Starting a business comes with a long list of decisions. You need to register your company, find customers, set up your finances and work out what you actually need to get started.
One question that often gets overlooked is whether your business should register for VAT.
If you're a first-time founder or running a small business, you might assume that you don't need to think about VAT until you start making significant money. That's not necessarily the case.
Even if your turnover is low, VAT registration can affect how much your business pays for everyday expenses, whether you can reclaim VAT on purchases and, in some cases, whether you can rent the workspace you need.
Here's what you should know before making a decision.
What is VAT?
VAT (Value Added Tax), or moms in Swedish, is a consumption tax added to most goods and services sold in Sweden.
The standard VAT rate is 25%, although reduced rates of 12% and 6% apply to certain goods and services.
When a VAT-registered business sells something, it generally charges VAT to its customers and reports that VAT to the Swedish Tax Agency (Skatteverket).
At the same time, the business can normally deduct VAT paid on purchases used for its VAT-liable business activities. This is called input VAT (ingående moms).
In simple terms, you collect VAT on your sales, deduct eligible VAT on your purchases and pay the difference to Skatteverket. If your deductible input VAT is higher than the VAT you have collected, you may be entitled to a refund.
Do all businesses need to register for VAT?
No. Sweden has a small-business VAT exemption for businesses with annual turnover of SEK 120,000 or less.
To qualify, your business must:
Be established in Sweden.
Have annual turnover in Sweden of no more than SEK 120,000 in the current calendar year.
Have had annual turnover of no more than SEK 120,000 in each of the two preceding calendar years.
If your business qualifies, you are generally exempt from charging VAT on your sales. This also means you cannot normally deduct VAT on your business purchases.
If your turnover exceeds SEK 120,000 during a calendar year, the exemption ends from the sale that takes you over the threshold. You must then register for VAT and start charging VAT on your taxable sales.
There are also situations where a business may need to register even if its turnover is below the threshold. For example, certain purchases of services from businesses in other countries can create a VAT registration and reporting obligation.
You can read more about the small-business exemption on Skatteverket's website.
Can you register for VAT voluntarily?
Yes. You can choose to register for VAT even if your annual turnover is below SEK 120,000.
This can be particularly useful for startups that expect to invest in equipment, software, services or workspace before generating much revenue.
Once registered, your business generally needs to charge VAT on its taxable sales and submit VAT returns. In return, it can normally deduct eligible input VAT on purchases used for its VAT-liable business activities.
However, voluntary registration is not automatically the right choice for everyone. It depends on the nature of your business, your customers and your expected expenses.
Why might VAT registration be beneficial?
The biggest practical advantage is the ability to reclaim eligible VAT on business expenses.
When you're setting up a company, costs can add up quickly. You might need a computer, phone, software subscriptions, accounting services, marketing, professional advice and somewhere to work.
If your business is VAT-registered and the purchases are used for VAT-liable business activities, you can normally deduct the VAT.
Without VAT registration, that VAT generally becomes part of your business costs.
Example: Setting up your first office or workspace
Imagine you've just started a small consultancy in Stockholm. You need a professional place to work, so you decide to rent a private office at a coworking space.
A small private office at Embassy House starts from SEK 9,950 per month, excluding VAT.
With 25% VAT added, your monthly invoice would be:
Amount
Office rent - SEK 9,950
VAT (25%) - SEK 2,487.50
Total to pay - SEK 12,437.50
If your company is VAT-registered and the office is used for its VAT-liable business activities, you can normally deduct the SEK 2,487.50 in input VAT in your VAT return.
The effective cost of the office is therefore SEK 9,950 per month, assuming you are entitled to deduct the full amount.
If your company is not VAT-registered and cannot deduct the VAT, the full SEK 12,437.50 becomes a business expense.
The same principle applies to other business purchases, such as a desk membership, meeting room bookings, equipment and professional services.
You don't have to be VAT-registered to rent an office or use a coworking space. But if your company cannot reclaim the VAT, you need to factor it into your budget.
There is another reason VAT registration can matter: your landlord
There's a property-related consideration that many new business owners don't know about.
In Sweden, commercial property rentals are normally exempt from VAT. However, landlords can choose to apply for what's known as voluntary VAT liability (frivillig beskattning).
This allows a landlord to charge 25% VAT on qualifying commercial property rentals and deduct VAT on related property expenses.
For this arrangement to apply, the premises generally need to be used on an ongoing basis in a business whose activities give the tenant a right to deduct VAT.
This matters because the landlord is responsible for ensuring that the requirements are met. They need to be able to demonstrate that the premises are being rented for qualifying business use.
A lease lasting at least one year will normally help demonstrate ongoing use, although shorter arrangements can qualify when other objective circumstances support it.
What does this mean for a startup renting an office?
If you're renting a private office, your business activities and how you use the premises may be relevant to the landlord's ability to apply voluntary VAT liability.
For example, a startup providing software development or business consultancy services will generally carry out VAT-liable activities. If it uses its rented office for those activities, it may meet the relevant requirements.
On the other hand, a company carrying out activities that are exempt from VAT, such as certain healthcare, financial or insurance services, may not have the right to deduct VAT. That can affect whether the premises qualify for voluntary VAT taxation.
What about coworking spaces and flexible desks?
Coworking arrangements can be more complicated than traditional office leases.
A private office with a clearly defined area and ongoing use may be treated differently from a flexible membership that provides access to shared facilities.
Depending on the actual agreement and services provided, a coworking membership may be treated as a taxable service rather than a straightforward property rental. There are also specific rules for qualifying subletting arrangements.
This is why property owners and coworking operators may ask questions about a customer's business activities and VAT position before entering into an agreement.
If you're planning to rent workspace, it's worth understanding both your own VAT position and any requirements that apply to the premises.
When might VAT registration not be beneficial?
VAT registration isn't always an advantage.
If most of your customers are private individuals or businesses that cannot deduct VAT, charging VAT can make your products or services more expensive for them.
For example, imagine you run a small business selling directly to consumers. If you register for VAT, you may need to add VAT to your prices. You can reclaim eligible VAT on your purchases, but your customers may end up paying more.
If your business has very few expenses and low turnover, the amount of VAT you could reclaim might not justify the additional administration.
You also need to keep track of VAT on sales and purchases, submit VAT returns and ensure that your invoices contain the correct information.
The right decision depends on your business model and who you sell to.
What about buying services from other countries?
If your business buys or sells services internationally, VAT rules can become more complicated.
For example, if your Swedish company purchases a software subscription or consultancy service from a business in another EU country, the reverse-charge mechanism will often apply.
This means the foreign supplier invoices you without VAT, and your Swedish business calculates and reports Swedish VAT itself.
Depending on the transaction, you may need to register for VAT even if your turnover is below the small-business exemption threshold.
The same can apply to certain services purchased from businesses outside the EU.
If your business sells services to companies in other EU countries, different rules may apply. In many cases, you invoice the customer without Swedish VAT, and the customer accounts for VAT in their own country.
International transactions can therefore create VAT registration and reporting obligations that aren't directly related to how much money your business makes.
If you expect to work with international customers or suppliers, check the rules with Skatteverket or an accountant before making assumptions.
What does VAT registration mean in practice?
Registering for VAT means taking on some additional bookkeeping and reporting responsibilities.
Once registered, you generally need to:
Charge the correct VAT rate on taxable sales.
Issue invoices with the required VAT information.
Keep records of sales, purchases and VAT paid.
Submit VAT returns to Skatteverket.
Pay any VAT due by the relevant deadline.
How often you submit VAT returns depends on your business and the reporting period assigned to you. Smaller businesses may be able to report VAT annually, while others report quarterly or monthly.
Good bookkeeping makes this much easier. Keep your invoices and receipts, and make sure your accounting records clearly distinguish between VAT on sales and VAT on purchases.
Remember that registering for VAT does not mean you can deduct every VAT expense. Purchases must relate to business activities that give you a right to deduct VAT. If your business carries out both VAT-liable and VAT-exempt activities, you may only be able to deduct part of the VAT.
So, should your startup register for VAT?
There isn't one answer that works for every business.
If you're starting a business with very low turnover, few expenses and mainly private customers, the small-business exemption may make sense.
But if you're planning to invest in equipment, software, professional services or workspace, voluntary VAT registration may help reduce your costs.
It can also be relevant if you're planning to rent commercial premises, work with international suppliers or sell services to businesses in other EU countries.
Before deciding, consider:
Your expected turnover: Will you stay below the SEK 120,000 threshold, or do you expect to exceed it?
Your customers: Are they businesses or private individuals? Can they deduct VAT?
Your expenses: Will you have significant startup costs with VAT that you could potentially reclaim?
Your workspace: Are you planning to rent an office or coworking membership? Does the arrangement have any specific VAT requirements?
Your international activity: Will you buy or sell services across borders?
If you're unsure, speak to an accountant or contact Skatteverket. Getting the right setup early can save you both money and administrative headaches later.
Useful resources
For the latest rules and guidance, visit:
Skatteverket – Purchasing goods and services for your business
Skatteverket – Voluntary VAT liability for property rentals (Swedish)
This article is intended as general information, not individual tax or accounting advice. VAT rules depend on the nature of your business, the services you provide and how you use your premises. Always check your specific circumstances with Skatteverket or a qualified accountant.