The current rules have been criticized for being complex and rigid, as well as a significant administrative burden for both taxpayers and the Swedish Tax Agency. The general rule is that all letting of real estate is exempt from VAT, with certain exceptions. However, if certain conditions are met, it is possible to tax the letting of business premises for VAT purposes.
Registration is granted by the Tax Agency following a detailed application procedure. This includes listing the tenants, specifying down to the square meter how much of the property is used by each tenant, and whether it is for VAT-able or non-VAT-able purposes. Registration cannot be retroactive, however, which has had severe consequences for the possible recovery of input VAT and the penalties levied.
In 2009, draft legislation was presented by the Ministry of Finance. It proposed mandatory VAT liability for all letting of real estate, except for residential dwellings, with no possibility to opt-out.
However, before the proposals reached Parliament they were subject to public consultation. They received massive criticism from businesses and organizations which faced new restrictions on their ability to recover VAT, such as banks and non-profit organizations. Consequently, the legislation was put on hold indefinitely.
In April 2012, the Ministry of Finance looked at the issue again. It ordered the Tax Agency to analyze the options for simplifying the VAT treatment of letting real estate within the framework of the existing legislation. One possible solution was based on a German model where the owner of the property decides whether or not the letting of the property should be subject to VAT, without any specific registration or involvement of the Tax Agency.
However, the Tax Agency’s report to the Ministry of Finance in June 2012, implies that it does not fully support the proposal. The Tax Agency foresees that the lack of obligation to register premises with the Tax Agency, although reducing administration, could lead to other problems as a result of the complexity of the current regime.
The Tax Agency suggests that to successfully abolish the registration procedure first requires a fuller simplification of the existing system. As an alternative solution, the Tax Agency proposes to make it possible to register premises for VAT purposes with retroactive effect. It is still unclear what the Ministry of Finance’s response will be.