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Doing Business in Sweden

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Contents1 Fact Sheet 2

2 Business Entities and Accounting 42.1 Companies 42.2 Partnerships 42.3 Sole Proprietorship 42.4 Branches 52.5 Audit and Accounting Requirements 52.6 Filing Requirements 5

3 Finance and Investment 63.1 Exchange Control 63.2 Banking and Sources of Finance 63.3 Investment Incentives 73.4 Tariffs 7

4 Employment Regulations 84.1 General Employment Matters 84.2 Visas and Permits 9

5 Taxation 105.1 Corporate Income Taxes 105.2 Personal Taxes 115.3 Employment Related Costs and Taxes 125.4 Withholding Taxes 125.5 Value Added Tax (VAT) 135.6 Other Taxes 145.7 Tax Incentives for Businesses 15

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1 Fact SheetGeography

Location: Northern Europe

Area: 450,000km²

Land boundaries: Finland and Norway

Coastline: Baltic Sea, including the Gulf of Bothnia, the Skagerrak Strait and Kattegat Bay

Climate: Temperate climate generally, although sub-Arctic in the mountainous north. Average temperatures in the Stockholm area of −5°C to −1°C in winter and 13°C to 22°C in summer

Terrain: Forest (53%), mountains (11%), cultivated land (8%), lakes and rivers (9%)

Time zone: GMT +1

People

Population: 9.6m

Ethnic groups: Predominantly Swedish, with a small population of Sami in the northern part of Sweden. Foreign-born residents are approximately 14.5% of the population (2010 est.)

Religions: Evangelical Lutheran Church of Sweden (68%), although there is freedom of worship

Language: Swedish (official), although the use of English is widespread

Government

Country name: Kingdom of Sweden

Government type Constitutional monarchy, parliamentary democracy

Capital: Stockholm

Administrative divisions: Legislative power is exercised by parliament, executive power lies with the government and judicial power lies with the Supreme Court. Sweden consists of 21 counties, each of which is further divided into communes. County councils are responsible for regional matters such as healthcare, education, public transport and culture; government at commune level is responsible for schools, social services, care for the elderly, emergency services other than policing, environmental and health matters, waste, and planning.

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Political situation

The 349-member unicameral parliament (Riksdag) is elected on the basis of proportional representation for a four-year term. The monarch is Head of State, and the prime minister is Head of Government; the cabinet is appointed by the prime minister.

Economy

GDP – per capita: US$55,245 (2012)

GDP – real growth rate: 0.7% (2012)

Unemployment: 7.5% (Sep 2013)

Currency (code): Krona (SEK)

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2 Business Entities and Accounting2.1 Companies

A limited company (Aktiebolag-AB) can be established by one or more entities, individual or legal. The founders can be either natural persons residing within the European Economic Area (EEA), or legal persons established in accordance with the legislation of an EEA state and who have their domicile, head office or primary trading area within the EEA.

A limited company is not considered “established” until registered by the Swedish Companies Registration Office (SCRO).

A limited company can be either private or public. For a private limited company the minimum capital requirement is SEK50,000; for a public limited company it is SEK500,000. All shares in a limited company must have the same value, but the voting power may vary. No class of shares can have more than 10 times the voting power of another class of shares. All shares must be fully paid-up before the company can be registered.

The managing director and at least half of the board members and deputies must generally be EEA residents.

In private limited companies, the board of directors can comprise one or more members. If there are two or more members on the board, a chairman must be elected.

In public limited companies, the board of directors must comprise at least three members; a chief executive officer (CEO) must also be appointed.

2.2 PartnershipsPartnerships can be either unlimited partnerships, where partners each have unlimited liability for the debts and obligations of the firm as a whole, or limited partnerships, where one or more of the general partners has unlimited liability and the limited partners have liability only up to the amount of their registered contributions.

2.3 Sole ProprietorshipMany small businesses in Sweden operate as sole proprietorships. The owner has unlimited liability for all debts and there is no separation between the owner’s private and business debts.

A resident outside the EEA who wants to do business in Sweden as a sole proprietor must appoint a person resident in Sweden who is responsible for running the business, and who must be registered as the manager.

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2.4 BranchesA non-Swedish company can set up a place of business in Sweden without forming a Swedish subsidiary company. This is known as a branch.

A branch is not a separate legal entity, but an extension of the foreign company which is, therefore, responsible for the liabilities of the branch. The branch must be registered with the SCRO and have a managing director resident in the EEA.

2.5 Audit and Accounting Requirements

All businesses must comply with the following requirements:

• Account for all transactions systematically and chronologically and ensure that all transactions are supported by appropriate documentary evidence

• Prepare annual accounts

• File and archive all accounting material in Sweden for seven years

• Parent companies must prepare consolidated accounts (smaller private companies are excluded).

With the exception of companies, which can keep their accounting records in euro, and branches, which can keep records in the foreign company’s currency, all records must be kept in krona.

Companies and partnerships owned by at least one company must have their accounts audited by professionally qualified auditors.

Consolidated financial statements of companies that trade securities in regulated markets must be prepared using International Financial Reporting Standards (IFRS), under the provisions of the EU International Accounting Standards (IAS) Regulation. Other companies can use IFRS for consolidated financial statements; otherwise, companies (including all small and medium-sized enterprises – SMEs) must use Swedish generally accepted accounting principles (GAAP).

2.6 Filing RequirementsCompanies and partnerships owned by at least one company must file their annual accounts together with the auditor’s report at the SCRO. Filings made later than seven months after the closing day are penalised with a non-deductible fee.

The SCRO has the power to liquidate a company if it does not file its annual accounts.

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3 Finance and Investment3.1 Exchange Control

There are no exchange controls on inward or outward investment. Foreign currencies can be bought and sold freely and there are no restrictions on the maintenance of foreign currency bank accounts in Sweden.

Monetary transactions exceeding SEK150,000, whether paid abroad, into Sweden from abroad, or within Sweden between a resident and a non-resident taxpayer, must be reported by the bank handling the transaction in Sweden to the Swedish tax authorities.

3.2 Banking and Sources of Finance

3.2.1 Banking

Sweden’s central bank, Sveriges Riksbank, is a public authority under the Swedish parliament and is responsible for conducting monetary policy, the objective of which is to maintain a low and stable level of inflation. The bank also has the task of ensuring that payments in the economy can be made safely and efficiently.

Overdrafts with fluctuating interest rates are the most commonly used facility for financing working capital or to fund seasonally affected businesses.

Banks offer short-, medium- and long-term loans with negotiable repayment terms and fixed or variable interest rates. To obtain bank financing, the business is normally required to provide adequate security, typically in the form of

• A fixed or floating charge over the business assets, and

• In certain circumstances, personal guarantees from the owners, including the foreign parent company if relevant.

In addition to these traditional services, banks offer various other financing arrangements, either themselves or through subsidiaries or affiliates. These include instalment credit, leasing, factoring and invoice discounting.

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3.2.2 Stock exchange and trading facilities

The Stockholm Stock Exchange and the Nordic Growth Market operate as fully integrated trading and clearing systems for stocks, bonds, warrants etc.

3.2.3 Venture capital companies

Venture capital companies can provide equity for start-ups, development or management buy-outs for businesses not large enough to consider stock exchange entry but which require equity.

They may also be a source of financing for businesses that do not have sufficient security to borrow from a bank.

3.3 Investment IncentivesSweden offers attractive grants and incentive packages at regional level to encourage industrial investment from abroad and create jobs in economically troubled regions. Both Swedish and foreign businesses are eligible for the benefits available through these programmes.

For tax incentives, see 5.7.

3.4 TariffsSweden is an EU member state. Consequently, through the EU’s membership with the World Trade Organization (WTO), it has undertaken not to raise tariffs above levels agreed to in trade discussions.

Additionally, the EU has developed an extensive network of bilateral free trade agreements.

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4 Employment RegulationsFor employment tax considerations, see 5.3.

4.1 General Employment Matters

4.1.1 Employment law

Employment matters are governed by several laws, including the Employment Protection Act, the Work Environment Act, the Wage Guarantee Act and the Working Hours Act, along with several other laws dealing with, for example, employee representation and labour disputes, annual leave and non-discrimination.

4.1.2 Employment contract

A written employment agreement or contract must be provided to the employee within 30 days of commencing work, and should include the following information:

• Place of work

• Job title or nature of work

• The employment start date

• The expected duration of the contract if it is temporary, or whether the contract is for an indefinite term

• Rate or calculation method of pay

• Hours of work

• Details of paid leave

• The collective bargaining agreement (CBA), where relevant.

The contract can include a probationary period.

There is no national minimum wage, but wages are usually set through CBAs. Working hours and overtime are also provided for in CBAs, which typically state a 40-hour working week. Employees are entitled to paid annual holiday of five working weeks, not including public holidays.

Sweden places a high level of importance on quality of life, especially for families, and this is reflected in employment laws, such as the right for parents of children aged 8 and under to work part-time, and generous parental leave entitlement.

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4.1.2 Trade unions and employee representation

There is no legal requirement for employers to recognise any trade union. Agreements between employers and trade unions over pay and conditions are binding for the contracting parties; so-called “declarations of general acceptance” applicable to specific fields are binding for all persons in that field.

There are legal requirements for employees to be represented on a company’s board of directors:

• Two directors if the number of employees in Sweden averages at least 25 on a yearly basis

• Three directors if the number of employees in Sweden averages at least 1,000 on a yearly basis.

4.2 Visas and PermitsEntry visas for temporary stays are not required for citizens of EU/EEA member states and other countries with which Sweden has visa agreements, including the US, Japan, Canada and Switzerland. These citizens may remain in Sweden for up to 90 days during a six-month period.

For citizens from other countries, visas must be obtained from Swedish embassies and consulates. Visas are valid for a maximum of three months, but may be extended.

Residents of EU member states can take jobs and reside in Sweden without restriction. After three months, EU/EEA citizens must obtain a residence permit. The permit will formally record the individuals for tax and social benefits.

Non-EU/EEA citizens must apply for a residence and work permit at a Swedish embassy or consulate. The permit must be granted and entered into a passport before the individual enters Sweden. Work permits are granted for one year; further extensions can be granted in Sweden.

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5 Taxation5.1 Corporate Income Taxes

Resident companies, defined as companies which are registered at the national registration office, are liable to corporate income tax on their worldwide income.

Non-resident companies are liable to income tax on profits from branches and real estate in Sweden, subject to the terms of any relevant double tax treaty.

The rate of corporate income tax is 22%.

Capital gains are generally taxed at the same rate as other profits. Companies in Sweden can, however, qualify for a participation exemption on capital gains realised from unlisted and listed shares. In the case of listed shares, the exemption applies on the condition they represent a minimum of 10% of the voting rights and have been held for a minimum of one year. Shares held in foreign companies can qualify if they are held in a company that is equivalent to a Swedish limited liability company.

Losses may be carried forward indefinitely for relief against future profits and capital gains, subject to several restrictions (such as losses in relation to shares held purely as a capital investment, which cannot be offset against income). Restrictions apply if there is a change in the ownership of the company.

Although tax consolidation is not permitted, groups of companies, defined generally as a parent company and its 90% or more owned subsidiaries, can pool their profits and losses for tax purposes by means of a system of group contributions. The payments are deductible for the paying company and treated as taxable income of the recipient company. If a company is resident within the EEA, but liable to tax in Sweden through a branch, it may participate in the group participation system provided the contribution is taxable in Sweden.

Sweden has implemented controlled foreign company (CFC) legislation, taxing Swedish resident shareholders of Swedish controlled tax haven companies on the appropriate proportion of the CFC's profit. A CFC is a legal entity that is deemed a resident of a low tax jurisdiction if the tax payable in that jurisdiction is less than 55% of the tax that would have been payable in Sweden on equal profits.

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For business purposes, the tax year is the company’s financial year, which may end on the last day of any month in the year. For tax return filing purposes, the filing date depends on the period in which the financial year ends, as follows:

• 1 January to 30 April – by 1 November

• 1 May to 30 June – by 15 December

• 1 July to 31 August – by 1 March

• 1 September to 31 December – by 1 July

Companies are required to make advance monthly corporate income tax payments. The advance payments are based on either a preliminary assessment or the final assessment of the previous year.

The local tax office is required to raise an assessment of tax within six months of the annual return being submitted, after which any tax owed must be paid within 90 days.

5.2 Personal TaxesResident individuals are liable to national income tax on their worldwide income.

Non-resident individuals are taxed on their income from sources in Sweden, subject to the terms of any relevant double tax treaty.

National income tax is charged on employment income and business income at graduated rates. For the 2013 tax year, the rates and thresholds (not including basic personal allowances of between SEK13,100 and SEK34,300, depending on the amount of net income) are as follows:

Taxable Income Tax Rate

up to SEK413,200 0%

SEK413,201 – SEK591,600 20%

over SEK591,600 25%

A 30% flat rate generally applies to capital gains, including dividends and interest received.

Municipal income tax is charged on employment and business income. The rates vary according to the municipality and county, and average 31.73% (for 2013). Dividends and interest received are exempt from municipal income tax.

Other regional taxes include the burial tax and, for members of the Church of Sweden, the church tax, both based on employment and business income. The average combined rates for 2013 are 1.24%.

There are no inheritance, gift or wealth taxes.

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5.3 Employment Related Costs and Taxes

5.3.1 Payroll and social security taxes

Employers pay payroll tax, including social security contributions, at the rate of 31.42% on remunerations paid to employees. For employees aged under 26, the rate is reduced to 15.49%; for employees born in 1938 or later and aged over 65, the rate is 10.21%; and for employees born in 1937 or earlier, there is no mandatory social security charge.

A reduced payroll tax of 24.26% is levied on pension costs for employees, which include remunerations to retired employees and allocations made for future payments according to pension plans.

Employees are required to pay a pension insurance premium of 7% of their pay, with a maximum annual payment of SEK32,000; this is usually deductible for income tax purposes.

5.3.2 Fringe benefits

Employee benefits, including meals, work computer, company cars, holiday bonus, housing and telephone, are generally taxed in the hands of the employee as income (see 5.2).

5.4 Withholding Taxes

5.4.1 Domestic payments

There are no withholding taxes on payments made to resident companies and individuals.

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5.4.2 Payments abroad

The rates of withholding tax on payments made abroad by companies are set out below:

Tax Rate

Dividends 30%

Interest 0%

Royalties 0%

There is no withholding tax on dividends if the domestic exemption applies (see in relation to capital gains under 5.1). For the exemption to apply, the shareholder must be resident in a country which has a tax system comparable to that of Sweden. Dividends paid on portfolio shareholdings cannot qualify for the exemption.

Under the terms of the legislation implementing the EU Parent-Subsidiary Directive, dividends paid to a company in the EU are exempt from withholding tax if that company owns 10% or more of the shares of the paying company. There is no minimum ownership period.

For payments made to recipients in countries with which Sweden has a double tax treaty, the rates of withholding tax may be reduced under the terms of the treaty.

5.5 Value Added Tax (VAT)

VAT is generally levied on the supply of goods and services, including self-supplies, in Sweden, and on goods imported from outside the EU.

The standard VAT rate is 25%. Reduced rates of 12% and 6% apply to certain goods and services.

Businesses must pay VAT if they supply goods and services that are taxable and their turnover is made as part of commercial activities (as defined in the income tax legislation) in Sweden.

All goods and services are taxable unless exempted under Swedish tax law. A number of goods and services, such as insurance and some financial services, are listed as exempt.

Businesses, other than those making exempt supplies, can generally recover the VAT with which they themselves are charged.

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5.6 Other Taxes

5.6.1 Property taxes

Commercial premises are subject to a property tax at the following rates:

• 0.5% on industrial plants and electric (excluding hydroelectric) power plants

• 1% on offices, shops, hotels and similar premises

• 2.8% on hydroelectric power plants.

Residential houses are subject to an annual municipal fee based on the lower of 0.75% of its assessed value and (for 2013) SEK7,074. For apartments, the fee is the lower of 0.3% of the assessed value and SEK1,210.

5.6.2 Stamp duty

Stamp duty is charged on transfers of real estate at 1.5% if the transfer is to an individual, or at 4.25% if the transfer is to a corporate body. There is no stamp duty on property acquired through gift and inheritance.

Stamp duty is also charged on secured loans, at 0.4%, 1% or 2% depending on the nature of the security.

There is no stamp duty on transfers of securities.

5.6.3 Environmental taxes

Sweden imposes a levy on electric power and energy. It levies carbon dioxide tax on all fuels used for powering engines and for certain fuels used for heating purposes.

The government may grant a tax reduction within the frame of pilot projects if the project’s purpose is the development of environmentally friendly fuels or fuels from renewable sources such as ethanol.

There are also taxes on pesticides, quarried natural gravel and waste brought into landfills.

5.6.4 Excise taxes

Excise taxes apply to consumer goods such as alcoholic beverages, energy products such as gasoline and oil, tobacco products, pesticides and fertilisers. Producers and importers of the taxable products are normally liable for payment of excise taxes and must be registered with the Swedish Tax Agency. Rules for tax returns and payment of taxes are similar to those that apply to VAT.

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5.7 Tax Incentives for Businesses

5.7.1 Research and development (R&D) expenditure

A company may deduct R&D expenses if the research will have, or is likely to have, an impact on the company’s economic and/or other activities, even if the expenses are not directly necessary for its operation.

5.7.2 Payroll tax reductions and refunds

Employers in some development areas are entitled to a reduction in payroll tax. The developing areas include most regions in the northern part of Sweden, but also some interior regions. The reduction is computed as 10% (5.28% for employees aged under 26) of the basis for the payroll tax and cannot exceed SEK7,100 per month. The incentive is subject to an SEK71,000 threshold.

Fisheries and aquaculture, agriculture, coal and steel, and transport are specifically excluded from this type of incentive.

Sweden also provides refunds of payroll tax for a limited period to employers who hire unemployed people. Additionally, payroll tax is charged at reduced rates for certain age groups in order to stimulate the employment of older and younger people (see 5.3.1).

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