Review of Corporate Tax Incentives for Donations and Sponsorship

In recent times, the Swedish government has initiated comprehensive reviews of the tax rules surrounding corporate donations to non-profit organizations and sponsorship expenses. These initiatives are part of a broader effort to stimulate corporate contributions to social causes and clarify the tax treatment of expenses aimed at enhancing or maintaining a company’s business reputation.

In this article, we will first go through the government’s newly introduced tax credit on donations for companies supporting eligible non-profit activities, followed by an overview of the proposed expansion of tax deductions for sponsorship expenditures. 

1. Donations 

Background 

Since 2019, individuals have been eligible for a tax credit on donations to approved recipients. However, a corresponding incentive for companies has been lacking. Under previous rules, donations from companies (exceeding a trivial value) could result in adverse tax consequences for both the company and its owners. This reduced the incentive for companies to contribute to non-profit causes. 

Key Provisions 

Under the new regulation, legal entities are entitled to a tax credit for cash donations made to approved recipients engaged in social welfare activities or scientific research. The tax credit applies exclusively to cash donations, with a minimum amount of SEK 2,000 per occasion and a maximum of SEK 800,000 per calendar year. The tax credit corresponds to the corporate tax rate (20.6 percent) multiplied by the donation base, meaning the maximum tax credit under the current corporate tax rate is SEK 164,800 per year (20.6 percent × SEK 800,000). 

The tax credit may only be offset against the company’s state income tax. All legal entities subject to state income tax, such as limited companies and economic associations, are eligible. However, estates, partnerships, and legal entities that are already exempt from taxation under specific rules, including certain foundations and non-profit associations, are excluded. 

Furthermore, shareholders are not subject to dividend taxation on donations made by companies that have claimed the tax credit. If donations exceed the cap of SEK 800,000 per calendar year, shareholders may still be taxed on the excess amount. 

Practical Application 

To benefit from the tax credit, companies must claim it in their corporate income tax return. Donation recipients are also obliged to submit reporting to the Swedish Tax Agency upon receipt of a donation, provided the gift amount is at least SEK 2,000 per occasion. This reporting requirement is designed to facilitate administration. 

Our Reflections 

Enabling companies to make donations without tax consequences for the company or its owners, coupled with the introduction of a tax credit, is a positive step that should foster new incentives for the business community to support socially beneficial causes. However, questions remain about the impact of limiting eligible recipients to certain approved organizations, such as those operating within social welfare and scientific research. This restriction narrows the scope of the tax incentive. Currently, approximately 200 organizations are registered as approved recipients with the Swedish Tax Agency. While this number may increase over time, it remains limited. Especially in comparison to the approximately 18,000 sports clubs organized under the Swedish Sports Confederation. 

The government acknowledges this limitation and, on June 16, 2025, initiated a new inquiry to consider broadening the regulatory framework to also cover organizations engaged in cultural activities. The review will furthermore evaluate the potential for introducing a matching system, whereby public funding would complement and amplify private monetary donations. 

2. Sponsorship 

Background 

The issue of deductibility for sponsorship expenses has been under discussion for a considerable time. In a couple of notable cases back in 2000, the Supreme Administrative Court ruled that either direct counter-performance of equivalent value to the sponsorship was required, or a clear connection between the sponsor and the sponsored party had to be demonstrated. Expenses solely aimed at enhancing a company’s reputation were not deductible. 

This practice has largely been maintained since then, despite criticism from both the business community and sectors such as sports and culture. The Swedish Tax Agency has also noted the practical difficulties in valuing counter-performance and, by extension, determining the deductibility of sponsorship expenses. Additionally, concerns have been raised that the current rules adversely affect sponsorship of women’s sports, youth sports, and cultural activities. 

The matter is regarded as important within the business community. The Confederation of Swedish Enterprise (Svenskt Näringsliv) submitted a formal request to the government for amended rules, proposing that it should suffice for a company to credibly demonstrate that it can expect an economic return over time, and that deductions should be allowed for expenses aimed at strengthening the company’s goodwill. Similarly, ICC and FAR have jointly petitioned for comparable changes, including that tax deductions should be permitted for expenses related to the procurement of external sustainability services. 

Proposed Legislation 

The inquiry proposes that expenses incurred to improve or maintain the business’s reputation should be deductible. The link to reputation means that deductions will only apply to expenses related to the company’s business operations. Such expenses are considered commercially motivated and therefore deductible even if the direct counter-performance cannot be reliably valued at the full sponsorship amount. According to the inquiry, this clearly distinguishes sponsorship from gifts, for example. 

However, exceptions are proposed for sponsorship of religious and political activities, which should remain non-deductible. Expenses related to representation in connection with sponsorship will continue to be assessed under the existing rules for representation. The proposal does not include a formal definition of sponsorship, nor does it prescribe any monetary limits. The term "reputation" is understood to encompass activities aimed at attracting customers, employees, or external capital. The company must demonstrate that the expense is likely intended to have a positive impact on its reputation. 

The proposal represents an expansion of the general right to deduct expenses under the main rule: that deductions may be made for costs incurred to acquire and maintain income, which naturally includes expenses for direct counter-performance. It also covers situations where there is a strong connection between the activities conducted by the sponsored party and the sponsor. 

The proposed provision is expected to be applicable when a company cannot directly or clearly demonstrate the value of direct counter-performance. Examples include sponsorship agreements or similar collaborations involving two or more parties where a company seeks to associate itself with positive values represented by another brand or entity. The underlying assumption is that the company has a commercial intention behind the expenditure. 

The inquiry acknowledges certain challenges in distinguishing between sponsorship, gifts, and personal living expenses, particularly for companies with a small ownership base. However, it considers that the risk of misapplication should not significantly increase as a result of the proposal. 

The rule is proposed to enter into force on 1 January 2027. 

Our reflections 

In our view, the proposed changes to the regulatory framework are long overdue. The companies we engage with increasingly see sponsorship as a value-creating and brand-building activity, often with a long-term perspective. It therefore seems natural that such expenses should be deductible in a manner comparable to, for example, marketing costs. It is also welcome that the proposal explicitly clarifies that brand-building aimed at attracting talent is included. Another advantage is that the legal uncertainty surrounding the valuation of various counter-performances is likely to diminish if the proposal is implemented. 

To avoid unduly restricting what may be considered deductible sponsorship, the inquiry has chosen not to define “sponsorship” in the legislation. Instead, deductibility is linked to the company being able to demonstrate that the expense is likely intended to have a positive impact on the company’s reputation. It is therefore clear that borderline cases will arise, posing challenges for companies, the Swedish Tax Agency, and the courts in their assessments. What is value-creating for a company is partly a subjective judgment, and distinctions between pure gift situations (where deductibility is limited) and personal living expenses of the owner will likely occur. 

It is crucial to ensure predictability in the application of the rules and to take into account, as far as possible, the inherent uncertainty surrounding these borderline issues. It will therefore be interesting to follow the outcome of the referral process and the subsequent legislative work.