Before undertaking business activity in Sweden, it is necessary to choose which type of legal entity to form. The type of company form will influence all activity of the company, includes financial and tax reporting, customs and currency control. Therefore, an investor should pay special attention when determining the appropriate corporate form since this will help to achieve goals that are set while meeting all legal requirements. However, luckily the government has simplified the procedure of setting up a business in Sweden!
According to the Sweden Commercial Code there are 4 forms of legal entities when establishing business in Sweden. The most common ones used by foreign investors are limited company (Aktiebolag) and branch (filial).
You must have a residence permit if you are a citizen of a non-EU/EEA country and plan to work for a period longer than three months to start up or run your own business. The residence permits are applied at the Swedish Migration Agency (Migrationsverket). As self-employed it is not allowed to take employment with any employer. You apply the residence permit at a Swedish mission abroad in your native country or the country you are living in.
Foreign nationals in Sweden can act as sole proprietors. The sole ownership in Sweden doesn’t require a minimum share capital and it is the basic form of business in Sweden. The founder is taking all the decisions necessary to the good function of the entity and can use the profits after submitting the personal tax income declaration to the tax authorities.
As a standard, foreign companies that are established as a permanent entity and earn profits from Swedish sources are liable to pay 22% Swedish corporate tax on earnings. Both local and foreign companies are subject to the same Swedish corporate tax rate. However, foreign companies only pay Swedish taxes if they have a permanent organization or an administration board and earn profits from Swedish sources.
Swedish residents are liable to personal income tax on their total income received in a calendar year. Non-residents are taxed on income received from sources in Sweden. For residents the personal income tax rate is around 30% municipality tax for all types of income received, for non-residents 30%, although with few exceptions.
Standard VAT rate, currently 25% and 12% on food non-alcohol drinks. Transportation VAT rate is 6%. Medical treatment and culture arrangements are non VAT. Sales without VAT is for export. Foreign companies that provide certain cross-border services to Swedish clients, the
foreign company will be required to pay 25% VAT in Sweden.
Accounting legislation in Sweden consists of mandatory accounting acts – the Annual Accounts Act of 1995 (årsredovisningslagen) and the Book-keeping Act of 1999 (bokföringslagen) being the most important. Both the Annual Accounts Act and the Book-keeping Act are general frameworks for accounting and both Acts refer to “generally accepted accounting principles”.
The Annual Accounts Act is based on an EU Directive. Credit institutions, brokerages and dealers in securities, and insurance companies, are covered by two specific accounting acts.
The Swedish Accounting Standards Board’s (BFN) main objective is to promote, in Sweden, the development of generally accepted accounting principles in terms of the current recording of transactions and the preparation of annual financial statements.
It issues general guidelines and information on accounting matters and practices. These general guidelines set out what constitutes “generally accepted accounting principles” in Sweden. The Swedish Financial Supervisory Authority (Finansinspektionen) is responsible for issuing standards required for financial companies.
Generally accepted accounting principles
“Generally accepted accounting principles” means conducting book-keeping in accordance with prevailing laws on the field and in line with accepted practice and in compliance with BFN’s general guidelines.
The rules of the Book-keeping Act regarding the current recording of transactions, supporting vouchers and archiving apply to all entities required to maintain accounting records. All companies that conduct business activity are required to maintain accounting records. In addition, all limited companies, partnerships and co-operatives, as well as certain foundations and non-profit associations, are always required to maintain accounting records even if they do not conduct business activity.
Rules on simplified annual accounts (förenklat årsbokslut) can be found in the Book-keeping Act. Rules on annual financial statements (årsbokslut) can be found in the Book-keeping Act and the Annual Accounts Act. Rules on annual reports (årsredovisning) can be found in the Annual Accounts Act.
Where to find the rules
BFN’s guides, statements and general guidelines can be found under Redovisningsregler. The Book-keeping Act and Annual Accounts Act are also provided there. (In Swedish only).
The regulation of employment in Swedish is governed by the Labor Code , Lagen om anställningsskydd (LAS) applies only for employees and are not applicable for executives. Swedish labor laws apply to foreign nationals and foreign businesses in Sweden in the same manner as to domestic entities. All regulations related to minimum guarantees, employment benefits and compensation supersedes any agreement between the employer and employee. The employee-sided nature of Swedish labor legislation makes employment in Sweden complex.
Expats are liable to pay resident Swedish taxes and social charges only if they stay in the country at least 183 days during a calendar year. Your employer will typically arrange for your registration with the Swedish tax office and secure your social security number. Self-employed workers will need to arrange their tax registration and Swedish social security number themselves. Swedish social security payments are deducted from your gross salary by the employer.
In the condition of an employer-terminated agreement as a result of redundancy or liquidation, the rules are stipulated in LAS .
Termination of the employment agreement by the employee may be carried out by providing a notice according to LAS, the notice should be in written , LAS cannot be overridden by contractual terms.
The Highly Qualified Specialist (HQS) program was introduced in 2001 and allows companies in Sweden to employ foreign national workers with various benefits including a simplified application process and exemption from quotas.
PAYROLL & TAX
There are specific rules for payroll and taxation in Sweden, depending on whether foreign national or Swedish residents are employed. The primary concerns for a foreign company that needs to comply with tax laws in Sweden: Individual income tax (IIT) for employees in Sweden, social security costs, payroll tax, sales tax, and withholding tax.
Your Payroll Options in Sweden:
A remote payroll in Sweden is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Sweden. The only option for a non-resident company to payroll its employees (both local and foreign) in Sweden is to use fully outsourced services like a ”HUB” which will employ and payroll the staff on their behalf.
Local Payroll Administration
In some cases, a company will register their business in Sweden under one of the forms available, (ole trader, trading partnership, limited company, economic association) but prefer to have another company administer its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.
Larger companies with a commitment to Sweden may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a Swedish payroll, and can fulfill all tax, withholding, and payroll requirements.
This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Swedish employment laws.
Fully Outsourced Payroll & Employment
Companies can outsource the employment and payroll of their staff in Sweden to a ”HUB”.This is possible for both foreign workers and Swedish nationals. This is the easiest, fastest and safest way to payroll staff in Sweden.
The HUB manages all aspects of payroll for workers in Sweden, including taxes, withholding, social security payments and other statutory requirements. The HUB becomes the Employer of Record and employs the staff on behalf of the client.Staff are paid monthly with tax and social security deducted at source and paid to local authorities. The HUB will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions)
BEING AN EXPAT
Residence permit has to be applied before moving to Sweden. Ideally the applications are done via the website of “Migrationsverket”. However if the foreign national is already in Sweden and in need of a residency permit, it has to be applied at the office of “Migrationverket”.
Foreigners looking to reside in Sweden will have to brace themselves for a lengthy apartment-hunting. Expats are advised to seek out real estate agencies when looking for an apartment.
Expats are obliged to pay tax on worldwide income to Sweden if living or working in Sweden for at least 183 days in a 12-month period. Usually double taxation can be avoided but this should always be checked on a case-to-case basis.