SWEDEN Law and Practice Contributed by: Christoffer Dahl, Niclas Söderlund, Michel Weimer and Björn Mårtensson, XR Legal
3. Taxation of Cross-Border Income 3.1 Income From Immovable Property General Immovable properties are subject to tax in Sweden regardless of whether the owner is a Swedish tax resident or not. The owners are subject to tax on rental income (business profit) and/or capital gains for private and commercial properties (including apart - ments). Individual Property Owners To assess whether rental income should be taxed as capital income or business income for individual prop - erty owners, it must be determined whether the rental income should be attributed to business activity or capital. “Business activity” means an income-gener - ating activity that is conducted professionally (durably and with a profit motive) and independently. Holdings of business real estate and business co-operative apartments, as well as forest harvesting rights, are always considered business activity. If these require - ments are not met, the income should be classified as capital income, ie, income based on the ownership of an asset rather than a business. Divestment The main rule is that a Swedish immovable proper - ty is a capital asset and that divestment is subject to capital gains taxation. If the property constitutes stock/inventory assets for accounting/tax purposes, the income may be recategorised as business profit. Corporate Non-Residents Corporate entities are only taxed for business income, regardless of the categorisation of the income for tax purposes. Hence, rental income is taxed as business income. Swedish immovable property generally con - stitutes a permanent establishment in Sweden and is taxed as such. 3.2 Business Profits Business profits in Sweden are taxed in following ways: • General: In general, the taxable result follows the commercial accounts, with a few exceptions, such as, for example, capital gains or dividends cov -
ered by the participation exemption (which are tax exempt), certain non-deductible expenses, and dif - ferences between accounting and tax depreciation for, for example, machinery and equipment. • Corporations: A Swedish Aktiebolag (limited liability company) is only subject to business taxation. The business tax rate is 20.6%. • Individual business activity: Business profits for an individual are allocated between employment income and capital gains taxation based on the amount of capital within the business. • Business income related to a permanent establish- ment in Sweden: A foreign company with a perma - nent establishment in Sweden is taxed on income attributable to that permanent establishment and must pay income tax in Sweden. Whether a permanent establishment exists is determined under Swedish domestic law, with application of any relevant tax treaty with the state in which the company is resident. If the foreign company has a permanent establishment in Sweden which also qualifies as a Swedish branch, it is also required to fulfil accounting requirements. 3.3 Passive Income Dividends and/or Interest to Tax Residents Individuals Dividends to individuals are generally taxed at 30%. However, the applicable tax rate may vary in several cases, such as: • Shares held on an investment account (Sw: Inves- teringssparkonto , or ISK) or endowment insurance policy (Sw: kapitalförsäkrin g), which are taxed annually based on their total value rather than tax - able events such as dividends or capital gains. • Closely held companies (or founder-led compa - nies), where distributions and/or capital gains are taxed in three categories: (i) low taxed amount – taxed at 20%; (ii) employment(maximum between SEK7 million and SEK8 million) – taxed between approx. 30% and 55%; and (iii) capital income – taxed at 30%. The low taxed amount is based on, for example, invested capital and paid salaries. The amount taxed as employment income is capped, meaning that any dividend exceeding the SEK7–8 million cap is taxed as regular capital income at 30%.
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