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 (see above).
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.
General start-up expenses for generating and maintaining business income are, as a rule, deductible for Swedish tax purposes.
New interest deduction limitation rules entered into effect on 1 January 2019 and apply from financial years commencing after 31 December 2018.
As a main rule, 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, 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%. 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.
In addition, a general limitation on the right of deduction applies on negative net interest in the corporate sector. The right of deduction is based on a so-called earnings before interest, taxes, depreciation, and amortisation (EBITDA) rule with a 30% deduction limit. Negative net interest, which is not allowed to be deducted according to this EBITDA rule, may be carried forward during a period of a maximum of six years. However, there is a safe harbor rule where net interest expenses up to SEK 5 million may be deducted for tax purposes. Furthermore, leasing rules that address the interest portion (but not the right of depreciation) also apply.
The recently adopted Swedish interest deduction limitations also contain an absolute prohibition of interest deductions on so-called hybrid mismatches. According to these rules, interest deductions are not allowed on interest costs in a Swedish company due to payments of interest to a foreign company with which the Swedish company has a community of interest, and where the foreign company is not taxed on the interest income due to differences in legal classifications of companies or financial instruments, etc.
Business bad debts are deductible if they are proven wholly or partially worthless.
Purely charitable contributions are generally non-deductible.
Fines and penalties
Fines and penalties are non-deductible for Swedish tax purposes.
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.