Swedish companies’ compliance costs for handling VAT legislation in international trade

The administrative cost of handling international VAT amounts to approximately 2.6 billion SEK (224 million EUR) per year, with the two largest business segments (50–499 and 500+ employees) accounting for about 50% of the total cost. Overall, the cost of VAT administration for Swedish companies amounts to 17.5 billion SEK (1.51 billion EUR) annually (summary in English can be found in the report).

In the spring of 2024, a supplementary study was conducted to complement the 2023 measurement of domestic VAT, aiming to estimate the costs of VAT management related to international trade for Swedish companies. This study also used the Standard Cost Model, which involves conducting several specified interviews with different business segments to identify processes, time estimates, and administrative costs associated with managing international VAT.

Unlike the previous study on domestic VAT, which indicated that smaller companies are more burdened by regulatory complexity than larger companies, this study suggests that VAT in international trade is more complex for larger companies. This is likely due to their broader range of products and services combined with higher transaction volumes. Consequently, they have more combinations of international transactions and need to make several types of VAT assessments, leading to more complex and cost-driving processes.

The administrative costs were supplemented with an estimate of material costs, primarily IT and training expenses, as well as one-time costs associated with international VAT management. The study also examined whether financial costs related to international trade management could be identified but was unable to draw definitive conclusions. The study includes a few case examples to illustrate the scale of training costs, IT expenses, and one-time costs.

Within the study, several observations were made regarding how the legislation functions and its consequences, including:

• Many of the interviewed companies avoid doing business with certain countries to circumvent VAT registration due to its high costs.

• Some companies, particularly larger ones, report adapting transport routes and business flows to simplify VAT handling. This results in additional transports, higher costs, and greater environmental impacts.

• Smaller companies selling services to other countries find VAT handling complex due to requirements to prove where private customers are located.

• Triangular trade, intended as a simplification measure, is considered complex and challenging to manage. Some companies lack system support, making the process administratively burdensome.