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 percent. 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 percent with a reduced rate of 12 percent which applies to, for example, food, restaurant and catering services, and 6 percent VAT applies to books, newspapers and the transportation of persons.
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 percent. Non-resident tax payers are taxed with a flat rate of 20 percent.
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 percent 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 percent 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 percent is levied on certain pension contributions made by employers.
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.
Director, PwC Sweden