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.
The Targeted Rule
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 a resident within the European Economic Area, is a resident in a jurisdiction that has a tax treaty with Sweden and the treaty is applicable for the company, or 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 exclusively or almost exclusively for the group to achieve a substantial tax benefit.
The General Rule
In the light of the EU ATAD directive and the BEPS project, new interest deduction limitation rules entered into effect on 1 January 2019 and apply from financial years commencing after 31 December 2018. The above rules regarding intra-group loans remain with minor modifications.
According to the new rules, a general limitation on the right to deduct interest expenses applies on so-called negative net interest related to internal and external loans 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 harbour rule where net interest expenses up to SEK 5 million within a group may be deducted for tax purposes. Furthermore, leasing rules that address the interest portion for financial leasing (but not the right of depreciation) also apply.
Hybrid mismatch rules
Regulations on so-called hybrid mismatches have, in the light of the EU ATAD directive and the BEPS project, entered into force (thus extending previous hybrid mismatch regulations). Thus, an absolute prohibition of interest deductions on so-called hybrid mismatches applies as of 1 January 2019 (applying on financial years commencing after 31 December 2018). In addition, as of 1 January 2020, the hybrid regulations are extended to include further situations, as well as other expenditure than interest expenditure.
The hybrid rules shall be applied (as previously) for associated companies, but also on other procedures leading to a tax benefit. Hybrid situations involving PEs, hybrid transactions, imported mismatches, and mismatches due to double resident entities are covered by the new rules. Certain hybrid situations regarding dividends are also covered (thus constituting an exemption from the participation exemption regime). The new hybrid mismatch rules may also affect foreign tax credit rules.
Business bad debts are deductible if they are proved 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.