Case studies
A tax-correct solution that produced SEK 14 million in savings
Christopher Solberg3 min read
This article describes Swedish rules. The Swedish version is authoritative. Translated from Swedish. Quotes have been translated by Refero. Read in Swedish
In the mid-2010s, Mönsterås Municipality began work on building a new property, which came to be known locally as Solhem. It was to house a preschool with four departments for a total of 80 children, a care home with 40 flats, a large kitchen and a small number of workplaces for municipal officials.
Budget and lease
“A first budget that the municipality produced landed at SEK 130 million,” says Thomas Nilsson, who until May 2020 was technical director of Mönsterås Municipality. “Given that the municipality in recent years had an average investment budget for properties of SEK 50 to 60 million per year, that was a considerable sum of money, which is why a land allocation agreement was signed with Vectura Fastigheter.”
At the beginning of 2018 a new detailed development plan was adopted. Vectura Fastigheter had acquired the land and signed a 20-year lease with the municipality for the whole living area of the property, 4,150 square metres. The municipality and Vectura Fastigheter then procured the contractor together.
“The price was set at SEK 2,150 per square metre per year, including heating, water, sewage and property electricity,” explains Thomas Nilsson. “And that was exactly when the question came up of how the VAT was to be declared.”
VAT decided the rent
The assignment to sort out the questions went to Ronnie Peterson, Refero’s tax and VAT specialist.
“The crux was how the living area of 4,150 square metres would be used,” he explains.
“The preschool, the large kitchen and the administrative areas for the officials we counted as one tenant. Here the rule is that the property owner invoices the rent including VAT where the tenant, that is the municipality, has the right to deduct the VAT.”
“The care home has to be classified under the bruksvärdesprincipen [the utility value principle], which means among other things that areas let to residents are not subject to VAT deduction.”
The rent level for the whole property was set early. Ronnie Peterson was therefore able to develop a tax-correct solution which, in concrete terms, lowered the total rent by around SEK 700,000 per year. The assignment was completed well before Solhem was ready for occupancy in March 2020.
“Looking at the result of Refero’s analysis, it means a saving on the rent over 20 years of around SEK 14 million. I believe the residents of Mönsterås are grateful for that,” observes Thomas Nilsson.
Ronnie Peterson’s advice
Ronnie Peterson has some advice for municipalities that build new or rent into existing properties where different activities are to be carried out.
“The key word is planning,” he explains. “Here is a brief and concise guide that straightens out the question marks:”
- Consider what the investment means over time, that is, how long should the lease contracts be?
- Which activities are to be carried out in the property, that is, what does the mix of future tenants look like?
- Can larger or smaller changes to the mix above happen in the future?
Want to know more? Start a conversation.