THE SWEDISH TAX SYSTEM Dr Erik Norrman Department

THE SWEDISH TAX SYSTEM Dr Erik Norrman Department of Economics School of Economics and Management

Erik Norrman - School of Economics and Management 2 Contents A global view The structure of the Swedish tax system Collection, filing and control system Challenges

Erik Norrman - School of Economics and Management 3 The Swedish Tax System - a Global View…

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Erik Norrman - School of Economics and Management 5 Total tax revenues in Sweden, EU and OECD, 1966-2000, % of GDP

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Erik Norrman - School of Economics and Management 12 The Structure of the Swedish Tax System… The Personal Income Tax Social Security Contributions The Corporate Income Tax Real Estate Taxation Wealth Taxation Indirect Taxation Transaction Taxes

Erik Norrman - School of Economics and Management 13 Indirect taxes Social security Direct taxes Taxes in percent of GDP

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Erik Norrman - School of Economics and Management 16 The Personal Income Tax National tax on earned income - progressive Local tax on earned income - proportional National tax on capital income - proportional World-wide basis applies

Erik Norrman - School of Economics and Management 17 Paid on income shares above $40,000

Erik Norrman - School of Economics and Management 18 Earned Income Income from employment - wage income - benefits in kind assessed at market value Income from business activities - as self-employed - as a partner in a partnership

Erik Norrman - School of Economics and Management 19 Family Taxation Spouses as well as children are taxed separately for all income No spouse allowances No children allowances

Erik Norrman - School of Economics and Management 20 Deductions No standard deductions Itemised expenditures exceeding SEK 1,000 may be deducted Commuting expenses exceeding SEK 7,000 may be deducted Pension contributions up to SEK 19,000 is deductible

Erik Norrman - School of Economics and Management 21 Capital Income + Interest payments received + Dividends received + Capital gains realised during the year - Interest expenses deductible = Capital income

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Erik Norrman - School of Economics and Management 23 Social Security Contributions Employer´s contributions (pension, health, on the job accidence etc) 33 percent Additional negotiated pension fees Employee pension contribution 7 percent (75% of fee is credited against income tax)

Erik Norrman - School of Economics and Management 24 The Corporate Income Tax Tax rate 28 percent Classical double taxation Special rules apply to closely held companies Inter-company dividends tax-exempt as well as capital gains on unlisted companies

Erik Norrman - School of Economics and Management 25 Institutional Investment Life-insurance companies and Pension funds are taxed on a notional basis Mutual funds and investment companies pay taxes on net interest and dividends received. Capital gains are tax exempt but a notional return is calculated (1,5%-2,0%)

Erik Norrman - School of Economics and Management 26 Real Estate Owner-occupied houses: 1,0% of an assessed value equal to 75% of the market value is paid as property tax Other real estate: 0,5% of an assessed value

Erik Norrman - School of Economics and Management 27 Other Capital Taxes Net wealth tax 1% of the value above - 1,5 MSEK for individuals and - 2,0 MSEK for spouses No tax on ”working capital” in unlisted firms or OTC-stocks Inheritance and gift taxes

Erik Norrman - School of Economics and Management 28 Indirect Taxation - VAT The tax base is harmonised within the EU Tax exempt services are: - Medicare - Public education - Social care - Financial intermediation - Insurances

Erik Norrman - School of Economics and Management 29 VAT - Rates Normal rate 25% (exclusive basis) Cultural activities, books and newspapers 6% Personal transportation and foodstuff 12%

Erik Norrman - School of Economics and Management 30 Excise Duties Alcohol Tobacco Energy

Erik Norrman - School of Economics and Management 31 Transaction Taxes On purchase of real estate - individuals 1,5% of acquisition value - legal entities 3,0% of acquisition value Stamp duty on collaterals for mortgage loans 2%

Collection of Income Taxes - Individuals 1. Preliminary income tax on wage and is withheld by employer each month during the income year 2. The next month the employer pays the withheld amount to the Tax Administration 3. In January (the assessment year) information is sent to the Tax Administration including total income and tax withheld for each individual 4. Filing by individual 5. Final tax is calculated and sent to individual. Preliminary tax is deducted Income year Year of assessment 1. 2. 3. 5. 4.

Erik Norrman - School of Economics and Management 33 Collection of Income Taxes - Firms 1. Preliminary income tax based on last years profit or an expected profit is paid each month to the Tax Administration 2. Filing by company/individual for business activity 3. Final tax is calculated and sent to company/individual. Preliminary tax is deducted Income year Year of assessment 1. 3. 2.

Erik Norrman - School of Economics and Management 34 Collection of VAT + Value added taxes on sales Value added taxes on purchases = Amount to be paid or repaid Payments are made in March for VAT in January and so on

Employers set up one declaration for all taxes Social security Wage sum 1,000,000 Fees 33% 330,000 Withheld income taxes Sum of taxes 295,000 Value Added Taxes VAT on sales 25% + 2,500,000 VAT on sales 12% + 0 VAT on sales 6% + 0 VAT on purchases EU + 0 VAT on purchases - 900,000 Amount to pay = 1,600,000 Specification of sales Within Sweden 10,000,000 Tax exempt sales 0 Exports 250,000 EU goods 700,000 EU Services 0 Collection Month: May 2004 Company name: Firm AB Registratio no: 556123-4567 Total amount to pay: 2,225,000

Erik Norrman - School of Economics and Management 36 Tax Accounts Each individual and each company has a separate tax account All taxes are debited the account All payments are credited the account A positive balance is paid out to the holder of the account

Challenges in the Future - Short Term Perspective (1-5 years) Domestic distortions - Labor supply of low-income individuals - Problems with the Dual Income Tax International tax competition - Mobile tax bases (firms, financial capital and well- educated labor) - Cross-border shopping Compliance - Black market activities - International tax evasion

Erik Norrman - School of Economics and Management 38 Challenges in the Future - Long-run Perspective (5 years -) Demographic development causes pressure on expenditures Demographic development unfavorable for tax base expansion What kind of tax structure sustains economic growth?