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). If the intangible assets have been internally generated, the amortisation for tax purposes should follow Swedish generally accepted accounting principles (GAAP).
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.
Interest paid to affiliated companies is, as a main rule, deductible if the true creditor is resident within the European Economic Area, in a jurisdiction covered by a full DTT, 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 virtually exclusively for the group to achieve a substantial tax benefit. It should be noted that one of the previous interest deduction limitation rules (effective between 2013 and 2018) has been found to be incompatible with the freedom of establishment by the European Court of Justice in the Lexel case.
In addition, in the light of the EU ATAD directive and the BEPS project, a general interest deduction limitation rule entered into effect on 1 January 2019. The general limitation on the right to deduct interest expenses applies to negative net interest related to internal and external loans in the corporate sector and is based on an 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.
In addition, as of 1 January 2021, deductions on interest expenses on debts, both internal and external, to a company within a jurisdiction that is placed on the EU list of non-cooperative jurisdictions are non-deductible.
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 and other expenditures on so-called hybrid mismatches applies. 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. In addition, extended hybrid mismatch rules covering certain transparent companies (so-called reverse hybrid mismatches) have recently entered into force.
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.