Country profile, Sweden

1. Legal culture, regulatory regime

A short historical retrospect
The Swedish monarchy is one of the world´s oldest and Sweden has had a king for more then a thousand years. Since 1973, King Carl XVI Gustaf has been on the throne and he is the seventh king from the Bernadotte family.

In 1974 the Swedish Constitutional Act was enacted. According to the regulation, the King was no longer to rule the kingdom alone, instead all public power were to come from the people. Today, Sweden is, similar to many of the European countries, a constitutional monarchy, which implies that the monarch‟s duties are regulated by the constitution.

According to the constitution, the King has, apart from being the Head of State, duties that primarily are ceremonial and representative. Furthermore, he opens the Parliament (Riksdag) each year and chairs the meetings of the Advisory Council on Foreign Affairs.

The Swedish King is liable for taxation and he and his family are entitled to vote. However, historically this right is never exercised.

How Sweden is ruled by authorities and laws
The members of the Parliament are elected by the Swedish citizens. Thereafter, the Parliament elects a Prime Minister, who then appoints which members shall be a part of the Government.

Unlike German and French law but similar to Danish law, commercial law is not a distinct area of jurisprudence. The main bodies of statutes on trading or commercial relationships are the Swedish law on trade with products and services, the Contract Act and the Consumer Act (Konsumentköp- och tjänstlag). The latter offers protection to the consumer and sets standards of greater responsibility and care from commercial parties.

In contrast to the common law system, Swedish law is not primarily based on case law.

2. Status of foreign capital and foreign enterprise

Sweden is one of the world‟s most knowledge-intensive economies and has recently been appointed the world‟s fifth most trade friendly country.¹The procedure for setting up a business is simple and efficient; this aids entrepreneurism. You do not generally require an operating license to conduct business in Sweden. The salary levels are competitive for skilled employees and the corporate tax rate is only 26.3 per cent.²

The modern and enterprise friendly business climate along with skilled professionals and receptivity to international ownership, make Sweden an easy country to operate in. Executives are highly regarded for their international management skills and knowledge on global affairs and a high percentage of the workforce speaks English. Furthermore, Sweden has a wide range of financing sources as well as a well-established market for venture capital and private equity. In order to facilitate free trade and movement of goods, Sweden strives to support free trade and non-discrimination of foreign investors.

3. Investment incentives

Sweden is a leader in terms of combined public and private R&D expenditures and in total the appropriation for R&D amounts to SEK 29.5 million.³ One reason for this is high investment in higher education and basic research.

In particular, the Swedish information and communication technologies‟ infrastructure attract attention abroad. Consequently, there has been a recent growth in the Swedish ICT sector. The Swedish government encourages foreign investment and the costs for conducting business here are similar to most OECD countries. In addition, salary costs have, as mentioned, become increasingly competitive in Sweden and the leverage in terms of high productivity and skills is substantial and offers investors good value for their invested money.

Sweden has a highly diversified business structure which is characterized by competitive multinationals, skilled medium/sized subcontractors, small high-tech companies, constant restructuring, diversity and, most importantly internationalization. As a result, Sweden has come to have a large portion of companies with foreign owners.

4. Structuring activities

As in most countries the type of company suitable for an establishment in Sweden determined by the type of business activities performed. However, a foreign-based company wishing to establish business in Sweden must mainly choose between two different entities; either a subsidiary in the form of a limited company (aktiebolag) or a branch (filial). Apart from these, Sweden also offers structures such as sole trader, trading partnership, limited partnership and economic association.

Limited Company and Branch in Sweden
In Sweden, the limited company is the structure most frequently used among foreign investors. The limited company is a separate legal entity meaning that it may enter into contracts and possess property in its own name. Apart from the economic association, the limited company is the only structure offering the owners a limited responsibility for the company‟s debts. The branch, however, does not constitute a legal entity instead it is a part of the foreign-based company and the owners‟ liabilities depends on the legal structure of that company.

Foundation and Registration
One or more founders could form a limited company. The founder may be an individual member of the EEA, a Swedish legal entity or a legal entity incorporated pursuant to the laws of a member state of the EEA and which has its registered office, head quarters or principal placed within the EEA. Residents from outside the EEA may act as founders after gaining approval from the Swedish Company Registration Office (Bolagsverket).

The limited companies as well as the branches must be registered at Bolagsverket and at the Swedish Tax Agency (Skatteverket). Before registration a “resolution” to form the company must be made and documented in a specific document known as the memorandum of association (stiftelseurkund), which shall be sent to Bolagsverket together with the application and other documentation. In the memorandum the founders must affirm the Articles of association (Bolagsordning).

Company name
When registering a company its name will be protected throughout Sweden. When registering the name for a branch, it must contain the name of the foreign-based company with the addition of filial (branch) and clearly express the nationality of the foreign company.

Required share capital
In contrast to the branch, a considerable capital investment is required when starting a limited company. The minimum paid in share capital for a private limited company is SEK 50,000 whereas for a public limited company SEK 500,000 is required. The share capital could consist of monetary means or a specific property (so called apportegendom). Apart from the investment in the share capital, the owners have no personal liability for the company‟s debts.

Representative office
A representative office could perform a wide range of functions, but it is not considered a legal entity under Swedish law. Thus, it cannot conduct business on its own, through its employees or premises.

Ready made shelf companies
The most usual and convenient way to start up a business in Sweden is to buy a ready made company. As many of the registration procedures have been performed beforehand the company could start conducting business immediately. However, the company still has to register its name. The cost of buying a company off the shelf is usually SEK 10,000-20,000.

5. Board, Directors, Stakeholders and Auditor

The limited company is required to appoint a board of directors (“Board”) and, if it is a public company it must appoint a managing director. A private limited company could voluntarily choose to appoint a managing director whereas a branch is obligated to do so. The Board and the managing director have extensive responsibility and in limited circumstances they may become liable for the company‟s obligations. The shareholders may reside in any country and their influence in a limited company is based on the shares owned in the company.

All companies that carry out business activities must maintain accounting records and comply with established accounting principles in accordance with the Book-keeping Act (Bokföringslagen). Limited companies as well as branches are obligated to have an approved authorised accountant. A limited company must annually submit its accounts to Bolagsverket and if the deadlines are not met it will result in a fine. The branch must keep its accounts separate from those of the foreign-based company.

6. Tax treatment / tax liability

All businesses are subject to taxation. However, whether it is the legal entity or the physical owner that is liable for tax varies. The limited company as well as the branch is obliged to pay corporate tax based on the annual profit of the company. The main rule is that tax deductions may be made by a company for all costs necessary to run the business. A branch structure could, in addition, offer tax benefits for a transitional period when launching the business in Sweden. As the branch is not a legal entity in its own rights, deficits may be tax deductable in the foreign-based company. This benefit, however, is not open for a limited company.

7. Employing people

Sweden offers the foreign investors a well-organised labour market with generally strong relationships between the parties. In order to work in Sweden no work permit is required for citizens of an EU/EEA country. However, citizens from a country outside the EU/EEA need a work permit.

Employees in Sweden are offered a considerably high level of social security. Contrary to most European countries, basic practise in the Swedish labour market are mainly founded on collective agreements between employers and employee‟s„ representative organizations. Mutually binding agreements could then be reached by and between the two parties on employment issues.

For an employer to terminate an employment, he or she must prove reasons of objective grounds (saklig grund), such as shortage of work, or personal reasons (personliga skäl), such as disloyalty. Without having such reasons, it will be difficult for the employer to terminate the employment. However, in order to facilitate the hiring process for the employer, it is possible to apply a trial period of a maximum of six months where the employer has the right to terminate the employment without presenting objective grounds or personal reasons. If terminating an employment based on shortage of work, the employee has a priority right of re-employment within a certain period of time after the termination.

Taxes
Employers are expected to account for pay payroll tax on the employees„ salaries and also a special wage tax on pension costs. Most employees pay only municipal tax and some pay state tax, as it is only applicable to individuals with a higher salary. The municipal tax rate could to some extent vary between the different municipals however, the rate is usually about 30 per cent. The state tax rate varies depending on the income and will only be applicable to an annual income of over SEK 372,100 (for 2010) where a state tax rate of 20 per cent is levied on the municipal tax. A higher national tax of 25 per cent is levied on income over SEK 532,700. Key foreign personnel such as executives, researchers and other experts employed by a Swedish employer may qualify for a special tax relief when working in Sweden.

8. Property

Due to full accessibility to public property records, a highly evolved legal system and easy accessible market information, the transactions costs are reduced. Thus, Sweden, constitutes a country highly suitable for cross-border property investments as foreign individuals can hold property on the same conditions as nationals. Property in Sweden can be held by foreign individuals on the same conditions as nationals.

9. Trading regulations and consumer law

The consumer enjoys extensive protection and should neither be subject to misleading marketing nor to unfair sales methods, dangerous products or unfair contract terms. Primarily, the Marketing Act (Marknadsföringslag), Consumer Acts (Konsumentköp-/ tjänstlag) and the Consumer Contract Terms Act are of relevance when selling goods or services to consumers. The following public bodies are involved:

The Swedish Consumer Agency
The Swedish Consumer Agency (Konsumentverket) is a state agency providing the general public in Sweden with customer affair assistance. The agency acts in the collective interest of the consumer but does not in general resolve individual consumer disputes.

The Consumer Ombudsman
The Consumer Ombudsman (Konsumentombudsmannen) has a duty to represent consumer interests in business world and pursue legal action on behalf of those interests.

National Board for Consumer Complaints
The Board (allmänna reklamationsnämnden) has, in contrast to the Consumer Agency, the task to resolve individual consumer disputes. The Board handles complaints regarding deficiencies in goods or services. Disputes could be brought before the Board at no cost for the consumer.

10. E-commerce

In Sweden e-commerce has increased fourfold in less than five years and in total e-commerce reaches almost SEK 64 billion. This is further affirmed by survey made in 2010 which shows that 94 per cent of Swedish Internet users have within the past six months traded over the Internet.⁴

11. Litigation and disputes

In Sweden there are three different types of courts; the general courts, comprising the district courts, Courts of Appeal and Supreme Court; the general administrative courts, consisting of, County Administrative Courts, Administrative Courts of Appeal and Supreme Administrative Court; and there are also special courts, including e.g. the Labour Court, the Environment Court and the Market Court.

The general courts handle criminal cases, contentious cases (civil law disputes) between private persons, e.g. family cases, and other various kinds of matters, such as adoptions. The administrative courts on the other hand deal among other things with disputes between private persons and authorities which could e.g. relate to tax cases and nationality cases. The special courts, however, only deal with cases specially related to their area of expertise. Contrary to Germany, France and Spain there is no constitutional court in Sweden nor is there a separate administrative court.

12. Closing down a business and repatriating funds

When closing down a business, either if it is made through liquidation, merger or bankruptcy, Bolagsverket as well as the Skatteverket must be informed in order for them to remove the company from their respective registers. Dividend payments to non-residents are liable to a 30 per cent withholding tax. Due to existing double taxation treaties, the tax payable may however be mitigated depending on the tax residency of the recipient.⁵ If a foreign company, within the EEA, is disposing of a subsidiary that is located in Sweden there will be no taxation on the profits made.⁶

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¹According to the World Economic Forum 2010. The ranking is based on a comparison made between 121 countries where their politics, institutions and services to facilitate trade towards foreign countries has been examined.

²Valid as from assessment year of 2010-11.

³Statistiska centralbyran, ‘R&D Expenditure in Sweden 2010

⁴According to the DIBS e-commerce survey , from 2010 .

⁵Skatteverket.se

⁶Tax law (Inkomstskattelagen) chapter 24 §§ 13-14 and 17.

The material contained in this profile is provided for general purposes only and does not constitute legal or other professional advice. Appropriate legal advice should be sought for specific circumstances and before action is taken.

© October 2011

Please contact:

Steen Rosenfalck - Partner

DD +44 (0)20 7553 9931

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