Incurring income tax liability in Sweden by means of a Swedish branch or limited company, will lead to various corporate tax questions depending on the business operated in Sweden, the financing structure, the event of a profit distribution, etc.
The statutory corporate income tax rate in Sweden is 22%. All income of corporate entities are treated as business income. Branch income is taxed at the same tax rate and general corporate tax rules apply to branch offices in Sweden.
The standard VAT rate is 25% with a reduced rate of 12% which applies to, for example, food, restaurant and catering services, and 6% VAT applies to books, newspapers and the transportation of persons.
Employee and employer taxes
The income taxation of the employee is dependent on whether the employee is considered tax resident or non-tax resident in Sweden.
The income tax rates for residents are progressive and range between 29-59%. Non-resident tax payers are taxed with a flat rate of 20 %.
Income tax relief may be available to resident foreigners with high salaries or those qualifying as experts/specialists or key employees with a vital position in the Swedish company or branch.
After application to the Taxation of Research Workers Board (Sw. Forskarskattenämnden), the tax relief provides exemption from taxes and social security contributions on 25% of all salary and benefits. In addition, benefits, such as moving costs, schooling and home travel, are tax exempt.
Mandatory employer social security contributions amount to 31.42% of gross salary and benefits and are used to fund benefits such as old age pension, survivor’s pension, health insurance, occupational injury insurance, parental insurance and unemployment insurance and also include a general payroll fee. Employees pay a general pension fee towards the funding of the social security old-age pension. The employee pension fee is capped and is allowed as a credit against income taxes.
In addition to social security contributions on remuneration to employees, a special wage tax of 24.26% is levied on certain pension contributions made by employers.
Customs and import
The import of goods to Sweden from countries outside the EU will usually result in a liability to pay customs duty and VAT, although exemptions may be available. In case the supply of goods within Sweden is exempt from VAT, the import of such goods is also exempt from VAT.
For any transactions carried out cross border between related parties (i.e. group companies or even between a head office and its branch), it is necessary to consider transfer pricing aspects, such as whether fair market prices are applied intra-group and the required level of transfer pricing documentation.
Companies must issue annual reports, which must be filled with the registration office no later than seven months after the end of the fiscal year. Penalties may be imposed for late filing.
The Annual Accounts Act requires that a company’s annual report include an administrative report, an income statement, a balance sheet, a funds statement and notes to the financial statements. The balance sheet and income statement must be drawn up according to specified formats. The company’s accounting policies must be disclosed in the annual financial statements, and the notes must address any other matters of importance related to assessment of the trading results and the financial position of the company. Details must be given of any changes in the profit and loss account or balance sheet concerning the way in which entries are grouped, or other changes substantially affecting comparisons between the accounts for the year in question and accounts for previous years. The annual financial statements must be in Swedish.
Each company or branch of a foreign concern must have an auditor, either an authorized public accountant or an appointed public accountant, although companies can elect to not have an auditor in certain cases.
Swedish GAPP requirements demand on the size and listing of the company. For listed groups, the rules are harmonized within the EU on a group level. Consolidated group reports must be prepared in accordance with International Financial Reporting Standards (IFRS).
Selection of companies for audit
The 250 largest Swedish multinational groups are, on average, audited every five years. A few hundred foreign-owned companies are audited more regularly. In recent years, the STA has taken a more risk based approach. This means that the STA is more likely to audit high risk companies, from a tax avoidance perspective. Whether a company is classified as high risk is based on a score card system. Transfer pricing is currently given a high priority in Sweden, and the audits present an opportunity for the authorities to focus on the companies’ transfer pricing policies.
During the course of the audit, the STA may examine all intra-group transactions. The audits are always conducted at the company premises, with key personnel being interviewed. The conduct of the taxpayer during the examination is likely to affect the outcome of the audit, and the early assistance of a competent tax adviser is therefore highly recommended. Where the STA believes that the arm’s-length standard has not been applied, it might sometimes be possible to achieve a negotiated settlement.
The provision of information and duty of the taxpayer to cooperate with the tax authorities
The STA may request copies of any information that is kept on the premises of the taxpayer, and it has the authority to search the premises if it considers this to be necessary.
Revised assessments and the appeals procedure
An appeals procedure is available to the taxpayer, but it is a time-consuming process. The procedure on tax cases in the first instance of the Administrative Courts normally takes two to three years, and perhaps just as long in the Administrative Court of Appeal.
Resources available to the tax authorities
The resources available for the STA to conduct transfer pricing audits have historically been limited. Today, a specialised transfer pricing team is established in the STA which is continuously recruiting more inspectors and acquiring new competence within the transfer pricing area. The effect of this team is clearly shown in the increased number of cases brought before the courts. This specialised team assists the general tax auditors in the STA with transfer pricing issues as well as performs its own targeted audits towards large companies.
For more information on declaring taxes look here . For more information on paying taxes look here.
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