VAT compensation for municipalities: what is covered and when it is too late

A municipality carries out a great deal of activity that is not subject to VAT. This applies for example to schools, healthcare and social care. The municipality may not deduct the VAT on purchases for that activity in its VAT return. Instead there is a separate compensation scheme.

The scheme is regulated in the Act on Compensation for Certain Value Added Tax for Municipalities, Regions, Local Authority Associations and Coordination Associations (lag om ersättning för viss mervärdesskatt för kommuner, regioner, kommunalförbund och samordningsförbund, SFS 2005:807), here called the VAT Compensation Act. The act is accompanied by an ordinance of the same name (SFS 2005:811). The compensation is paid out by the Swedish Tax Agency (Skatteverket).

Who is covered

The act applies to municipalities, regions, local authority associations and coordination associations. Municipally owned companies are not included in the list.

What is compensated

The basic rule is in section 2 of the act. The municipality is entitled to compensation for input VAT that may not be deducted under the Swedish VAT Act (mervärdesskattelagen). It must be the municipality’s own input VAT.

Compensation also applies when the municipality itself reports output VAT under the reverse charge. This applies for example to certain purchases from abroad.

What is not compensated

According to the Swedish Tax Agency, VAT is not compensated on purchases covered by the deduction restrictions in the VAT Act. The Tax Agency mentions among other things:

• permanent housing
• purchase of passenger cars and motorcycles
• entertainment and similar purposes.

There is one exception. VAT on the rent of premises for certain special forms of housing can still be compensated. This is stated in section 4 of the act.

VAT that a supplier has charged incorrectly is not input VAT either, according to the Swedish Tax Agency. One example is VAT on a service that is exempt from VAT. That VAT is to be corrected by the supplier. It is not to be included in the application.

Flat-rate compensation when activities are purchased

Sometimes the municipality buys healthcare, social care or education from a private provider. There is then often no VAT on the invoice. The provider has still paid VAT on its own purchases. That VAT is hidden in the price.

For the hidden VAT there is a flat rate. It is regulated in section 5 of the act and section 1 of the ordinance. The flat rate applies to purchases and grants within healthcare, dental care, social care and education.

• The main rule is 6% of the cost.
• If the municipality can show how large a share of the cost relates to premises, 18% applies instead to that part and 5% to the rest.
• For rent of premises for certain special forms of housing, 18% of the rent applies. That compensation is not given if the property is let by the state, a municipality, a region, a local authority association or a coordination association.

How the municipality applies

The application is made to the Swedish Tax Agency on form SKV 5933, Ansökan om ersättning för mervärdesskatt (application for compensation for value added tax). It must be signed. It must cover one calendar month or three consecutive months in the same year.

The municipality also submits an annual statement on form SKV 5939. According to the Swedish Tax Agency it must have been received by 30 June the following year.

When it is too late

Two time limits are important. The years in the examples below apply as at the date of publication of this article.

Application. Under section 7 of the act, the application must have been received no later than in the second year after the end of the calendar year to which the compensation relates. Under this rule, an application for 2024 must have been received during 2026.

Reconsideration. A municipality can request reconsideration of a period that has already been decided. This is done by submitting a corrected application for the period. Under section 19, the request must have been received no later than in the third year after the end of the calendar year to which the compensation relates. Under this rule, the time for 2023 expires at the end of 2026.

The Swedish Tax Agency may also reconsider on its own initiative. Under section 19, such a decision must be issued within the same time. A matter that has already been tried by an administrative court cannot be reconsidered.

What you can check

• Has VAT on purchases with deduction restrictions, such as entertainment, been included in the application?
• Are there invoices with VAT on services that should be exempt from VAT?
• Has the flat rate been calculated on the right costs and at the right rate?
• Could the premises share be shown where 18% and 5% were used?
• Are there periods where the time limit for reconsideration is about to expire?

Always check which time limit applies to your particular period with the Swedish Tax Agency.

The text is general information, not legal advice. Check the current guidance from the Swedish Tax Agency.

Read more about VAT and transaction analysis as a service.

Sources

All sources are in Swedish.

• Act on Compensation for Certain Value Added Tax for Municipalities, Regions, Local Authority Associations and Coordination Associations (SFS 2005:807), as amended up to and including SFS 2025:430: riksdagen.se
• Ordinance on Compensation for Certain Value Added Tax for Municipalities, Regions, Local Authority Associations and Coordination Associations (SFS 2005:811), as amended up to and including SFS 2019:1050: riksdagen.se
• Swedish Tax Agency (Skatteverket), Momsersättning till kommuner med flera (VAT compensation for municipalities and others), retrieved 3 November 2026: skatteverket.se
• Swedish Tax Agency, form SKV 5933, application for compensation for value added tax: skatteverket.se