Corporate tax in Sweden

The Swedish tax system

As a result of the major tax reform in 1991, Swedish tax rates are today on competitive levels with those of other West European countries. The Swedish corporate tax is, in fact, the lowest in the European Union together with Finland and Ireland.

A number of tax advantages

Here are examples of the advantages a foreign investor may benefit from:

• No foreign exchange control
• Low corporate tax rate
• Extensive tax treaty network
• Dividend participation exemption
• No Swedish tax liability on outbound interest payments
• No debt/equity limitations

The Swedish tax administration

The Swedish tax administration consists of the National Tax Board (Riksskatteverket) and ten tax authorities spread throughout the country. The National Tax Board has the overall responsibility for the Swedish tax administration and enforcement service. The major part of the tax administration's work is carried out by the local tax authorities, which are very accessible with a staff speaking good English.

Income tax

Income tax in Sweden is divided into two parts, the municipal tax and the state tax. The municipal tax varies between the different communitites, but can be estimated at between 26 and 35 per cent. The average municipality tax in the BASE region is approx. 32 per cent. The tax system comprises three income categories: wages, capital and business income.

Income from employment

All compensation a wage earner receives from his or her own labour is regarded as wage income, i.e. salary, pension, all types of benefit such as meals, travel allowances and free use of company car, compensation for expenses etc. Deductions are limited and apply mainly to travels to and from work, business travel and increased living expenses in connection with business travels.

Income from capital

Income from capital is generally taxed at a rate of 30 per cent, regardless of the size of the income. This type of income includes dividends, interest, gains on sales of shares, bonds, real estate and income from letting an apartment or private residence.

Business income

The principles ruling business income are generally the same both for corporations and individually owned businesses. Basically, all income emanating from business activities is taxable.

Corporations pay 28 per cent of their taxable income in tax. In addition to this, companies may make pre-tax allocations to un-taxed reserves, which are subject to tax only when they are utilised. If a company reports a loss, for example, certain untaxed reserves can be used to cover the loss without being taxed. The effective corporate tax is therefore approx. 26 per cent on undistributed profits. The real estate tax for industrial property is 0.5 per cent.

Working in Sweden

A person who stays in Sweden for a period less than six months, will pay tax on income resulting from sources in Sweden, but not on income arising in the country of residence. The taxable income is subject to special income tax on non-residents, which is a final withholding tax of 25 per cent.

A person who stays in Sweden for a continuous period of six months or more, will be considered as a Swedish resident from a taxation point of view and liable to pay tax on all income in Sweden and abroad. If the person is considered to be residing in his home country, a double-taxation treaty may limit Sweden's taxation rights to certain items of income.

Social security

The rights of EU/EEA citizens to social benefits and their obligations to the payment of social security contributions, are governed by EU rules and the EEA agreement. Citiziens of non-EU/EAA countries may be covered by a social security convention where applicable.

Social security charges payable in Sweden are normally covered by the employer. The basic health insurance contribution and general funding charge for cash unemployment are paid by the employee and deducted at source, as is the preliminary tax.