Taxation in Agriculture

Chapter 35. Sweden

Abstract

This chapter contains a description of tax provisions applied to agriculture in 2019, unless otherwise specified. They include taxes on income and profit, property, good and services, environmental taxes, and tax incentives for R&D and innovation.

35.1. Overview

The Swedish tax system remains the much the same since the reforms undertaken 1990/1991. At that time tax rates were lowered, the bases for taxation were broadened, taxation of capital income was separated from taxation of labour income and a uniform rate of taxation was applied to capital income. In 2019, corporate tax rates were reduced with a further reduction scheduled for 2021.

Farming plays a small role in the Swedish economy, employing less than 2% of the Swedish work force and contributing less than 2% to GDP. There are approximately 67 000 farms accounting for less than 10% of the total land area, 75% of these are commercial farms. Forests account for 69% of Sweden’s total area, of which half is owned by private people (around 320 000 forest owners, often farmers) and 25% is owned by private stock companies.

The agricultural sector receives very few exemptions under the general tax legislation and the exemptions applied are mostly not exclusive to the sector. Farm buildings, and farm and forest lands are not charged property taxes. Farmers (as well as foresters and others) are reimbursed part of the tax on energy and carbon dioxide but must pay a tax on pesticides.

35.2. Income taxation

Income tax is levied on earned income from employment and on income from self-employment. Individual capital income is subject to income tax on interest, dividends and capital gains.

The individual tax on income comprises of tax on capital, which is a state tax and tax on labour, which is partly a local and partly a state tax. The state tax is progressive. There different taxation rates applied at the local level for local income tax and tax rates vary between municipalities. In 2019, the local tax is on average 32.19%. The state income tax is 20% on incomes over SEK 490 700 and 25% on those over SEK 689 300 after personal allowance is deducted.

Members of the Swedish Church are required to pay a small percentage of their income too.

In order to increase the employment rate, Sweden has a job tax deduction (earned income tax credit). It is a state reduction of the local tax. The reduction is different for different income levels, but it is designed so that the largest percentage reduction occurs for those with the lowest income.

On income, employers pay a general employee fee to the state of 31.42% on average (there are deductions for elderly people). Until the 31 December 2021, an owner-operator business that hires an employee pays an employee fee of 10.21%. This only applies to the first employee. Self-employed pay their own employee fee (called social fee) to the state, which in general is 28.97%.

Property transfers by sale are taxed as capital gains at 30%. Ninety per cent of gains are taxed in this manner. Agricultural land is, however, often sold through property regulation. For larger land areas, the fee that is paid for a property regulation is often smaller than what the corresponding capital gains tax would have been, if it had been sold through a property transfer.

Income from farming and forest activities is taxed as business income. Farmers, are mostly are self-employed in individual businesses. There are, however, companies organised as either corporations or corporate private businesses, which affects the taxation of the company. As an example corporate businesses are (mostly) not allowed to own land in Sweden, which is solved by using a combination of both corporate and self-employed businesses. Agro-businesses are usually organised as corporate businesses (both privately owned, cooperatives and listed on the stock market).

Taxable business income is computed according to “generally accepted accounting standards” and the accounting records form the basis for taxation. The principles of accrual accounting apply to all businesses regardless of size. Tax rules for depreciation of buildings, machinery and inventories are also the same for all businesses, including farming. As of 1 January 2019 the corporate tax is 21.4% (reduced from 22%) which will reduce further to 20.6% from 1 January 2021.

Two options are available to businesses to plan their tax levels by depositing capital in profitable years and withdrawing it in years when they experience losses. For instance under the accrual fund, businesses can allocate up to 30% of net profits into a tax allocation reserve. Businesses can have a maximum of six funds at the same time (one for each year). To counteract an increase in income businesses can add a new fund. After a maximum of six years, the funds must be dissolved and added to income. Businesses can withdraw from multiple funds at the same time, but always from the oldest first. Placing a part of taxable income in an accrual fund helps with balancing tax costs for companies over time.

Alternatively all self-employed businesses may place a portion of their taxable income in an expansion fund. Capital placed in the expansion fund are taxed at the corporate tax rate. Capital that is withdrawn from the expansion fund is regarded as income and levied at normal tax rates while at the same time the corporate tax, levied at the time of the deposit, is refunded. The aim of the expansion fund is to free up capital for investments and to make the tax rules between self-employed and stock companies equivalent. There is no time limit for when capital put in an expansion fund should be returned. The maximum level for an expansion fund is 128.21% of the capital base (which is the same as the amount of capital in the business plus the expansion fund tax of 22%).

In order for the tax rules to be equivalent between individual business activities and stock companies, there is the possibility of a positive interest rate distribution. It can give individual businesses a lower tax by moving part of the profit in the individual business activity from taxation in the income category to business activity to taxation in the income category capital.

Positive interest rate distribution is possible if there is a positive capital base in the business of more than SEK 50 000. A certain interest rate (6.49% for 2018) on the capital (the allocation amount) is calculated and then the amount is moved from income from business activity to income from capital. The moved income is taxed at 30%, like other income in capital. The transferred amount is not included in the basis for calculating the social fee and is not pensionable.

Self-employed farmers with forest areas can make a tax deduction from the taxable business profit, similar to setting aside capital in an expansion/accrual fund. Under this mechanism the earned income will be taxed another year, at the latest ten years after the deduction, enabling owners of forest property to balance their income over time.

There is no depreciation on agricultural land. All businesses are subject to the same tax rules for depreciation of buildings, machinery and inventories, including farming. There is a special provision for depreciation for drainage and roads for forestry intended to encourage investment in these areas.

35.3. Property taxation

The taxation value of property is established via periodical real estate assessments. Residential houses on farms are subject to a property levy, while other farm buildings, farmland and forest land are not.

The tax on transfers by inheritance and gifts was abolished 1 January 2005.

A stamp duty is levied at the time of acquisition of real property and the registration of mortgages. There is no special treatment of agricultural land.

There are some restrictions on agricultural property acquisition and use but these are outside of taxation law.

35.4. Tax on goods and services

The standard value added tax (VAT) rate is 25% but a reduced rate of 12% applies to food including milk and cereals (sold to dairy farms or mills) and non-alcoholic beverages. and some other areas for example restaurant services, hotel accommodation and camping. The 25% rate applies to live animals, tobacco and alcoholic beverages.

Tax is levied on energy and carbon dioxide. Farmers (and a small selection of other sectors) have the possibility of being reimbursed 99% of the energy tax on electricity and part of the carbon dioxide on fuel. For example until 30 June 2019, farmers are reimbursed SEK 1 430 m³ of the carbon dioxide tax on fuels used for tractors and harvesters. After that, the repayment is SEK 1 930 m³. However, between 1 July 2019 and 31 December 2019, the repayment is SEK 2 430 m³.

Whereas for coloured fuel used for heating and stationary engines on the farm, i.e. for grain dryers, farmers are reimbursed 70% of the energy tax and 0% of the carbon dioxide tax.

Farmers involved in commercial greenhouse farming have the possibility of buying fuel at a reduced tax level.

Exemptions from energy and carbon dioxide taxes apply to biogas used for vehicles or heating, vegetable oils used for heating, and bio-fuel in motor fuel. Energy taxes on electricity from renewable energy sources can be reimbursed.

35.5. Environmental taxes

See the section above for the description of the tax on energy and carbon dioxide.

Sweden was one of the first countries in the world to introduce taxes on pesticides based on the volume sold. The purpose of this tax, introduced in 1984, is to reduce the use of pesticides for health and environmental reasons. The tax was increased stepwise from SEK 4 per kilo active ingredient to SEK 34 per kilo active ingredient from 2015.

35.6. Tax incentives for R&D and innovation

All businesses employing staff to undertake R&D are able to pay an employer contribution discounted by 10% for these staff. However self-employed people, that pay their own social fee, are not allowed to make this discount which is only applicable for the employment contribution.

35.7. Other taxes

There are some special tax provisions, although not specific to agriculture, frequently used by self-employed businesses or small firms. For instance, small businesses can share profits with an assisting wife, husband or equivalent person. There is also the possibility for small businesses to be granted favourable tax conditions by employing a younger or older person.