Are Charity Donations Deductible Under Swedish Tax Law?

Poverty, war, hunger and climate change. The list of terrible things in our world can be made long. Luckily, however, there are philanthropists all over the world that help those in need. Also, more and more companies focus on their Corporate Social Responsibility (CSR). But doing so, in a high tax country like Sweden could cost you a lot in taxes. Still, there are some clever tax possibilities to ease the tax burden.

Can a Swedish company deduct costs for charity donations?

The main rule, according to Swedish tax law, is that only costs with the purpose of maintaining or earn income are deductible. Usually, all activities that a company perform, are aligned with this purpose.

Contrary, according to Swedish tax law, gifts are not deductible. This rule applies both to individuals and companies/corporations.

However, by reason of case law from the Swedish Supreme Administrative court, there is a possibility for Swedish companies to deduct expenses for charity. In the latest case from the court on charity deductibility, a company had made donations for ‘climate compensation’. The company was granted deduction with the cost of the donations, since the following requirements were fulfilled:

• The charity donations were tied to the company’s field of business,

• The charity donations had been used in the company’s marketing, which had led to increased revenue.

Accordingly, charity expenses can be deducted, if the charity was performed as a way of branding that leads to income/revenue. However, the legal situation is somewhat ambiguous, and a case-by-case analysis should always be conducted, to achieve certainty on the deductibility. Also, a company should assess what documentation it can use, in order to prove for the Swedish Tax Agency (Skatteverket) that the grounds for deduction are fulfilled.

Can a private individual deduct costs for charity donations in Sweden?

As mentioned earlier, the general rule is that charity donations are not deductible under Swedish tax law. However, the Swedish Government introduced new legislation on 1st of July 2019, that opened up a possibility to get a ‘tax credit’ for charity expenses.

According to the rules, a Swedish tax resident can get 25 % of donations to approved charity organizations back, as a tax credit. However, the maximum tax credit per year is 3 000 SEK, i.e. the tax credit is capped after giving 12 000 SEK. If the charity donations fall below 2 000 SEK, no tax credit is granted.

By reason of the relatively low cap, the rules might not always be satisfactory for a person wanting to donate to charity.

Can entrepreneurs living in Sweden do tax free donations to charity?

There is also a possibility for a Swedish tax resident, to abstain from his/her dividend rights from their own limited liability company (“Aktiebolag”), to the benefit of a charity organization, which makes the dividend distributed tax free for the individual.

This possibility was created as a result of a verdict from the Swedish Supreme Administrative Court. It is important, though, that the receiving charity organization is exempt from Swedish tax. This is usually the case for many Swedish charity trusts (“välgörenhetsstiftelser”).

The procedure, to donate tax free dividends, is quite technical, and requires a tax lawyer to set it up. Currently, it is beyond doubt the best way for a Swedish tax resident to donate funds to charity in a tax free manner.

Please reach out to us, if you are in need of tax advice regarding charity donations according to Swedish tax law.