding company regime – There is no ending between 30 September and 31 holding company regime. Incentives – There December, the return is due on 1 July are no incentives. (paper returns) or 1 August (electronic returns) of the calendar year after the Compliance for corporations: calendar year in which the financial year ended. A preliminary return must be filed income, employment income, and capital no later than one month before the start income. An individual may be subject to of the tax year, and monthly estimated both national income tax and municipal tax payments must be made during the income tax (the latter is imposed only on year based on the preliminary return. A earned income). final tax assessment is issued within six months from the tax return filing deadline, Rates – Employment income is taxed at and either a refund is issued, or a final national progressive rates of approximately balance must be paid. 30% to 52%. One- time reimbursements are taxed at standard rates of a maximum Penalties – A fee of SEK 6,250 is imposed 57% and capital income (dividends, interest, for late filing, with additional fees up to SEK capital gains) is taxed at 30%. 18,750 if no return is submitted within five months from the filing deadline. A surcharge The average municipal tax rate is around equal to 40% of the tax due is imposed if 32% and is imposed on total taxable the taxpayer has omitted information or employment income, less a personal provided false information on the return. allowance. A basic national income tax If filing is incomplete or no return is of 20% is imposed on taxable income submitted, the tax authorities may estimate exceeding SEK 509,300. In total, a maximum the tax payable. Interest is charged on rate of approximately 53% may be imposed. outstanding taxes. On rare occasions, depending on the municipal rate, the highest tax rate can be Rulings – Advance rulings may be issued up to 56%. Business income is taxed at the by the Council for Advance Tax Rulings same rate as employment income. to a resident or nonresident company on Capital gains – Capital gains generally are corporate income tax, VAT, real estate tax included in capital income. and the application of the general anti- avoidance rule. Deductions and allowances – Personal allowances adjusted in relation to the total Individual taxation: amount of income are available. Expenses Residence – An individual living or regularly incurred for acquiring or maintaining income residing in Sweden is considered resident are deductible against the same source of for tax purposes. An individual that income. Other deductions from employment previously lived in Sweden is deemed to be income include alimony, work-related travel resident even after departure from Sweden expenses and increases in living expenses if he/she retains essential ties with Sweden, resulting from work-related travel or such as a permanent home or family. maintenance of more than one dwelling. A tax reduction equal to 50% of the labor Basis – Swedish residents are taxed on costs relating to housekeeping is available, worldwide income. Nonresidents are taxed but the reduction is limited to SEK 50,000 only on Swedish-source income, including per year. There also is a tax reduction equal pensions and certain capital gains. to 30% of the labor costs relating to repair, maintenance and rebuilding of a private Taxable income – An individual’s income dwelling, up to SEK 50,000 per year. These is divided into three categories: business reductions cannot exceed in total SEK 50,000 per person, per year. exemption applies under a tax treaty, Swedish domestic legislation, or the EU Foreign tax relief – Foreign tax paid may be parent-subsidiary directive. A specific anti- credited against the Swedish tax on foreign avoidance rule applies for withholding tax income. purposes. Compliance for individuals: Interest – Sweden does not levy withholding tax on interest payments. Tax year – Calendar year Royalties – There is no withholding tax Filing status – Spouses and children are on royalty payments.