New approach to entertainment expenses following the reduced VAT rate on food

The reduction of VAT on food to 6 per cent entails more than simply a lower tax rate. It also affects how businesses must handle VAT deductions on entertainment expenses – something that is reflected in the Swedish Tax Agency’s updated guidance effective from 22 April 2026.

When food is no longer subject to VAT at 12 per cent but instead at 6 per cent, a greater number of entertainment occasions will involve multiple VAT rates. As a result, the previous handling can in many cases be replaced by a more complex assessment.

Increased administrative complexity

Where the cost exceeds SEK 300 per person excluding VAT, the deduction must, as a general rule, be apportioned between the different VAT rates. Having an additional tax rate to factor into the calculation places higher demands on both processes and system support.

There remains the option of applying a standard (“flat-rate”) deduction, which may often be justified from a purely administrative perspective. Under the flat-rate method, deductions may be made as follows:

• SEK 46 per person (12 per cent and 25 per cent VAT)
• SEK 33 per person (as 6 per cent VAT has been added following the reduced VAT rate)

Application of the flat-rate method requires the taxable amount to be at least SEK 300 and that the VAT charged is at least equal to the flat-rate amount.

In some cases, the flat-rate deduction may result in a lower deduction than a calculation based on actual VAT. However, as the administrative burden is significantly reduced, many companies choose to apply the flat rate regardless.

What qualifies as entertainment?

As of 1 January 2017, income tax deductions for meals provided as entertainment (previously SEK 90 per person) were abolished. However, in order to deduct VAT, it is still necessary to assess whether an expense qualifies as entertainment (internal or external) or not, in accordance with Chapter 16, Section 2 of the Income Tax Act.

Please note that deductions for light refreshments and ancillary costs may still be claimed.

For entertainment expenses to be deductible, they must have a direct and clear connection to the business’s activities – a so-called immediate connection. To give an example, this means that a dinner with a client is only deductible if the immediate connection is fulfilled. All of the following three criteria must be met:

• The event must take place in close connection with a business meeting (time connection)
• The individuals attending the dinner must also have participated in the meeting (participant connection)
• The entertainment must take place in a location relevant to one of the parties involved (location connection)

What is internal entertainment?

Internal entertainment relates to activities aimed at a company’s own employees. Examples include staff parties, information meetings, internal training courses or planning conferences.

Internal entertainment must not be held too frequently, at least two weeks should pass between occasions (per employee). In addition, the arrangement may last no longer than one week. Meals must be taken jointly, meaning that separate reimbursements for, for example, individual meals are not regarded as joint and therefore become taxable benefits.

Examples of internal entertainment that is normally tax-exempt include information meetings where management informs staff about objectives, budgets or organisational changes, staff parties (a maximum of two per year with deduction entitlement), and internal training activities. In contrast, work meetings, departmental meetings and board meetings are considered part of day-to-day operations and do not qualify as internal entertainment, meaning that VAT is not deductible.

What is external entertainment?

External entertainment is aimed at customers, suppliers or business partners and must have a clear connection to the company’s activities.

Examples include business meetings, product launches, demonstrations of services or goods, openings, and company anniversaries (25th, 50th, 75th or 100th anniversaries). By contrast, lavish entertainment such as hunting or fishing trips is rarely deductible, as the cost is not considered proportionate to the purpose and the immediate connection is often deemed to be lacking.

Pure customer hospitality is not regarded as external entertainment and is therefore not deductible.

This article addresses deduction entitlement only. As an employer, companies must also consider the risk of benefit-in-kind taxation. For further guidance, we refer to our previously published article Correct handling of entertainment expenses – ensuring deductions and avoiding benefit taxation.

Practical implications

Although the guidance itself does not involve any material change beyond an adjustment to include an additional tax rate, we expect the practical impact to be significant. Companies will increasingly need to decide which method to apply – apportionment or the flat-rate method.

This is particularly relevant for organisations with frequent entertainment activities or where costs often exceed the SEK 300 threshold.

We recommend that you:

• analyse how the new 6 per cent VAT rate affects your entertainment expenses
• ensure that the correct method is applied in each situation
• review internal guidelines and system support

How Azets can support you

We regularly assist companies in adapting their procedures to new regulations – from analysis and policy updates to implementation in financial systems.

• We help you ensure that entertainment expenses are handled correctly, including the associated VAT deductions.

This change clearly illustrates how an adjustment to a tax rate can have wider operational consequences. Acting proactively reduces both risk and administrative burden. Get in touch with us, and we will be happy to guide you further.