ESTABLISHING A COMPANY IN SWEDEN
SWEDEN AT A GLANCE
Stockholm with 21 administrative counties; Blekinge, Dalarnas, Gavleborgs, Gotlands, Hallands, Jamtlands, Jonkopings, Kalmar, Kronobergs, Norrbottens, Orebro, Ostergotlands, Skane, Sodermanlands, Stockholms, Uppsala, Varmlands, Vasterbottens, Vasternorrlands, Vastmanlands, Vastra Gotalands
Civil law system influenced by customary law; accepts compulsory ICJ jurisdiction, with reservations
Timber, hydropower, and iron ore constitute the resource base of an economy heavily oriented toward foreign trade. Privately owned firms account for about 90 percent of industrial output, of which the engineering sector accounts for 50 percent of output and exports. Agriculture accounts for only 2 percent of GDP and 2 percent of the jobs.
The government's commitment to fiscal discipline resulted in a substantial budgetary surplus in 2001, which was cut by more than half in 2002, due to the global economic slowdown, revenue declines, and spending increases.
The Swedish central bank (the Riksbank) is focusing on price stability with its inflation target of 2 percent. Growth remained sluggish in 2003. On September 14, 2003, Swedish voters turned down entry into the euro system, concerned about the impact on democracy and sovereignty.
8,878,085 (July 2003 est.)
Indigenous population: Swedes and Finnish and Sami (Lappish) minorities; foreign-born or first-generation immigrants: Finns, Yugoslavs, Danes, Norwegians, Greeks, Turks
Swedish with a small Sami- and Finnish-speaking minority
Key Trading Partners:
US 11.6 percent, Germany 10.1 percent, Norway 9 percent, UK 8.2 percent, Denmark 5.9 percent, Finland 5.6 percent, Netherlands 5.3 percent, France 5.1 percent, Belgium 4.7 percent (2002)
Germany 18.5 percent, Denmark 8.8 percent, UK 8.6 percent, Norway 8.2 percent, Netherlands 6.7 percent, France 5.4 percent, Finland 5.2 percent, US 5 percent (2002)
Establishing a company in Sweden is a relatively simple, straightforward procedure:
* Rules, regulations and formalities are clear and well-established.
* Restrictions have been eliminated on foreign ownership of corporations and property.
SWEDISH PATENT AND REGISTRATION OFFICE
The Swedish Patent and Registration Office (Patent och Registreringsverket, PRV) is a fee-financed government agency which handles, as its name implies, both patents and company registrations.
The Patents and Trademark Department, located in Stockholm, is the national patent application and granting agency. It also registers trade marks, company names and designs. The Department for Commercial Services, “Interpat”, conducts research, on a fee basis, on patents, trade marks and designs.
The Companies Department, known as “PRV Bolag”, is located in Sundsvall in northern Sweden. This agency was founded in 1897 to register limited liability companies. Today, it has expanded into an organization for registering all types of companies, from one-man firms to branches of foreign corporations. It maintains a complete national registry of company annual reports, legal decisions, liquidations, and other valuable business information, all of which is available to the public.
FORMS OF COMPANIES
There are five basic legal forms for companies in Sweden:
Limited Liability Company
Branch of a Foreign Company.
A sole trader – “Enskild Näringsidkare” - the simplest company form, is created when an individual starts a business. It is not a legal entity, nor is it governed by any special legislation. However, it is registered at the Companies Department.
There are no minimum capital requirements, the individual is fully responsible for debts. A sole trader must maintain financial accounts, but need not file annual accounts if sales are under 20 basic amounts. (One basic amount equalled SEK 36,200 in 1996.) However, if the company has more than 10 employees and if assets exceed 1,000 basic amounts, an annual report and an authorized auditor's report are required. If the company has more than 200 employees and assets exceed 1,000 basic amounts, annual accounts must be filed with the Patent and Registration Office. The accounts are then part of the public record and open to public inspection.
Companies or individuals who reside outside Sweden may register a sole trader if there is a person in Sweden accountable for operations.
The sole trader pays self-employer fees and personal income taxes on the business profits.
A trading partnership – “handelsbolag” - is created through an agreement between two or more legal entities (companies) or persons. These need not be Swedish citizens or residents. Trading partnerships, governed by the Trading Partnership Act of 1980 – “Lag om handelsbolag och enkla bolag 1980:1102” - become a legal entity when registered by the Patent and Registration Office.
Trading partnerships have no minimum capital requirements. All partners are liable for debts. A trading partnership must keep running accounting records. If there are more than 10 employees or if assets exceed 1,000 basic amounts, annual accounts must be drawn up and an authorized auditor's report must be attached to the annual report. If there are more than 200 employees and assets exceed 1,000 basic amounts, the annual accounts must be filed with the Patent and Registration Office. The accounts are then part of the public record and open to public inspection.
Partners divide the profits between them at their own discretion. Each partner is taxed for the share of profits which is reported on his or her income tax declaration.
A limited partnership – “kommanditbolag” - operates under the same general rules and regulations as a trading partnership. The main difference is that one or more of the partners can limit their liability to the amount of their investment in the company. However, at least one partner must have complete responsibility for debts. A partner with limited liability is called a limited partner and a partner with full responsibility is called a general partner.
LIMITED LIABILITY COMPANY
A limited liability company, or incorporated company – “Aktiebolag” - is mainly regulated by the Companies Act of 1975 – “Aktiebolagslagen”. It may be founded by one or more individuals or legal entities. They must invest at least SEK 100,000, and the company must allocate at least 10 percent of annual profits to legal reserves until the reserves amount to 20 percent of capital stock.
Shareholders' liability is restricted to the capital invested.
The company becomes a legal entity when registered by the Patent and Registration Office. An individual or legal entity entering agreements prior to registration is liable for the agreements.
There are two types of limited companies:
Private and Public.
A private company must have capital stock of at least SEK 100,000, and a public company must have a share capital of at least SEK 500,000. The major difference between the two, besides the amount of capital, is that a private company cannot invite the general public to subscribe to or acquire the company's shares or other securities.
In the early 1990s, Sweden abolished legislation that limited foreign ownership of Swedish shares. Today, Swedish shares can be held without restrictions by foreigners. This, plus the growth of major companies and the strong performance of the Stockholm Stock Exchange, has increased foreign ownership of Swedish stock. About 35 percent of the market value of publicly traded stock is held by foreigners.
However, the possibility of stocks having different voting rights still remains.
A limited liability company may be founded by an individual who is resident in the European Union or in the other countries of the European Economic Area, EEA (Liechtenstein, Norway and Iceland), by a Swedish legal entity, or by a legal entity which has its head office in an EEA country.
Individuals or legal entities in any country outside the EEA need a special permit issued by the Companies Department of the Patent and Registration Office, unless half of the members of the board as well as half of the alternate members of the board are residents of an EEA country.
A fully-registered dormant limited liability company may be purchased for a nominal sum from specialist companies or through attorneys. These "off-the-shelf" companies can be useful when there is a need to start business quickly.
The ABC Kit makes registration of a company a simple, routine matter. Only six main documents are needed in Swedish. The first is a memorandum of association. This contains the proposed articles of association of the company, as well as a preliminary statement of how much will be paid for each share, when payment is to take place and how the statutory company meeting is to be called.
The other documents are minutes of the constituent meeting of shareholders, a bank certificate showing that the minimum of SEK 100,000 has been deposited in a Swedish bank, a subscription list of shareholders, the adopted articles of association, and, if the company is founded by individuals or legal entities resident outside the EU and EEA, a permit from the Companies Department of the Patent and Registration Office.
Applications must contain witnessed specimen signatures of all board members, deputy members, the managing director and, if applicable, deputy managing director, as well as other persons authorized to sign on behalf of the company.
An authorized or certified public accountant must be appointed as company auditor, and he or she must sign the application confirming acceptance of the appointment.
If the company has no authorized representative in Sweden, the board of directors must authorize a resident in Sweden to act on behalf of the company.
The individual's name and authorization are registered by the Patent and Registration Office.
A limited liability company is required to have at least three board members.
They are responsible for the organization and administration of the company and appointment of the managing director. At least half of the board members and the managing director must be resident in the EEA. However, the Patent and Registration Office may grant exemptions to this rule.
A limited liability company is required to maintain running accounting records, and prepare an annual report containing an income statement, balance sheet, a proposal for allocating profits or loss, and an administration report. The administration report must contain all information of importance to enable a reader to assess the performance of the company. The report must be signed by all board members and the managing director. The income statement and balance sheet must be approved by the annual general meeting of shareholders.
A copy of the annual accounts and auditors' report must be filed with the Patent and Registration Office, where it becomes available to the public. A company which fails to submit its annual report within 7 months from the end of the fiscal year is liable to a penalty (SEK 5,000 the first time).
BRANCHES OF FOREIGN COMPANIES
Branches of foreign companies are a relatively new business form in Sweden, and have been established mainly by banks and financial institutions. About 300 branches are registered according to the Branches of Foreign Companies Act (Lag om utländska filialer 1992:160).
A branch has neither share capital nor a board of directors. It is not regarded as an independent legal entity but as part of the foreign company that owns it. A foreign company may have only one branch in Sweden. The branch is subject to Swedish law and rulings by Swedish authorities.
Application for registration of a branch is made to the Companies Department of the Patent and Registration Office, which will supply all the necessary forms and applications. The branch may not start business until registered.
In addition to information about the branch's business, address, managing director, accountants, etc., the application for registration includes details about the foreign company, the name of the executive supervising the branch, share capital, foreign registration, a copy of the articles of association or charter, copies of annual reports for the past two financial years, proof that the company is not bankrupt, and power of attorney for the managing director.
The branch is run by a managing director, with extensive power of attorney to act on behalf of the foreign company in Sweden. One deputy managing director may also be appointed. The managing director/deputy managing director must reside in the European Economic Area (EEA). If the managing director is not a resident of Sweden, the foreign company must authorize a resident of Sweden to accept service on behalf of the foreign company. This person is registered at the Patent and Registration Office.
The branch must maintain its own accounts, which are examined by a Swedish certified public accountant. The managing director is responsible for filing annual copies of the company's accounts and auditors' report, for both the branch and the foreign company, with the Patent and Registration Office. Accounts for the foreign company need be submitted only if these are public documents in the company's country of origin.
A branch of a foreign company pays tax on profits in Sweden. There is no tax in Sweden on profits sent to the foreign parent company.
ESTABLISHING A LIMITED LIABILITY COMPANY
Establishing a limited liability company, or incorporated company, (aktiebolag) in Sweden is a relatively simple and straightforward procedure. Here is a check list for the formal routine:
A Swedish limited liability company becomes a legal entity once it has been registered by the Companies Department of the Patent and Registration Office (Patent- och Registreringsverket, PRV).
For registration, certain documents (in Swedish) must be submitted:
1a. Memorandum of association (stiftelseurkund). 1 original or 1 certified copy.
1b. Articles of association (bolagsordning). The draft articles of association are to be attached to the memorandum of association.
2. Minutes of constituent meeting of shareholders (protokoll från konstituerande bolagsstämma). 1 certified copy.
3. Bank certificate (bankintyg). 1 original. The share capital, minimum SEK 100,000, must be deposited in a Swedish bank, which will issue a special certificate to that effect, signed by two bank officers.
4. Subscription list (teckningslista). 1 original or 1 certified copy. Must be submitted only if subscription for shares has not been made on the memorandum of association.
5. Adopted articles of association (antagna bolagsordningen). 2 copies. Must be submitted only if the draft articles of association have been changed at the shareholders' meeting.
6. Permit from Companies Department for a person residing outside the EEA (European Economic Area) to be founder or company officer. This is only necessary under certain conditions.
These documents should accompany an application for registration, which is form 816 (registreringsanmälan), and sent to the Patent and Registration Office.
The application must contain the specimen signatures of all board members, deputy members, the managing director and, if applicable, deputy managing director, and any other persons authorized to sign on behalf of the company. The signatures must be certified by two witnesses.
An authorized or approved public accountant must be appointed as company auditor and he or she must also sign the application to confirm acceptance of the appointment.
If the company has no authorized representative resident in Sweden, the board of directors must authorize a person resident in Sweden to accept service of process on behalf of the company. This person must be registered by the Patent and Registration Office.
This is only a brief guide to requirements of the Swedish Companies Act with regard to the registration of a limited liability company. If further help is needed, it is recommended that a competent Swedish legal adviser be consulted. You can also contact the Information Department of the Companies Department, Patent and Registration Office, in Sundsvall.
In Sweden taxable income belongs to one of three categories: earned income from employment, income from capital or income from business. Different tax regulations and rates apply to these three sources of income.
Income from employment
The following taxes are levied on earned income: local tax at a rate of 26-35 percent (depending on the municipality); national income tax of 20 percent on annual taxable earnings of between SEK 252,000 and 390,400 and 25 percent for income above SEK 390,400 (year 2001).
Typical sources of income in this category are salaries and pensions as well as all forms of fringe benefits such as meals, travel and use of a company car plus reimbursement for expenses, per diem allowances and travel.
There are relatively few deductions permitted for this income category. In principle, the deduction of costs necessary for the earning of income is allowed. However, the link between the expense and the income must be extremely strong. Deductions are granted primarily for: travel to and from work; on-the-job (business) travel with a private vehicle; higher living expenses in conjunction with business trips.
Income from capital
Generally speaking all income in this category is taxed at a rate of 30 percent regardless of the amount. Examples of income from capital are dividends, interest, capital gains arising from the sale of stocks, bonds, real estate, personal property and other similar assets plus income from the rental of flats or houses unless this is undertaken as a business activity.
Half of the sum of a capital gain resulting from the sale of a private residence is taxable. It is also possible to defer payment of the tax if the seller in turn purchases an equivalent property or tenant-owner flat not later than the year following the year of sale. If the sale concerns a property owned for business activity, then 90 percent of the capital gain is liable to taxation. Income from the sale of other private assets is taxable if the profit exceeds SEK 50,000.
If a capital deficit results a tax reduction is granted. The tax reduction is 30 percent for that portion of the loss that is below SEK 100,000 and 21 percent for the balance.
Income from business
The regulations governing taxation of business activity are largely the same for limited companies and businesses operated by individuals. As a general rule, all income from business activities is liable to taxation. Income from capital is considered as part of the business activity if it is generated by capital invested in the business.
The tax rates for individuals engaged in business activities are the same as those for income from employment. On the other hand, limited companies pay only 28 percent of their taxable income in tax.
Taxable income is calculated on the basis of generally accepted accounting principles and is therefore closely linked to the company's accounts. The calculation of taxable income is based on principles used in business economics with minor adjustments on fiscal grounds.
All costs necessary to maintain and develop the business operation are deductible expenses.
Annual depreciation is permitted for assets invested in the business operation. One method applied to equipment allows depreciation at 30 percent per annum on the book value of remaining equipment.
Alternatively, depreciation can be calculated at a rate of 20 percent annually based on the acquisition value of the remaining equipment. The cost of equipment with a shorter economic life (less than three years) as well as equipment of a lesser value can be deducted in its entirety. Lesser value in this context normally means below SEK 2,000 while for larger companies the limit is SEK 10,000. In the case of buildings, scheduled depreciation is allowed at a rate of 2-5 percent of the acquisition cost depending on how the building is used.
Employer contributions are deductible in the calculation of the taxable income from business operations.
Profit equalization is possible for most business operations, via so-called accrual accounts, where a private business can deposit a maximum of 25 percent of profits and a limited company 20 percent. The amount deposited must be reversed and subjected to taxation not later than five years from the year of deposit. Losses can be carried from year to year without any time limitation.
A group of companies does not constitute a single taxable subject in Sweden. All companies in the group are regarded as individual taxable subjects. To avoid consideration of tax regulations in the selection of organizational form, such as a single company or a corporate group, there are regulations that permit the transfer of funds from one Swedish company to another, for example via group contributions. Such contributions are regarded as a deductible expense for the contributor and taxable revenue for the recipient.
Basic deduction and tax reduction
Individuals are entitled to deduct a basic deduction and pension contributions from their taxable earnings. The size of the basic deduction is linked to the price-indexed base amount* as regulated by the National Insurance Act and must be at least 0.27 percent of the base amount. In 2001 the base amount is SEK 36,900, which gives a lowest basic deduction of SEK 10,000. For annual earnings of between SEK 68,700 and 206,900 the basic deduction is higher and reaches a maximum, SEK 19,500, on incomes between SEK 106,400 and 112,800.
Pensioners are granted a special basic deduction of up to SEK 57,600 for singles and SEK 51,000 for married pensioners (2001).
A special tax reduction of SEK 1,320 is granted to those with earned incomes of up to SEK 135,000. If income exceeds that amount the tax reduction is gradually reduced up to a maximum income of SEK 245,000.
Other direct taxes
Real estate tax and real estate taxation
National real estate or property tax is levied on private houses, residential buildings on farms and rented residential and business premises.
The real-estate tax is calculated on the basis of the assessed taxable value. The residential parts of a building dating from 1991 and later are not taxed for the first five years, while the tax rate is reduced by 50 percent during the subsequent five-year period.
Houses and residential apartments in blocks of flats are taxed at a rate of 1.2 percent of the taxable value, whereas floor space used for other purposes is charged at a rate of 1.0 percent. The real estate tax on industrial premises is 0.5 percent. The assessed real estate value is expected to equal approximately 75 percent of the market value of the property. The taxable value is used in the calculation of real estate tax as well as inheritance, gift and wealth taxes.
Value-added tax (VAT, moms) is a state sales tax that is levied on all increases in value throughout the production and distribution chain and reported to the tax authorities.
The obligation to pay VAT arises when a taxable transfer of goods or services is carried out in Sweden in a professional context.
VAT must also be paid on the value of acquisitions from other businesses within the EU and for the import of goods and services from countries outside the EU. No VAT is paid on exports to non-EU nations.
The Swedish tax authorities and the Customs Department (Tullverket) are responsible for VAT taxation. Since Sweden's entry into the EU in 1995 the border control of trade with other member states has ceased. Taxation on the acquisition of goods within the EU is instead carried out in accordance with the domestic regulations that apply in each member state.
The tax authorities are responsible for levying taxes on domestic trade and EU acquisitions while the customs department supervises imports from countries outside the EU.
The general VAT rate is 25 percent and this is applied to the turnover of all goods and services excepting foodstuffs, hotel accommodation, campsites and passenger transport (12 percent), as well as books, newspapers and certain goods and services in the cultural sphere (6 percent).
VAT is reported by the person liable to pay the tax, either by submitting the information in their tax return or in a special VAT return. Individuals and companies who are liable to pay tax declare their VAT in the annual tax return if their tax base is not higher than SEK 1 million. The VAT is then included in their final tax assessment.
If the tax base exceeds SEK 1 million the company has to account for the VAT in a special return that is submitted and paid monthly.
Special consumption taxes or excise duties are levied on some goods and services. The majority of these purchase taxes have been introduced for reasons other than the generation of revenue for the state. These duties are also a means of steering the consumption of such commodities as energy, alcohol and tobacco.
The 16 excise duties which exist at present include taxes on fuel (petrol, oil, coal and liquefied petroleum gas), electrical power, alcohol, tobacco, gaming, motor vehicles and roads.
Social security contributions
Rights of citizens of the EU/EEA to social security benefits and the obligation to make contributions are determined by EU regulations and the EEA Agreement. In other words, citizens of other countries can be covered by a social insurance agreement.
Social security is financed via general pension charges, social insurance contributions, a state old-age pension fee and general tax revenue.
The general pension contribution is levied to finance income-based pensions and supplementary pensions. The contribution is paid individually and is calculated on the basis of income from employment and other earned income. It is applied to the portion of the aggregate income that does not exceed the equivalent of a normal income.
As of 1998 the tax authorities administer a tax account for everyone obliged to pay taxes or other charges. All accounting, payments and credits are reported in that account. Generally, the account handles the payment of preliminary tax (pay-as-you earn, PAYE), payroll taxes and VAT. All information that the tax subject is required to submit is to be presented in a single document, a tax return.
The tax return is to be submitted monthly by employers and those self-employed who are registered for VAT purposes.
The tax collection system is arranged in such a way that estimated taxes are withheld and paid at intervals during the income year (PAYE). In principle, these preliminary tax payments should add up to the amount calculated according to a person’s final tax assessment.
In the case of employees, the employer is in charge of the withholding and payment process. Self-employed people make their own estimated tax prepayments. Banks and other financial institutions withhold preliminary tax on interest and dividends.
After the final tax assessment is determined with the help of a person’s tax return, its amount is compared with the sum of the preliminary tax payments made over the year. If the prepayments were too small, the taxpayer is billed for the difference plus interest. If they were too large, the excess is refunded and the taxpayer is paid interest.
ASSESSMENT AND APPEALS
Income tax returns
Individuals and legal entities are required to file an income tax return every year.
Spouses are assessed individually for all taxable income and therefore both spouses must declare their income. Joint taxation is only applicable to wealth tax.
For individuals with relatively straightforward financial circumstances there is a simplified, pre-printed tax return that can be supplemented, signed and returned to the local tax authority. The simplified income tax return is to be submitted not later than 2 May following the income year (the so-called assessment year).
Other individuals and legal entities file a more detailed type of tax return which should be submitted by 31 March of the following year. The new option of supplying this information electronically is a distinct advantage for this category of taxpayer.
Tax returns are assessed by the local tax offices. A person who wishes to challenge a decision can ask the office to reconsider its decision at any time during the five years following the income year in question, or otherwise appeal the decision to the county administrative court (länsrätt).
Appeals are submitted to the local tax office, which reconsiders the decision before any documents are turned over to the county administrative court. In some cases, as a result of this reconsideration, the tax office approves the taxpayer’s request and the appeal is dropped, thus never reaching the court.
There is a special judicial board (Skatterättsnämnden) that issues advance rulings on particular tax assessment issues upon a taxpayer's request. The National Tax Board (Riksskatteverket) is Sweden’s central administrative agency in charge of promoting correct and uniform enforcement of the tax laws, and plays an adversarial role vis-à-vis the taxpayer in these cases.
Advance rulings are issued if it is especially important to a taxpayer to know the tax consequences of a particular action or if it is of importance for uniform interpretation or enforcement of the law. Decisions of the judicial tax board may be appealed to the Supreme Administrative Court.
A person who submits incorrect or insufficient information in a tax return is charged a penalty. This is an administrative, economic sanction determined by the tax authorities. The rule of thumb is that this penalty amounts to 40 percent of the tax that should have been paid. This penalty does not prevent a person from also being prosecuted for tax evasion. Cases of alleged tax evasion are handled by the regular court system. The maximum punishment for tax evasion is normally two years' imprisonment.
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