Corporation Taxation System in Sweden

Corporation Taxation System in Sweden

Corporate Income Tax Rate at a Glance

Corporate Income Tax Rate (%) 28

Capital Gains Tax Rate (%) 28

Branch Tax Rate(%) 28

Withholding Tax (%)

Dividends 20 (a)

Interest 0

Royalties from Patents etc 0 (b)

Branch Remittance Tax 0

Net Operation Losses (years)

Carry back 0

Carry forward Unlimited

(a)  This withholding tax applies to non residents. In general no withholding tax is imposed on dividends paid to foreign companies other than companies regarded as tax-haven companies. If the payer is a company listed on the stock exchange, an exemption is granted only if the recipient holds at least 10 % of the voting rights of the payer for more than one year.

(b)  Royalties paid to non residents are not subject to withholding tax but are taxed as Swedish-source income at the normal corporate rate of 28 % of the net income. However, under most treaties the tax rate is reduced. Sweden has enacted legislation implementing the European Union directive on interest and royalties (2003/49/EC).

Taxable Income

Income from all business activities is aggregated as one source of income – income from business. Corporate income tax is levied on all corporate income of company incorporated in Sweden. Non resident corporations are only subject to tax on Swedish-source income.

Corporate income tax is based on taxable business income computed according to the accrual method of accounting.

Capital Gains

No special assessment exists for capital gains, but special rules apply to the calculation of the amount of capital gains and losses. In general capital gains on business related shares are exempt from tax (see Dividends below). Taxable capital gains income is aggregated with other corporate business income. Capital gains are subject to tax when transactions are closed, regardless of the holding period or when payment is received.

Dividends

In general, dividends received from Swedish companies on business related shares are exempt from tax. Dividend distributions on other shares are fully taxable. Shares are deemed to be business related if they are not held as current asset and if the following requirements are met:

-  The shares are unlisted

-  The shares are listed and the recipient of the dividends owns at least 10 % of the voting power of the payer for more than one year or,

-  The shares are held for organizational purposes.

Dividends received from foreign companies are exempt from tax if the dividends satisfy the conditions for exemption with respect to dividends on shares in Swedish companies and if the distribution foreign company is equivalent to a Swedish limited liability company (AB).

Relief for Losses

Losses may be carried forward indefinitely. Losses may not be carried back. The tax law includes restriction the use of old losses of acquired companies. In general the possibility of offsetting the losses of an acquired company through a group contribution may in certain circumstances be restricted during a five-year period. The rules also include a restriction under which the amount of losses that may be used is limited to twice the amount paid for shares. Special restrictions also apply to the possibility of using losses with respect to mergers.

Foreign Tax Relief

Under Swedish law, a Swedish company may usually claim a credit against corporate income tax liability for comparable taxes paid abroad. Sweden applies a so called overall tax credit system. However, certain tax treaties may override internal foreign tax credit rules and instead exempt foreign-source income from Swedish tax.

Group contribution

There is no consolidated treatment whereby all companies in a group may be treated as a single taxable entity. However, rules permit income earned by companies in a corporate group to be distributed within the group through the use of group contributions, which are deductible for the paying corporation and taxable income for the receiving corporation. In general, group contributions may be made between Swedish group companies if ownership of more than 90 % exists during the entire financial year. This rule applies even if a foreign parent or subsidiary is in the group structure. A Swedish permanent establishment of a foreign company resident in an European Economic Area state is treated as a Swedish company for purposes of the group contribution rules.

Thin capitalization

No thin capitalization rules exist in Sweden. The companies act, however, requires the compulsory liquidation of a company if more than 50 % of the share capital is lost without replacement of new capital.

Controlled foreign companies

A Swedish company that holds or controls directly or indirectly at least 25 % of the capital or voting rights of a foreign low-taxed entity (CFC) is subject to current taxation in Sweden on its share of the foreign entity’s worldwide profits in the ownership or control exists at the end of the Swedish company’s fiscal year. Foreign companies are considered to be low taxed if their net income is taxed at a rate of less than 15.4 % on a base computed according to Swedish accounting and tax rules. However, the CFC rules do not apply to foreign entities resident in jurisdictions on the so-called “white list”. If Sweden has entered into a tax treaty with a jurisdiction on the white list, an additional requirement for the exemption is that the foreign entity and its income be eligible for treaty benefits.

Transfer Pricing

The Swedish law on transfer pricing is based on the arm’s length principle. As a result, in general, the OECD transfer pricing guidelines apply. Under new rules which are effective from 1 January 2007, a Swedish company that is part of a multinational group must have formal transfer-pricing documentation in place with respect to cross-border transactions.

Dividends Royalties Dividends Royalties

Residence
of recipient / Normal Treaty
Rate / Reduced Rate
(b)(d) / Normal Treaty Rate / Reduced Rate / Residence of recipient / Normal Treaty
Rate / Reduced Rate
(b)(d) / Normal Treaty Rate / Reduced Rate
Albania / 15 / 5 / 5 / - / Lithuania / 15 / 5 / 10 / 5
Argentina / 15 / 10 / 15 / 10(c) / Luxembourg / 15 / 5 / 0 / -
Australia / 15 / - / 10 / - / Macedonia / 15 / 0 / 0 / -
Austria / 10 / 5 / 10 / 0 / Malaysia / 15 / 0 / 8 / -
Bangladesh / 15 / 10 / 10 / - / Malta / 15 / 0 / 0 / -
Barbados / 15 / 5 / 5 / - / Mauritius / 15 / 5 / 15 / -
Belarus / 10 / 5(c) / 10 / 5(c) / Mexico / 15 / 5(c) / 10 / -
Belgium / 15 / 5 / 0 / - / Morocco / 0 / - / 0 / -
Bolivia / 15 / 0 / 15 / - / Namibia / 15 / 5(c) / 15 / 5
Botswana / 15 / - / 15 / - / Netherlands / 15 / 0 / 10 / -
Brazil / 25 / - / 25 / - / New Zealand / 15 / - / 19 / -
Bulgaria / 10 / - / 5 / - / Norway / 15 / 0 / 10 / -
Canada / 15 / 10(c) / 10 / 0 / Pakistan / 30 / 15 / 10 / -
China / 10 / 5 / 10 / 7 / Philippines / 10 / 0 / 15 / -
Cyprus / 15 / 5 / 0 / - / Poland / 15 / 5 / 10 / -
Czechoslovakia (e) / 10 / 0 / 5 / 0 / Portugal / 10 / 0 / 10 / 0
Denmark / 15 / 0 / 0 / - / Romania / 10 / - / 10 / -
Egypt / 20 / 5 / 14 / - / Russian Fed. / 15 / 5 / 0 / -
Estonia / 15 / 5 / 10 / 5 / Singapore / 15 / 10 / 0 / -
Faeroe Islands / 15 / 0 / 0 / - / South Africa / 15 / 7.5(c) / 0 / -
Finland / 15 / 0 / 0 / - / Spain / 15 / 10 / 10 / -
France / 15 / 0 / 0 / - / Sri Lanka / 15 / - / 10 / -
Gambia / 15 / 5(c) / 12.5 / 5 / Switzerland / 15 / 0 / 0 / -
Germany / 15 / 0 / 0 / - / Taiwan / 10 / - / 10 / -
Greece / 0 / - / 5 / - / Tanzania / 25 / 15 / 20 / -
Hungary / 15 / 5 / 0 / - / Thailand / 20 / 15 / 15 / -
Iceland / 15 / 0 / 0 / - / Trinidad and Tobago / 20 / 10 / 20 / 0
India / 10 / - / 10 / - / Tunisia / 20 / 15 / 15 / 5
Indonesia / 15 / 10 / 15 / 10 / Turkey / 20 / 15 / 10 / -
Ireland / 15 / 5 / 0 / - / Ukraine / 10 / 5(c) / 10 / -
Israel / 15 / 5 / 28 / 0 / UK / 5 / 0 / 0 / -
Italy / 15 / 10 / 5 / - / USA / 15 / 0(g) / 0 / -
Jamaica / 22.5 / 10 / 10 / - / Venezuela / 10 / 5 / 10 / 7
Japan / 15 / 5(c) / 10 / - / Vietnam / 15 / 10(c) / 15 / 5
Kazakhstan / 15 / 5 / 10 / - / Yugoslavia / 15 / 5 / 0 / -
Kenya / 25 / 5 / 20 / - / Zambia / 15 / 5 / 10 / -
Korea / 15 / 15 / 15 / 10 / Zimbabwe / 20 / 15 / 10 / -
Latvia / 15 / 10 / 10 / 5 / Non treaty
Countries
/ 30 / - / 0 / -

(a)  Royalties paid to non residents are not subject to withholding tax, but are taxed as Swedish-source income at the

normal corporate rate of 28 %. Under certain treaties the rate of tax may be reduced.

(b)  The reduced tax rate applies if a parent owns at least the minimum percentage of the paying company prescribed

by the relevant treaty.

(c)  The rate of tax is further reduced if specific conditions are satisfied.

(d)  No withholding tax is imposed on dividends paid to foreign companies owing at least 25 % of the capital of the

payer.

(e)  Sweden applies the treaty with former Czechoslovakia to the Czech Republic and the Slovak Republic.

(f)  Sweden applies the treaty with former Yugoslavia to Bosnia-Herzegovina, Croatia, Serbia and Montenegro and

Slovenia. Sweden has entered into a treaty with Macedonia.

(g)  The protocol treaty between Sweden and US entered into force 31 August 2006. The provisions on withholding

taxes in the protocol apply to amounts paid or credited on or after 1 October 2006. Under the protocol the

withholding tax rate for dividends may be reduced to 0 %, subject to the new limitation-on-benefits article.

Contacts

Sara Bolmstrand
Manager / Ernst & Young AB
International Tax Services (ITS)
Direct/Mobile: +46 8 520 591 13
Fax: +46 8 520 511 13
E-Mail: . com / P.O. Box 7850, 103 99 Stockholm
Sweden
Visiting Address:
Jakobsbergsgatan 24
Messenger/Delivery Address:
Lästmakargatan 21
Web:www.ey.com/se
Carl Pihlgren
Partner / Ernst & Young AB
Corporate & International Tax Services
Office: +46 8 520 590 00
Direct: +46 8 520 595 22
Mobile: +46 703 51 77 12
Fax: +46 8 520 515 22
E-Mail: / Jakobsbergsgatan 24
P.O. Box 7850
SE-103 99 Stockholm
Sweden
Messenger/Delivery Address:
Lästmakargatan 21 A
Web:www.ey.com/se