Taxes and fees in General

The Public Sector
In the national accounts the Swedish public sector is divided into three parts: the state, the municipalities and the social insurance sector. In terms of number of employees, the municipal sector makes up the bulk of the public sector.

The municipal sector comprises 288 municipalities, 24 county councils and a large number of parishes within the Church of Sweden. The county councils are mainly responsible for health care and public communications. The municipal authorities are responsible, among other things, for schools, care of the elderly and public services.

The state sector comprises ministries, county administrations and a large number of civil service administrations with subordinate regional and local authorities and units. By international standards the ministries are small and responsibility for imple-menting the decisions reached on government level has essentially been transferred to the central civil service administrations (e.g. the National Tax Board).

The social insurance sector has very few employees and can be seen primarily as an accounting label to which certain charges and transfer expenses can be assigned, predominantly those relating to the supplementary pension system. Classification of what can be included under the social insurance system changes over time.

The public sector employs approximately 40 per cent of the working population. Of these, approximately 80 per cent work within the municipal sector and 20 per cent in the state sector.

Tax revenue is generated mainly through income tax, VAT, excise duties and employers' contributions.

Taxable income in Sweden falls into one of the following three income categories:

- income from employment
- income from capital
- business income

The different types of income are subject to different tax rules and tax rates.

Income from employment

Taxation of income from employment is implemented by means of a deduction of:

- approximately 26-34% in municipal tax
- state tax of 25% (1997) on taxable income over SEK 209,100.

Typical forms of income that fall within this cate-gory are:

- salaries, pensions, periodic payments and other similar cash payments
- all types of benefits, e.g. meals, free use of a company car and free travel
- compensation for expenses, daily allowances, travel allowances etc.

There are other forms of income that can be classified as income from employment. These include certain transactions between partners in a close company and the company itself.

Deductions within the income from employment category are quite limited. In principle a deduction is permitted for costs necessary to acquire the income in question. However, there must be a very strong link between the costs and the income. The deductions granted apply mainly to:

- travel to and from work
- business travel using a private car
- increased living expenses in conjunction with business travel.

Separate rules apply to seamen through a pay as you earn system.

Income from capital
Generally speaking all income that falls into this income category is taxed at a rate of 30 per cent (1997) whatever the size of the income.

Examples of income are:

- dividends
- interest
- gains on the sale of shares, bonds, real estate, personal belongings and similar assets
- income from letting an apartment or private residence where this does not constitute business income.

On the sale of a private dwelling only 50 per cent of the profit is taxable. The payment of tax can be deferred if an equivalent dwelling or tenant-owner dwelling is purchased within twelve months of the year of the sale. On the sale of real estate owned for business purposes, 90 per cent of the profit is taxable.

A capital deficit is not always deductible in full. Only 70 per cent of the deficit in excess of SEK 100,000 is deductible.

If there is a total capital deficit, a deduction cannot be made against other forms of income. Instead, a tax deduction is granted against the other taxes payable, amounting to 30 per cent of the total deficit.

Business income
The rules governing taxation of business income are generally the same for both limited companies and business activities carried on by individuals. Basically, all income from business activities istaxable. Income from capital falls under business income if the capital in question has been investedin the business.

The tax rates for individuals who carry on business operations are the same as for income from employment. Limited companies, however, pay only 28 per cent of their taxable income in tax.

Taxable income is calculated according to "generally accepted accounting principles" and is therefore linked strongly to the company's accounts. The calculation is based on the basic principles of busi-ness economics with minor adjustments for pure taxation reasons.

Deductible expenses include everything required to maintain and develop business operations.

Stocks are valued at the lower of the acquisition value and the net realisable value, based on the first in first out (FIFO) principle. When the actual acquisition cost is used in the valuation of the whole stock, 97 per cent of the value is taken up in themajority of cases.

Depreciation is permitted annually on assets invested in operations. For equipment, one method used allows depreciation of 30 per cent per annum on the book value of the remaining equipment. Alternativ-ely, depreciation can take place at a rate of 20 per cent per annum on the acquisition value of remaining equipment. The cost of equipment with an economic life of less than three years and equipment of a lesser value can be depreciated in full. The term equipment of lesser value normally refers to equipment costing less than SEK 2,000. For large companies the limit is SEK 10,000.

In the case of buildings, depreciation on a straight -line basis is permitted at a rate of 2-5 per cent of the acquisition cost depending on how the building is used.

Employers' contributions are deductible when calculating the taxable income from business activities. For further details, reference can be made to the section dealing specifically with these charges.

Profit equalisation is possible in the majority of business activities. A maximum of 20 per cent of the profit may be allocated in this manner. The amount allocated should be reversed and subjected to taxation within five years of the year of its allocation.

Losses may be carried forward from year to year (with no time restriction). In the case of purchased loss-making companies, however, there are certain restrictions on loss deductions.

Limited companies are permitted to have an alternative financial year which ends on the last day of April, June, August or December. Dispensation can be granted for a financial year that deviates from this.

Income tax returns
Both individuals and legal entities are obliged to file an income tax return every year.

For individuals with a relatively simple income situation, a simplified preprinted tax return proposal is presented which the individual can complete, sign and return to the Tax Office. Of almost 7 million tax returns in the country, approximately 5.5 million were simplified tax returns.

This simplification presupposes that employers, banks etc. submit the necessary information to the Tax Authority.

Other individuals who conduct business operations, as well as legal entities, file separate tax returns. The filing of a tax return by business enterprises is facilitated by permitting business information to be submitted by computer.

VAT
VAT is a state sales tax. VAT is levied at all stages in the production and distribution chain on the value added at each stage and is then reported to the state. Hence the name value added tax. The tax can also be said to be a multi-stage tax as it covers several stages and is distinguished by the fact that the most recent stage normally carries the right to make a deduction or claim an entitlement to repayment of tax already paid. It is thus the difference between VAT on sales (output VAT) and VAT on purchases made (input VAT) which is reported to the state. The tax is thus paid only by persons who are not obliged to file a VAT return and persons who are not entitled to repayment.

The sale of certain goods and services is free of tax. Those who supply such goods and services do not report output tax , nor are they entitled to make a deduction for input tax. However, there is a right to repayment of input tax on certain goods and services. In the case of goods and services that are exported there is also the right to repayment of input tax.

Tax liability
Tax liability, i.e. the obligation to pay tax to the state, arises when the taxable sales of goods or services within the country form part of professional business activities.

VAT should also be paid on the value of acquisitions from other business entities in other EU countries liable for VAT (intra-community acquisitions) and on imports (goods and services imported into Sweden from locations outside the EU). VAT is not levied on exports (goods and services exported from Sweden to locations outside the EU).

Taxation functions relating to VAT are exercised by the Tax Authorities and the Customs Authorities. Now that Sweden is a member of the EU, border procedures governing trade between EU countries have ceased. VAT on goods acquired within the EU is handled instead through domestic taxation arr-angements in each country. For Sweden this means that the Tax Authority is the authority that deals with taxation on purchases of goods from other EU countries.

The Tax Authorities deal with taxation of sales within the country and EU acquisitions and the customs authorities deal with taxation of imports.

In conjunction with the 1990/1991 tax reform the VAT base was broadened (primarily within the service sector). Nowadays, all sales of goods and services are in principle liable for tax.

Certain areas are exempt from tax, e.g.

-   health care, dental care and social welfare
- certain forms of education and training, e.g. compulsory junior/secondary education, high school education and further education
- banking and financing services
- insurance services
- transfer and sale of various real estate rights.

Tax rates
There are three different VAT rates, 25 per cent, 12 per cent and 6 per cent.

Taxation base
VAT is levied as a certain percentage of the taxation base. The taxation base is the price of the goods or service excluding VAT.

The general tax rate is 25 per cent, which is charged on the turnover of all goods and services with the exception of foodstuffs, hotels, campsites and passenger transport (12 per cent) and newspapers available to the general public and certain goods and services within the cultural sector (6 per cent).

Formal regulations
All persons/entities liable for tax are obliged, regardless of the size of the tax base, to apply for registration and to report and pay VAT. This means that all persons/entities liable for tax should furnish the Tax Authority with information relating to output and input VAT.

Reporting of VAT*
VAT is reported either by the person liable for tax, filing a special VAT return, or by providing details in the income tax return.

An entity liable for tax with a tax base of up to SEK 1 million in a financial year should report the VAT in the income tax return. In this case the VAT should be included under debited taxes.

For tax bases exceeding SEK 1 million, the company should report VAT in a separate VAT return. This is done once a month.

An entity liable for tax which is not obliged to file an income tax return (bankruptcy estates, trading * The term tax base under this heading refers to the tax base excluding intracommunity acquisitions and imports. companies and European Economic Interest Grouping, EEIG) should, however, regardless of the size of the tax base, report VAT in a separate VAT return. If the tax base is SEK 200,000 or less per financial year, the Tax Authority can decide that the reporting period should be a full financial year.

An entity liable for tax which has a tax base higher than SEK 40 million per financial year should submit a VAT return on the 20th of the month after the end of the reporting period covered by the return.

An entity liable for tax which has a tax base of SEK 40 million or less should submit a VAT return no later than the 5th of the second month after the end of the reporting period.

Payment should be made at the same time that the VAT return is filed. The back of the VAT return contains a paying-in slip which can be used for payment through the postal giro system. The postal giro system reports amounts paid into the account to the Tax Authorities on a daily basis by means of account statements and on tape to the National Tax Board. Following reconciliation the amount paid is recorded for each entity liable for tax.

The VAT returns where the output VAT is higher than the input VAT and which are paid through the postal giro system, arrive at the Tax Authority after the information on the return has been read optically.

The VAT returns where the input VAT is higher than the output VAT are sent directly to the Tax Authority where they are registered. After being checked, VAT is repaid by the Tax Authority.

Those liable for tax who sell goods to VAT-registered purchasers in other EU countries should file a periodic list every quarter, a so-called quarterly statement containing information about the purchaser's VAT registration number and the value of sales. The quarterly statement should be filed with the CLO (Central Liaison Office) at the National Tax Board.

Excise duties
Special consumer taxes, excise duties, are levied on selected goods and services. The majority of excise duties were introduced for a variety of reasons other than simply providing the state with income. The duties are also a means of controlling consumption. Typical excise duties include duties on energy, spirits, wine, beer and tobacco. These are among the oldest taxes in Sweden.

Of the thirteen different excise duties, the following can be mentioned in particular.

Tax on fuel
Fuels, e.g. petrol, oil, coal and LPG, (liquefied petroleum gas) are subject to an energy tax and a carbon dioxide tax. The energy tax on petrol varies from SEK 3.41 to SEK 4.03 per litre, and the carbon dioxide tax is SEK 0.86 per litre.

Diesel oil is subject to an energy tax of SEK 1,524 -2,018/m 3 depending on the environmental classi-fication, and a carbon dioxide tax of SEK 1,050/m 3. The energy tax on heating oil is SEK 654/m 3 .

There is also a sulphur tax, which is levied at SEK 30/kg sulphur for solid or gaseous fuels and for liquid fuels SEK 27/m 3 for each 1/10th of the percentage by weight of sulphur in excess of 0.1 per cent by weight.

Tax on electric power
An energy tax of SEK 0.113/kWh is levied on electric power. In the case of electric power used for district heating systems, for example, the tax is SEK 0.091/ kWh. Manufacturing processes in industrial opera-tions are not subject to tax on electric power.

A separate tax of SEK 0.022/kWh is levied on electric power generated at nuclear power stations.

Alcohol tax
Tax is payable on sales within the country of beer, wine and spirits. The tax varies according to the alcohol concentration and is SEK 1.45/litre and percentage volume for beer, SEK 9.20 - 44.50/litre for wine and similar beverages and SEK 494/litre of pure alcohol for spirits.

Tobacco tax
Tobacco tax is SEK 0.66/cigarette and 16.4 per cent of the retail price and SEK 0.44 on each cigar and cigarillo. Pipe tobacco is taxed at SEK 489/kg. The tax on snuff is SEK 96/kg and on chewing tobacco SEK 156/kg.

Other excise
Other excise duties include gambling tax, premium tax on group life assurance policies, advertising tax, lottery tax and tax on pesticides, fertilizers and natural gravel.

Tax on alcohol gives the state SEK 11 billion, tax on fuels (including operation of engines and heating) SEK 38 billion, tax on electric power SEK 8 billion, tax on advertising SEK 1 billion and tax on tobacco SEK 7 billion. An income of over SEK 60 billion is generated through excise duties (1995).

Administration of excise duties
The excise duties are reported by means of a return system for the person/entity registered (in certain cases not registered) as a person/entity liable for tax. The excise duties return should, with certain exceptions, cover pre-set periods. As a rule the calendar month is the reporting period. A person/entity obliged to file a return should register with the Taxation Authority. The regulations governing the duty to register apply, among other things, to all persons/entities liable for payment of the so-called harmonised excise duties. Separate excise duties legislation includes regulations governing the point at which the tax becomes payable. For excise duties on goods the main rule is that tax becomes payable when the taxable goods are delivered.

According to the principal rule the return should be received by theTax Authority no later than the 25th of the month following the end of the reporting period. Tax returns applicable to lottery taxes and, in general, alcohol tax, tobacco tax and energy tax, should be received by the taxation authority no later than the 20th of the month following the end of the reporting period. The final date for filing a tax return is also the final date for paying the tax.

Excise duties are largely administered for the whole country by the Tax Authority of the County of Dalarna and within this authority by the Special Tax Office in Ludvika. The office there has a staff of 80 who also have other duties. The office also handles repayment of VAT to foreign companies, foreign delegations and to certain authorities. Excise duty audits are conducted from four locations in the country (the Tax Authorities in the counties of Stockholm, Gothenburg and Bohus, Skåne and Dalarna).

EU harmonisation within certain areas
Separate rules apply within the EU to mineral oils, alcohol and tobacco. Special administration rules applicable to the above categories of goods have been introduced within the EU. These regulations have been incorporated into Swedish legislation. The rules mean, among other things, that companies can be given status as authorized warehouse keepers with a tax ware house. In such ware houses goods subject to purchase tax may be manufactured, processed, stored, received and consigned without payment of tax. The tax is paid when the goods are released for consumption and in the country in which consumption takes place. Companies can also be registered as the receiver of goods (registered trader) and pay tax on a monthly basis. In the case of imports from a third country to a non-registered party, the tax is paid to the Customs Authority.

When the goods are sent from one country to another within the EU they should be accompanied by a administrative accompanying document (AAD) with a detailed description of the contents. This is signed for by the recipient who thereby assumes responsibility for paying tax on the goods. This process replaces border controls between EU member states. In the case of exports from the EU the document is completed by an authorised Customs Office.

The names of the authorized warehouse keepers (and the tax ware house) as well as the registered trader, are entered into a register (SEED) for each country. The Tax Authority in each country has access to this register and can respond to enquiries about whether a stated registration number matches a person registered for tax.

Road tax
Road tax is levied in the form of a fixed, annual tax and varies according to kerb weight for passenger cars, motorcycles, tractors and motorised machinery or according to the total weight for trucks, buses, tractors, heavy off-road vehicles and trailers.

The road tax on a petrol-driven passenger car with a kerb weight of 1,200 kg is SEK 1,032 per year. For a double-axle, diesel-powered truck with a total weight of 16 tonnes the tax is SEK 10,062 per year. The tax collected in 1996 totalled over SEK 4 billion. The Tax Authority of the County of Örebro handles road tax for the whole country while the National Road Administration traffic register administers current taxation.

Social security contributions
An employer is obliged to pay social security contributions for each employee. The definition of salary also includes other forms of remuneration paid by the employer. A person who is self-employed is obliged to pay his/her own social security contributions.

The charges for the employer amount to approximately 33 per cent of the salary. People who are self-employed pay approximately 31 per cent of the net income from business operations.

Social security contributions are paid along with the preliminary tax. For self-employed persons there is a reconciliation procedure linked to the taxation of business activities.

Real estate tax
A state real estate tax is levied on private, single-family homes, residential buildings on farms, rented residential and business premises, apartment blocks and industrial premises. Calculation of the real estate tax is based on the tax value. For the residential part of a building constructed in 1991 or later, no real estate tax is levied for the first five years and for the following five years the tax is reduced by half. For a single-family home and for the residential part of an apartment building the tax is 1.7 per cent of the tax value and 1.0 per cent for the other types of premises in the building. For industrial premises the tax is 0.5 per cent. For the 1997-2001 assessment years a reduction in real estate tax can be granted in certain cases. The maximum reduction for 1997 is SEK 10,000, after which there is a gradual reduction of 20 per cent per year.

Real estate taxation
Real estate taxation is designed in such a way that each building has a tax value equivalent to approximately 75 per cent of the market value. The tax value is used to calculate real estate tax, inheritance tax, gift tax and wealth tax. Real estate taxation takes place through general and special real estate taxation as well as recalculation. General real estate taxation assessment takes place every second year as part of a preset plan. Special real estate taxation assessment can take place every year for those real estate categories not subject to a general real estate taxation assessment. This takes place if a property has undergone material hanges since the previous taxation assessment.

In the case of a general real estate taxation assess-ment, the real estate owner is obliged to file a real estate return. The basic values decided in conjunction with public and special real estate taxation assessments are adjusted each year in the light of the changes in prices. The recalculated base value is the tax value.

Service and Control
The overall aim of the Tax Administration is "the right tax in the right way." This vision consists of two parts -service and control. An important task for the authority is to balance these two parts correctly and achieve the maximum results within the prescribed resource framework.

The duty to provide service means that the Tax Administration should help individuals and companies in such a way that the information they furnish is accurate. In doing so loyalty to the tax system increases, which in turn facilitates the work of the Tax Administration.

The control process is conducted through customary desk examinations, visits (a more in-depth level of control than a desk examination) and tax audits. The tax audit control means that all the company's accounts etc. can be examined on the company's premises. Such a measure requires a special decision and contains specific stipulations as to how an audit should proceed.

The control is also aimed at increasing loyalty to the tax system and is also a preventive measure. Control is also used to monitor how the tax system is working.

All returns that have been filed (collection, VAT, income, excise duties and real estate returns) are subject to basic approval control. The augmented control which then takes place is generally directed at the corporate sector. Control of salaried employees is carried out generally by the Tax Authority checking to ensure that the companies are meeting their obligations and that the information provided is correct and complete. The augmented control is primarily forward-thinking, i.e. it ought to create a guarantee that information in the future is correct. For this reason controls in the majority of cases are limited to the most recent returns that have been filed.

The choice of which returns are to be checked is done based on the size of the taxes and charges being handled by the individual company and also according to the probability of error. This leads to control activities being divided into two parts. One part - planned control - is directed at the largest companies while the other - selective control - covers the majority of business enterprises and other bodies that have more a complicated income or wealth situation.

Desk examination
A desk examination is the simplest and most com-mon means of checking the information in different forms filed by an entity liable for tax. The person carrying out the examination does so based on existing material and possibly by contacting the person/company in question by telephone or letter.

Visit
This is a more in-depth level of control compared with the desk examination. The visit entails the examiner carrying out certain controls in conjunction with the visit to the person/company or through some other form of personal meeting. During a visit only pre-set, delimited matters may be discussed. A visit can be made in conjunction with the examination of income, VAT, collection and excise duty returns.

Audits
A tax audit often involves a broad, in-depth examina-tion of the company's accounting records. Certain audits are directed at specific areas, i.e. they are carried out to improve the basis on which decisions are made regarding VAT, income tax, tax deducted at source, excise duties and employer's contributions. Other tax audits are designed as a follow-up to ensure that the company provides correct control information. An audit can also be carried out by computerised means. When there is more than one kind of tax that is audited these audits can take place in an integrated way. The Tax Authority thus checks a number of taxes and charges at the same time. The majority of audits are carried out in the form of selected audits, the primary feature being that the audit subject is selected from those companies for which the tax office in question has specific responsibility.

Selected audit
A certain proportion of the augmented controls are carried out by the Tax Authority with the aim of investigating whether the tax assessment system is functioning as intended. This control procedure is directed at the largest companies as they handle the majority of the taxes and charges paid in. The Tax Authority does not make any actual selection and the group that is being checked is the target of the examination according to a pre-set plan. The audits are thus carried out without suspicion of any irregularities.

Planned audit
A number of planned audits of the biggest enterprises in the country are designated co-ordinated planned audits. This means that companies that are included in a group of companies are audited on a collective basis at the same time.