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Proposal for new Swedish law on tax reduction for investments

Tax Alert

Published: 2020-12-15

On December 8, 2020, the Swedish Ministry of Finance circulated a proposal for new legislation entailing a new temporary tax reduction of 3.9 percent for investments in machinery and equipment. Taxpayers that acquire qualifying assets in their business operations in 2021 are eligible for the tax reduction. The law is proposed to enter into force on January 1st, 2022.

Background

Due to the pandemic, the investments made by businesses have decreased. As an incentive for businesses to increase their investments, a proposal for a temporary tax reduction has been presented, which was also announced in the 2021 budget bill. The purpose of the proposal is to increase the rate of investment and accelerate planned investments in businesses, which is expected to support the recovery of the economy.

The proposal in short

The proposal entails a temporary tax reduction of 3.9 percent of the acquisition value of machinery and equipment that are acquired from January 1st to December 31st, 2021. The tax reduction is available in fiscal years that ends on December 31st, 2022 or thereafter. The basis for the tax reduction is deferred to the next fiscal year, in whole or partially, if it cannot be utilised the first fiscal year. Taxpayers requesting the proposed tax reduction must provide information on the basis for the tax reduction in the income tax return. The tax reduction may be deducted from state and municipal income tax and property taxes. It is calculated last in the order of tax reductions.

Who is affected by the proposal?

The proposal covers legal persons and individuals that report income from business activities. This includes limited liability companies, sole proprietorships, economic associations and partnerships. For partnerships, which is not a tax subject, the tax reduction lies with the partners. Foreign legal and natural persons that are limitedly liable for income tax in Sweden are entitled to the tax reduction if they conduct business from a permanent establishment in Sweden.

The basis for the tax reduction

The expenses for acquiring machinery and equipment forms the basis for the tax reduction. The definition of the qualifying assets is in accordance with chapter 18 of the Income Tax Act, with a few exceptions. Qualifying assets acquired through purchase, exchange, own production or in a similar way forms the basis for the tax reduction. Hence, sale-and-lease-back transactions of inventory are not included. The acquisition occurs when the asset has been delivered, which is in accordance with case law.

Acquired machinery and equipment intended for permanent use in the business operations (that normally are written off through annual depreciation) are included in the basis for the tax reduction. Building equipment and land equipment are also included in the definition. The assets must remain in the business at the end of the first fiscal year for the tax reduction to be utilised.

Intra-group transactions of assets, that has been used permanently in the business operations in a group company, cannot be included in the basis. Also, certain provisions are applicable for tax exempt mergers and divisions, partial divisions and transfer of assets.

Deloitte’s comment

  • The tax reduction entails a direct reduction of tax costs of 3.9 percent of the acquisition value. This can e.g. be compared to an increased depreciation rate that only results in the tax expense being deferred. The tax reduction is thus a powerful instrument to stimulate investment and an incentive for companies to advance with planned investments in inventory in 2021, e.g. to accelerate the digitization process.
  • As noted, there is a link to the depreciation rules on inventory in chapter 18 of the Income Tax Act - with regard to assets that qualify for the tax reduction as well as when the asset is considered acquired.
  • Businesses that plan substantial investments should consider the possibility to implement these under 2021 to utilise this tax reduction.
     

Kontakta oss

Andreas Persson 
Partner, Business Tax 
apersson@deloitte.se 
+46 76 827 73 26 

Anna Persson 
Director, Business Tax 
annpersson@deloitte.se 
+46 70 080 31 32 

Lisa Dahl 
Associate, Business Tax 
lidahl@deloitte.se 
+46 70 080 33 52 

Alexander Palm 
Associate, Business Tax 
alpalm@deloitte.se 
+46 70 080 25 17 

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