Swedish Company/Holding Company
CORPORATE TAXES IN SWEDEN
The tax structure of Sweden is transparent and efficient and designed to meet the needs of international investors. Companies can benefit from advantageous tax rules, highly favourable
structures for holding companies and tax relief for key foreign employers.
Tax friendly regime for business
Tax frameworks for business compares very favourable with other OECD countries. Corporate tax is low by international standards and is also based solely on a company´s annual profit, no license tax or local corporate tax is payable.
Swedish legislation has created a beneficial tax climate for enterprises that set up a subsidiary , a holding company or branch in Sweden. The tax package includes tax exemptions on capital gains and intra-group dividends, fully deductible interest payments, no thin-capitalization rules and no or low withholding tax on dividends. Together with other advantageous legislation, this has made Sweden on of Europe´s most attractive holding company locations.
Unilateral tax treaties with more than 80 jurisdictions help to avoid double taxation. The Swedish Tax Agency ( Skatteverket) also offers binding advance tax rulings that allow a company to ask the agency ahead of time if its specific company tax strategy is applicable.
To make it easier for companies to attract international expertise to Sweden, income tax relief is available to key foreign employees.
Competitive corporate income tax
Corporate income tax in Sweden is low by international standards at 22 percent. The effective rate can be even lower as companies have the option of making deductible annual appropriations to a tax allocation reserve of up to 25 percent of their profit.
A Swedish company is generally taxed on its worldwide income. Losses in a company can be carried forward indefinitely and deducted from taxable profit. Companies and branches that conduct business ( have a permanent place of business ) in Sweden are liable to pay tax in Sweden.
Dividends often exempt from withholding tax
Dividends distributed by a non-listed resident company to a foreign corporate shareholder are exempt from withholding tax according to Swedish domestic legislation, provided that the recipient is regarded as a “ foreign-based company” ( see definition below). Thus, dividends on non-listed shares are normally exempt from withholding tax.
Regarding listed shares, the ownership must also represent at least 10 percent of the voting rights and the shares must have been held for at least one year at the time of dividend. The standard rate of withholding tax (where applicable) is 30 percent but is waived or reduced under most double taxation treaties, if no exemption is available under domestic law.
|DEFINITION OF A FOREIGN-BASED COMPANY|
|The recipient foreign entity must be a legal entity and resident in a country with similar taxation on corporate income as Sweden. This condition is met if the net corporate income (calculated in accordance with Swedish rules) is taxed at a rate of at least 10 to 15 percent. There is a presumption of similar taxation if the company is resident in a country with which Sweden has signed a tax treaty.|
Tax exemption for capital gains and dividends received
To qualify for capital gains tax exemption, the shares must either be non-listedor, if listed, the holdings must represent at least 10 percent of the voting rights and must have been held for a period of at least one year. Shares held in foreign companies will also normally qualify for tax exemption. The tax exemption means that capital losses on shares held for business reasons are not deductible. The tax exemption also applies to dividends received by a Swedish company.
Interest costs fully deductible
Interest costs are generally fully deductible irrespective of their purpose, provided the loan is made on arm´s length terms (for instance, not a rate above market interest rate). There are no thin-capitalization restrictions for tax purposes. The added fact that withholding tax is not levied on interest makes it favourable to create structures where the return on an investment is distributed as interest. Restrictions apply to the tax deductibility of interest on intra group-loans used to acquire shares within a group. The rules do not apply to loans where the lender is taxed at a rate of at least 10 percent or where it is shown that the transfer and debt are based on commercial reasons.
Tax allocation reserve to smooth profit variations
Companies are allowed to make annual appropriations to a “tax allocation reserve “ . The aim of the rules is to offer a mechanism to allow companies to carry back losses to offset previous years profits, since Swedish tax regulation does not contain any specific loss carry-back provision. A company is allowed to make a deduction provided it does not exceed 25 percent of pretax profit for the year. Each years appropriation creates a separate reserve which must be reserved and reported to income within six (6) years after the year of appropriation.
A company is taxed on an assumed interest income corresponding to a percentage of the sum of the total opening balance of all tax allocation reserved.
Loss carryforwards-without a time limit
Losses may be carried forward without a time limit. Special rules apply when the ownership of a business changes.
|COMPETITIVE TAX RULES|
|Sweden´s holding company regime
Sweden is among Europe´s most favourable jurisdictions for holding companies due to tax exemptions on capital gains and dividends and other competitive tax rules
Capital gains and dividends from business related shares are exempt from tax. The scope of the exemption is generous compared to other countries.
The exemption applies to shares held in, or dividends received from, companies in Sweden and abroad.
Other competitive tax rules
– Low effective corporate tax rate
– Interest costs generally deductible for tax purposes
– No thin-capitalization rules
– No withholding tax on interest
– No stamp duty or capital duties on share capital
– Extensive double tax treaty network
|CONTROLLED FOREIGN COMPANY (CFC) RULES|
|The CFC rules state that a Swedish shareholder with a direct or indirect interest (25 percent of the capital or voting rights) in certain low taxed foreign entities is subject to immediate taxation on its proportionate share of the foreign legal entity´s profit. A foreign company is considered low taxed if its income is taxed at a rate below 14,465 percent, calculated under Swedish rules.
Companies resident in “approved” countries are, however, not subject to CFC taxation. Approved countries are included in a “white list” which is a part of the Swedish Income Tax Act.
No withholding tax is charged on royalties. Royalty payments made to non-resident are deemed to derive from a Swedish business and are taxed as income from a permanent place of business in Sweden. Thus the recipient is taxed in Sweden on net royalty income (that is, gross royalties less related expenses) at the ordinary corporate tax rate. Royalties paid to an associated company in an EU country may also be exempt from Swedish taxation. Sweden´s right to tax royalties is waived or reduced under most tax treaties.
Tax accounting according to international standards
Taxable income is calculated according to generally accepted international accounting standards. Taxable income is determined with reference to the accounting profits before any provision for Swedish income taxes, with any adjustments required by law.
Value Added Tax (VAT)
Swedish VAT (moms) is based on an input/output system, generally granting full credit in every line until (but not including) the final consumer. The standard rate of VAT is 25 percent. A reduced rate of 12 percent applies primarily to food, hotel accommodation , camping, and cultural and sporting events. A reduced rate of 6 percent applies mainly to newspapers, books, magazines and public transport.
Certain services are VAT-exempt. These include medical and dental care, social services, banking and financial services.
Sweden offers an attractive corporate tax climate with a favourable environment for holding companies.