Commercial rent in Sweden is VAT-exempt as a main rule, yet most companies renting an office still receive a rent invoice with 25 percent VAT. The explanation is voluntary taxation (frivillig beskattning), a rule that lets the landlord add VAT to the rent when the tenant carries on a VAT-liable business. Here we go through what VAT on commercial rent means for you as a tenant, when you can deduct the VAT and what to look for in the lease.
Short answer: Letting commercial premises is exempt from VAT, but the landlord can opt for voluntary taxation and then charge 25 percent VAT on the rent. This requires you to use the premises on a permanent basis in a VAT-liable business. If you are VAT-registered you deduct the VAT, so it normally does not affect your cost.
Is there VAT on commercial rent?
The starting point in the Swedish VAT Act is that letting real property is VAT-exempt. That applies to both homes and commercial premises. For commercial premises there is an exception: the landlord can choose to add VAT to the rent, known as voluntary taxation (frivillig beskattning) and formerly called voluntary tax liability (frivillig skattskyldighet) (Swedish Tax Agency, Skatteverket).
Landlords almost always opt for VAT when they can. The reason is that the landlord can then deduct the VAT on its own costs for the premises, such as refurbishment, operation and maintenance. Without VAT on the rent, that VAT becomes a cost that ultimately ends up in the rent.
Voluntary tax liability: when can the landlord charge VAT?
Voluntary tax liability is now called voluntary taxation, but the rules are the same. It requires that:
- the premises are let for permanent use in a VAT-liable business, or to the state, a municipality or a region
- you as the tenant have an uninterrupted right to use the premises, and the lease runs until further notice or for at least one year
- the premises are not a permanent home
The landlord does not need to apply to the Swedish Tax Agency for premises that are already let. It is enough that the rent is invoiced with VAT, and the invoice must be issued no later than six months from the first day of the rental period it relates to. An application is only needed when a building is under construction and the landlord wants to deduct VAT during construction.
What does the VAT mean for you as a tenant?
| Your business | VAT on the rent | Effect on your cost |
|---|---|---|
| VAT-liable (most companies) | Yes, 25 percent | None. You deduct the VAT as input VAT. |
| VAT-exempt, for example healthcare, education, banking and insurance | No | The landlord loses its right to deduct and often charges a higher rent or a supplement. |
| Mixed business | Depends on how the areas are used | Needs to be sorted out with the landlord before the lease is signed. |
A worked example: you rent 300 square metres at SEK 2,000 per square metre per year. The rent is SEK 600,000, the VAT SEK 150,000 and you pay SEK 750,000 to the landlord. If you are VAT-registered you get the SEK 150,000 back in your VAT return, so your cost is SEK 600,000.
VAT is calculated on the whole rent. Supplements the landlord charges as part of the rent, for example for heating, cooling or property tax, are normally subject to VAT in the same way.
Are you subletting?
A tenant can also use voluntary taxation when the premises are sublet. What matters is how the premises are used at the final stage. If you sublet part of the office to a company without a VAT-liable business, it can affect both your own VAT and the landlord's, so check with the landlord before you sign a sublease. More on the setup in the guide to subletting commercial premises and in the article on sharing an office.
When should VAT on the rent be reported?
Commercial rent is usually invoiced in advance, quarterly or monthly. If you pay the rent in advance, you deduct the VAT in the period in which you pay. Otherwise the timing depends on your accounting method, normally when the invoice is recorded or paid. Similar rules apply to the landlord's output VAT (Aspia on VAT in property). Check with your accountant if you are unsure about the timing.
What to look for in the lease
- Is the rent stated with or without VAT? Rents for commercial premises are almost always stated excluding VAT. Always compare alternatives on the same basis.
- The VAT clause. Standard leases contain a clause making you liable to compensate the landlord if it loses its right to deduct because of something you do, for example changing your business or subletting. The landlord's deduction can be adjusted for up to ten years, so the amounts can be large.
- Change of business. If you plan to run VAT-exempt business in the premises, say so before the lease is signed.
VAT is one of several items that determine what the premises cost. The full picture is in the checklist for renting an office.
Frequently asked questions
Is there VAT on commercial rent in Sweden?
The main rule is that commercial rent is VAT-exempt. The landlord can opt for voluntary taxation and then charges 25 percent VAT, provided you carry on a VAT-liable business in the premises.
Can we deduct the VAT on our rent?
Yes, if you are VAT-registered and use the premises in your VAT-liable business, you deduct the full VAT as input VAT.
Why is there no VAT on our rent invoice?
Either the landlord has chosen not to use voluntary taxation, or the premises cannot qualify, for example because your business is VAT-exempt.
Is there VAT on residential rent?
No. Letting a permanent home can never be covered by voluntary taxation.
How much is VAT on commercial rent?
25 percent.
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