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Income Tax in Sweden


Personal Income Tax:

Tax Return:

Individual tax returns must be filed no later than 2nd May of the year following the income year (calendar year). Extension until 31st May be possible. The calendar year is tax year.

Tax Rates:

For Resident:

Income tax table for 2017 – Employment income and Business income.

Municipal Income Tax on Earned Income and Business income.

Levied with 32.12 % (average rate) on total of taxable income.

National Income Tax on Earned Income and business income

Taxable Income
Tax on Lower Amount
Tax within bracket
439,000-638,500
0
20%
Above 638,500
39,920
25%

The maximum marginal rate on earned income is approximately 60%.

Personal Earned Income Allowance

Full Year Residents

Total Income
Allowance
19,000-44,600
19,000
44,700-121,600
19,100-34,400
121,700-140,200
34,500
140,300-352,200
34,400-13,300
352,300 and above
13,200

Part Year Residents receive:

A prorated portion of the minimum SEK 13,200 full year allowance.
   
Personal tax credit for People in Work (Work Allowance)

Total Income
Credit
100,000
9,672
300,000
22,968
500,000
26,472
700,000
25,512
900,000
23,580
1,100,000
21,660
1,300,000
19,728
1,500,000
17,808

The example calculations above is assuming a municipal tax rate of 32.12% (average rate for 2016) and that the tax payer is tax resident in Sweden during the whole year of 2017.

Income tax table for 2017 – Investment income

The income from investments is taxable at a flat rate of 30%.

For Non Resident:

For year 2017 the income from employment is taxable at a flat rate of 20%.

From year 2015 the income from business is taxable at a flat rate of 25%.

National Income Tax on Business Income

Taxable Income
Tax on lower amount
Tax Rate
439,000-638,500
0
20%
Over 638,500
39,920
25%

The maximum marginal rate on earned income is 50%.

For year 2017 the income from investment is taxable at the rate of 30%.

Residency Rule:

An individual is considered a resident in Sweden for tax purposes if one of the following three conditions is met:

· The individual has his/her real home and dwelling in Sweden.

· The individual stays in Sweden during a lengthy period of time (permanent stay) and with only occasional interruptions.

To be considered to stay in Sweden during a lengthy period of time, the individual must have stayed in Sweden continuously during six months. Tax Agency practice based on case law suggest that two days per week on average with overnight stays during a six months period could trigger Swedish tax residency. The employee is unlimited tax liable from day one in Sweden, if he has stayed in Sweden during a lengthy period of time.

·  has essential connections with Sweden (and has been a prior resident in Sweden).

A prior resident in Sweden are considered to have essential ties with Sweden during five years after departure, if he doesn’t prove that he does not have any connections with Sweden. To keep a home in Sweden is a strong factor to still be considered to have essential connections with Sweden.

When deciding whether an individual is a resident or non-resident all days count as a day in Sweden; workdays, non work days and travel days as long as they stay in Sweden during that day.

Exempt Income:

· Reimbursed moving expenses

Moving expenses, including transportation of the employee and his/her family, when the move is induced by a change in the place of employment.

· Private medical care

Free private medical care is currently tax-free. However patients’ fees for care within the government financed medical system will be taxed if reimbursed by the employer.

· Group life assurance plan

Normal contributions to a group life assurance plan.

Deductions from Income:

In regard to employment income, the tax allowable items include expenses for travel between home and office to the extent that such expenses exceed SEK 11,000 and certain criteria are met. Increased cost-of-living during business trips, temporary assignments away from home and other necessary expenses related to the employment are allowable to deductions subject to certain restrictions.

For 2017, a resident taxpayer is granted an income-related personal allowance ranging from SEK 13,200 to SEK 34,500. For part-year residents, an allowance of SEK 13,200 is granted on a pro rata basis.

Alimony paid to a divorced spouse is deductible if the liability is established through a written agreement or by a court order. Alimony payments received constitute taxable income. Maintenance paid to children is not deductible.

Interest not attributable to a business activity is fully deductible against investment income. Where investment income totals a loss not exceeding SEK 100,000 the taxpayer is entitled to tax relief equal to 30 percent of the loss. Any portion of the loss exceeding SEK 100,000 will entitle the taxpayer to a tax relief of 21 percent. The tax credit can be used to set-off national and municipal income tax and the municipal real property fee. Any excess/loss cannot be carried forward.

A tax reduction on employment income was introduced from 1 January 2007.

Taxable Income:

Employment income:

All remuneration from employment, whether in cash or in kind, is treated as taxable income. Director’s fees, bonuses, commissions, pensions, annuities, allowances, tax equalisation payments, and incentives (e.g. stock options, share programs) are considered as employment income. A housing benefit, a company car, and free meals are the major taxable benefits in kind. Compensation is normally taxed when paid out (cash principle). Specific rules apply for incentives that are subject to restrictions.

Premiums to employer pension plans, which do not qualify as tax favourable pension plans under Swedish law, may be considered taxable income for the employee.

Loans from an employer to an employee at low or no interest are deemed to generate a taxable benefit. The taxable benefit is deductible as an interest cost. Note that members of management and shareholders may not be allowed to lend money from the employer due to the Swedish financial assistance rules.

Equity compensation:

Employee stock options trigger taxation as employment income when exercised. The value of the benefit should be determined as the difference between the fair market value and the exercise price.

Favourable rules regarding qualified employee stock options are implemented in 2018. The rules apply to a very restricted type of small companies under very specific circumstances.

Income from closely held companies:

Special rules apply to the taxation of income from closely held companies. Since the rules are complicated, it is recommended that PwC be contacted for advice.

Capital gains and investment income:

Individuals resident in Sweden are taxed on capital gains realised during the period of residence. All current income from bank savings, financial instruments, claims of different kinds, dividends, and gains received by a resident person is taxable as investment income. For example, interest income, dividends, gains on the sale of stock and private property, and rental income from letting real estate or apartments are taxable.

Individuals who have been resident in Sweden continue to have a tax liability on capital gains from the disposal of, inter alia, Swedish stock and similar assets during a ten-year period after they leave Sweden. This time limit is reduced in several double taxation agreements (DTAs).

Non-resident individuals are taxed on Swedish source gains (e.g. capital gains on Swedish real estate and tenant owner’s apartments).

Investment income and capital gains are normally taxed at a 30% flat rate.

Sale of real estate and apartments:

A tax rate of 22% applies to the sale of private real property and tenant owner’s apartments. Under certain circumstances, it is possible to defer the taxation of gains, up to a certain amount, from selling a private real property when a new private real property (house or apartment) is bought either in Sweden or the EU/European Economic Area (EEA) area. The deferred gain will be subject to investment income tax on a notional income computed based on the deferred gain.

Sale of stock:

Capital gains on stocks are taxed at 30%. The taxable gain on the sale of stock is the net profit (i.e. the sales price less the average purchase price for all stock of the same kind). Only 70% of the calculated loss may normally be deducted.

For non-quoted shares, the tax rate is 25% since only 5/6 of the gain is taxable. The same applies for losses on non-quoted shares (i.e. only 5/6 of the calculated loss can be deducted at 70%).

Special rules apply to the taxation of capital gains from the sale of stock of closely held companies. The rules are complicated, and it is therefore recommended that PwC be contacted for advice.

Sale of personal assets:

Gains on the sale of personal assets are taxable only if they exceed SEK 50,000 per year. The acquisition cost of personal assets is either the real purchase price or, optionally, 25% of the sales price. Other assets are taxed on the net profit without the mentioned limitations.

Employee stock options generally do not qualify as securities and trigger taxation as employment income when exercised (see Equity compensation above). Sale of the underlying share is normally taxed as capital gains.

Rental income:

Worldwide rental income from the letting of private property is normally considered as capital income. Tax is assessed on annual rentals and other income received from the real property after deduction of related expenses. For private property (house), the related expenses are deemed to amount to a standard amount of SEK 40,000 and 20% of the annual rental income. Specific rules apply for letting apartments and if the house/apartment is let to the employer.

Yield tax:

Foreign endowment policies such as life insurance policies and foreign pension insurances that are owned by the individual are generally subject to an annual yield tax.

Exchange of foreign currency:

Exchange of foreign currency as well as payment of debt in foreign currency are generally taxable as investment income.



Corporate Income Tax:

State (national) income tax:

Resident legal entities are liable for tax on their worldwide income unless tax treaties or special exemptions apply. Non-resident entities are taxed on income that is deemed to have its source within Sweden.

Taxable income is subject to corporate tax at a flat rate of 22%. All income of corporate entities is treated as business income.

Taxable Income:

Inventory valuation:

Inventories (stock-in-trade) are valued at acquisition cost or market value, whichever is lower. As an alternative, inventories may be valued at 97% of the total acquisition cost, which is determined on a first in first out (FIFO) basis. The last in first out (LIFO) method is not permitted. Generally, inventories should be stated at the same amount for tax and accounting purposes.

Capital gains:

There is a capital gains tax exemption for Swedish corporate entities on gains related to the disposal of shares held for business reasons.

Shares in Swedish corporations can qualify as shares held for business reasons. Unquoted/unlisted shares will always be considered as held for business reasons. Quoted/listed shares are considered held for business reasons if the company has a holding corresponding to at least 10% of the voting rights or the shares are held in the course of the business. An additional condition regarding quoted/listed shares is that the shares must be held for a period of at least one year. Under certain conditions, tax exemption also applies to shares in foreign companies.

Note that non-tax-exempt capital gains are included in business income and taxed at the corporate tax rate of 22%.

Shares in partnerships (tax transparent entities) and indirect holdings via partnerships are also included in the participation exemption regime.

An exception from the capital gains tax exemption applies for the sale of shares in a 'shell company', which is a company or partnership where the market value of cash, shares and other marketable instruments (other than shares held for business reasons), and similar assets exceeds 50% of the consideration paid for the shares. The sale of a shell company results in harsh taxation of the gross consideration. Provided certain formalities are fulfilled, however, it is possible to avoid such taxation.

A consequence of the participation exemption is that capital losses on shares or participations held for business reasons are not deductible.

Capital losses on portfolio holdings of shares, share options, convertible debentures, and similar financial instruments are allowed only as an offset to capital gains on the same group of financial instruments.

Certain special rules apply to computation of capital gains and losses on real estate.

Dividend income:

A participation exemption applies for dividends received on shares held for business reasons (see above) and on qualifying holdings via partnerships. A tax deductible dividend paid by a foreign company (i.e. not only EU/European Economic Area [EEA] companies) under a hybrid arrangement is though subject to Swedish corporate tax for the recipient Swedish company.

Interest income:

Interest received by a corporation is included in the corporate tax basis.

Royalty income:

Royalty received by a corporation is included in the corporate tax basis.

Foreign income:

Companies resident in Sweden are taxed on their worldwide income. Non-resident entities are taxed on income that is deemed to have its source within Sweden.

A Swedish corporation is taxed on foreign branch income. Double taxation normally is avoided by means of either a deduction of foreign tax, or a foreign tax credit.

Dividends and capital gains from foreign subsidiaries are generally exempt from taxation according to the participation exemption provisions applicable to shares held for business reasons.




Deductions from Income:

Depreciation, amortisation, and depletion:

Depreciation on fixed assets:

Land improvements may be depreciated at the rate of 5% per year of the acquisition cost. The maximum allowance is 100% of the tax basis of the improvement.

Buildings may be depreciated at rates between 2% and 5% per year of the taxable basis, depending on type and usage of the building. The maximum allowance is 100% of the tax basis of the building.

For machinery and equipment, the depreciation for tax purposes should correspond to the depreciation charged in the books and accounts, as long as the total net value of the assets is not less than the 70% of net value in previous accounts plus additions less proceeds of sales (i.e. 30% declining-balance depreciation) or cost less 20% per year (i.e. 20% straight-line depreciation on remaining assets). An alternative 25% declining-balance method without correspondence to the books also exists.

Immediate deduction of certain assets:

The cost of assets having an expected life of no more than three years and the cost of assets not exceeding certain limits, depending on size of operations, may be deducted immediately. Certain costs for repairs, maintenance, and modifications of buildings may also be deducted immediately.

Amortisation of intangibles and goodwill:

The amortisation of patents, leaseholds, and acquired goodwill follows the same rules as depreciation for machinery and equipment, provided these assets have been acquired from another party.

Depletion of mines and quarries:

The entire cost of mines and quarries may be depleted over their expected exploitation period. These depletion amounts may be deducted annually but are limited to 100% of the acquisition cost of the mine or quarry.

Start-up expenses:

General start-up expenses for generating and maintaining business income are, as a rule, deductible for Swedish tax purposes.

Interest expenses:

Interest expenses on external loans are fully deductible, whereas interest paid to affiliated companies are deductible only if an exception applies under the Swedish interest stripping restrictions and to the extent that the arm’s-length principle is complied with. Under the interest stripping restrictions, and in brief, a deduction is not allowed for interest accruing on an intra-group loan unless the true creditor within the affiliated group (i.e. the person entitled to the interest) is taxed on the interest income at a rate of at least 10% or it is shown that the debt is based on commercial reasons. Regardless, a deduction may be refused if the debt structure has been put in place mainly for the group to achieve a substantial tax benefit.

Bad debt:

Business bad debts are deductible if they are proven wholly or partially worthless.

Charitable contributions:

Purely charitable contributions are generally non-deductible.

Fines and penalties:

Fines and penalties are non-deductible for Swedish tax purposes.

Taxes:

Generally, Swedish taxes are not deductible for tax purposes. However, specific taxes, fees, and foreign taxes may be deductible. Recoverable VAT is not treated as an expense or cost.

Net operating losses:

Tax losses may be carried forward indefinitely but may become subject to restrictions and/or forfeiture upon ownership changes, mergers and demergers, dispositions with creditors, and certain other reorganisations. No carryback of losses is possible.

Payments to foreign affiliates:

Transactions with affiliates not liable to tax in Sweden must be at arm’s length. Formal transfer pricing documentation requirements apply.





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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.


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This blog is Created by CA Anil Kumar Jain.