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Sweden introduces new rules for import VAT
Also published in Bloomberg BNA Tax Planning International: Indirect Taxes, October 2014
In 2013 the Swedish Parliament decided that VAT registered companies will account for import VAT to the Swedish Tax Authority instead of to the Swedish Customs Authority; bringing the rules into line with other EU jurisdictions and abroad, eg Australia. Taxand Australia and Taxand Sweden take a look at import VAT and how the new rules in Sweden mirror those already in place in other jurisdictions.
For entities registered for VAT in Sweden, the new accounting rules will imply a cash flow advantage compared with the current scheme, under which import VAT is paid to the Customs Authority and a refund is given by the Tax Authority at a later time.
Under the existing Swedish system VAT registered importers pay import VAT to the Swedish Customs Authority in connection to the physical importation of the goods. The refund of the import VAT paid is made by the Swedish Tax Authority at a later time. Apart from the negative cash flow aspects that follow with the current system this also means that the importers are forced to address 2 different authorities with their potential questions arising from the import. Deductibility of the import VAT is not granted until the periodical customs bill has been received, either by the importer or by a freight forwarder, for example, acting as an importing agent on behalf of the owner of the goods. If the import VAT is deducted before the periodical customs bill has been received, the importer may be levied a tax penalty amounting to, normally, 2%. This error is quite common and in most cases the Tax Authority levies a tax penalty in spite of the fact that the deduction would have been granted if done 1 or 2 months later.
Since the present system is regarded to be at a competitive disadvantage - especially in terms of cash flow - for companies which import goods into Sweden compared with imports made into certain other EU Member States, Sweden will now introduce a system where the import VAT is accounted for in the VAT return. The tax base for the import VAT will continue to be calculated as it is currently. The VAT registered importer shall report the output VAT attributable to the imported goods when the periodical customs bill is issued by the Customs Authority. The deductibility will arise in the same period with the effect that an importer who is entitled to a full deduction will never have to pay any import VAT. When the importer uses an agent, the importer will likely be electronically informed about the tax base for the import VAT.
The importer needs to be registered for VAT in Sweden at the time when the Swedish Customs Authority issues the customs classification and taxation decision, in order to be granted to report the import VAT to the Tax Authority. If the importer is not registered for VAT at this time, the importer will have to pay the import VAT to the Customs Authority and get the refund from the Tax Authority at a later time (if possible).
If the importer uses an agent who is jointly liable to pay the custom duty and the import VAT, the agent will not be taxed for the import VAT under the new rules. Instead the importer will be the taxable person in these situations based on the fact that the imported goods are attributable to the importers business activity, ie not to the agents business.
The new rules in Sweden will not only be more in line with other EU countries but will also be more consistent with the importation regimes in other countries around the world. By way of comparison, Australia operates a similar scheme to that proposed in Sweden - known as the Deferred GST (goods and services tax) scheme. GST on importations into Australia is ordinarily collected by the Australian Customs and Border Protection Service (in addition to any customs duty) at the time of importation. Importers that are registered for GST would also ordinarily be entitled to an input tax credit in respect of the GST paid on taxable importations but not until they lodge their next GST return. The eligibility criteria includes, but is not limited to:
- Being registered for GST purposes in Australia
- Lodging GST returns on a monthly basis (rather than quarterly)
- Dealing with the Australian Taxation Office electronically when lodging GST returns
- Making any GST payments
Participating importers operating in Australia are not required to pay the amount of GST in order for the importations to clear customs. They will instead include that liability on their next GST return and claim the corresponding credit which would ordinarily result in a net neutral position in from a GST perspective in respect of the importation.
The new Swedish system implies an important cash flow improvement as well as a simplification of the regulations and procedures linked to the importation of goods made by companies that are registered for VAT in Sweden. The new system also leads to a uniform VAT handling of goods that are transferred from other EU Member States and goods that are imported from countries outside the EU, ie both are, if appropriate, reported in the Swedish VAT return which should simplify the handling. Apart from this the new system can be expected to decrease tax penalties for deducting the import VAT before the periodical customs bill has been received, significantly.
The new rules in Sweden will come into effect on 1 January 2015.
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The new system is not applicable to companies, domestic or multinational, that are not registered for VAT in Sweden. The reasoning behind this is that non VAT registered importers are not entitled to a refund of the import VAT and therefore the Swedish Parliament did not consider it motivated for such importers to obtain a credit by paying the import VAT in a VAT return that is filed monthly, quarterly or annually, instead of paying the import VAT immediately to the Customs Authority. For such importers the import VAT is a cost in the same manner as customs and the VAT should therefore be treated similarly.
It is likely that these new rules will have a substantial positive effect for companies selling products on the Scandinavian market using different warehousing schemes in Sweden in order to facilitate its Scandinavian business activities. It will bring Sweden in line with other similar deferral schemes that operate in the EU and other countries around the world. Multinationals and domestic companies alike should stay abreast of all legislative developments in this area, in order to remain compliant.
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