How does VAT work in companies? As an individual shopper, you mightn’t think too much about VAT as the price you see in the store usually includes VAT. But as a company, whether you’re buying something for the company or selling it to customers, VAT is a big part of day-to-day work.

VAT can sound too obvious or really complicated when  doing a business. That’s why we’ve prepared this article to unravel the concept of VAT and give examples of calculations with different VAT rates and what to think about if you buy or sell outside of Sweden. Let’s start by examining what VAT is for one thing!

What is VAT?

VAT, also called VAT, is a tax that entrepreneurs must pay when purchasing goods or services. As an entrepreneur, you must pay VAT when you sell goods or services that customers pay for when they buy something. Depending on the product or service, you can add a 25%, 12% or 6% VAT rate. VAT must be declared in the VAT return, in electronic format or in paper format.

People often talk about input and output VAT and that’s exactly what we talked about above.

Incoming VAT is the VAT you pay when you purchase a product or service from the company and which you have the right to recover later. So there is no cost to you as an entrepreneur. Outgoing VAT is the opposite, it’s the VAT you add to the price of your product or service when someone buys it from you.

In short, you can say you can receive VAT. This means that input VAT can be deducted from output VAT on the VAT return. If your entry VAT at the company is higher than the outgoing VAT, you will receive the excess amount back from the Swedish Tax Office. If the outgoing VAT is higher than the input VAT, you will have to pay the Swedish Tax Office instead.

When you start a company, you must register with the Swedish Tax Office for VAT registration. If you run a sole proprietorship, you do this in conjunction with filing for F-tax. If you have a sale of less than SEK 30,000, you are not liable for VAT. However, if you still want to increase the VAT, you can choose to register VAT with the Swedish Tax Office.

 

How often should VAT be reported?

How often you have to report VAT depends on how much revenue your company has. You can choose between reporting VAT annually, quarterly or monthly if the turnover is no more than SEK 1 million.

If you have a turnover of not more than SEK 40 million, you can choose between reporting VAT quarterly or monthly. If your company’s turnover is over SEK 40 million, you have to report VAT every month.

Different VAT rates

 

We use three different VAT rates when calculating VAT in Sweden. Most goods or services have a VAT of 25%, but there are also goods and services that have 12% or 6%. Goods or services with a 12% VAT rate include food, meals, restaurants, hotels, chewing gum, soft drinks or light beer and bottled water.

Goods or services with 6% VAT are usually activities in culture or newspapers/books. For example, sports, gym, school books, newspapers, art, literature and travel. Travel includes domestic flights, boats, trains, taxis, and passenger transportation.

There are also businesses without VAT. For example, medical care, dental care, social care, banking and insurance services, and school. In some cases, you can run a so called hybrid business. Both VAT responsible and VAT free. In this case, you can only offset input VAT on the taxpayer owned part of the business.

Calculate VAT on different goods or services
Below we will examine different calculation examples with 25%, 12% and 6% VAT rates.

25%
If the price doesn’t  include VAT, you will receive the price x 1.25. For example, the service costs 5,000 SEK excluding VAT (plus VAT). In this case, the total price would be 5,000 x 1.25 = 6,250 SEK. If the price is instead SEK 5,000 including VAT, you get  first 5,000 x 1/1.25 = SEK 4,000, alternatively you can calculate backwards and calculate VAT 1-1/1.25 = 0.2 (20%). That’s 5,000 x 0.2 = SEK 1,000, and then you subtract VAT from the price to find out how much you’ll get as a company when you sell the product or service. 5,000 – 1,000 = 4,000 KR.Thus, it is possible to make both calculations to arrive at the price including VAT. Let’s do the same calculations for the other VAT rates!

%12
If the price doesn’t  include VAT, the price is x 1.12. For example, the cost of a service is SEK 5,000 excluding VAT (plus VAT). The total price would then be 5,000 x 1.12 = 5,600 SEK. If instead the price including VAT is 5,000 SEK, you will get 5,000 x 1/1.12 = 4,464 SEK, or you can calculate backwards and calculate VAT 1-1/1.12 = 0.107 (10.7%) first. VAT will be 5,000 x 0.107 = SEK 535,714 and then you subtract VAT from the price to find out how much you will receive as a company when you sell the product or service. 5,000 – 535,714 = 4,464 cents.

6%
If the price doesn’t include VAT, the price is x 1.06. For example, the cost of a service is SEK 5,000 excluding VAT (plus VAT). The total price would then be 5,000 x 1.06 = 5,300 SEK. If instead the price including VAT is 5,000 SEK, you will get 5,000 x 1 / 1.06 = 4.717 SEK, or you can calculate backwards and calculate VAT 1-1 / 1.06 = 0.0566 (5.66%) first. VAT becomes 5,000 x 0.0566 = 283 SEK and you subtract VAT from the price to find out how much you will receive as a company when you sell the product or service. 5,000 – 283 = 4,717 cents.

VAT on International sales
If you as a company plan to sell goods to consumers within the EU, you will sometimes have to pay taxes in the receiving country when the total of the product or service exceeds a certain limit value. If the amount is less than the limit value, VAT must be paid in Sweden. Different countries in the EU have different limit values.

If you sell goods to companies within the EU instead, you normally don’t t need to pay VAT if the following requirements are met:

Buyer is VAT registered in an EU country
The buyer has a valid VAT registration number (VAT)
As a seller, you have provided the correct information in the periodic summary.
The company that will purchase the product or service has to report the entry and exit VAT in the EU country where VAT is registered.

Selling services to consumers and companies outside of Sweden is often a complex issue as different countries follow different rules. If you are unsure of what applies to your sales of services, we recommend contacting the Swedish Tax Office.

If you are planning to sell goods outside the EU, it is an export and you should not add VAT to the goods, the same applies to both individuals and companies.

If you plan to sell services outside the EU, there are several factors that can affect whether or not to add VAT. In such cases, it would be best to contact the Swedish Tax Office and explain which service you sell to which country, so that they can best assist you.

summary
We hope this text has given you clarity on how to calculate VAT and prices with and without VAT for various VAT rates. Do you still think VAT feels weird? Please contact us! At Simsons Accounting Agency we have extensive experience in accounting and VAT returns. For you as a customer with us, our aim is to maximize your profits and at the same time reduce costs. Contact us by clicking the button below.

 

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