At 28%, Sweden’s basic tax rate is one of the lowest in the world. This advantage is offset, however, by a broad rangeof high taxes – including personal income tax, value-added tax (VAT), a wealth tax and social taxes paid by employers, along with a variety of environmental taxes aimed at companies. There is no excess-profits or alternative minimum tax.
For foreign companies, the tax system favours subsidiaries over branches because a branch is not a legal entity under Swedish law. A branch may not deduct interest paid on loans from its head office and deductions on other interest payments are assessed on a case-by-case.
Advance rulings are available from the Swedish Tax Board on the tax consequences of proposed transactions.
Taxable Income and Rates
The corporate income tax rate is a flat 28% for the 2006 tax year (ie. on 2005 income), with no local or industry variations. However, companies in northern Sweden and those with only a few employees throughout the country pay less in payroll tax.
Swedish companies are taxed on worldwide income, subject to provisions of double-tax treaties. Companies are resident in Sweden if registered with the Companies Registration Office. Non-resident companies are taxed on Swedish-source income, ie income attributable to Swedish permanent establishments, etc.
Taxable Income Defined
Tax is levied on all corporate income, less expenses related to the earning of income and certain domestic source dividends, including income earned abroad when it is actually remitted (eg. as dividends) and capital gains. If a Swedish company markets abroad directly or through a branch office, the foreign profits are subject to Swedish tax as earned. Tax treaties generally eliminate double taxation; where a treaty does not exist, however, a Swedish company may claim a credit against Swedish national income tax for comparable taxes paid abroad. Under the participation exemption, qualifying inter-corporate dividends and capital gains derived in connection with sales of qualifying holdings are exempt from taxation.
In principle, all expenses incurred in the course of business are deductible, including interest, rents and royalties paid.
Flexible rules apply for inventory valuation and depreciation. Valuation is on a first-in, first-out basis or according to the lowest-value principle. Machinery and equipment may be written off either on a straight-line basis at 20% of the purchase cost per annum or on a declining-balance basis at 30% of current book value. Equipment with a maximum life of three years may be written off in the year of purchase. A third method of depreciation, which is based on the remaining depreciable value, allows companies to choose any percentages up to 25%. A company must use the same depreciation method for all machinery and equipment, but it may switch methods at the end of any year.
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