Essential information for starting a business in Sweden
17 questions and answers regarding starting a business in Sweden. Includes the basics that you need to know!
Summary:
This article provides information on doing business in Sweden. It covers the concept of permanent establishment, including the rules for creating one in Sweden, as well as exemptions from being considered a permanent establishment.
This article also discusses the types of business entities that exist in Sweden, namely limited companies and branches, and how to choose between the two.
The rules and requirements for employing someone in Sweden are also outlined, including the need to register with the Swedish Tax Agency as an employer and pay payroll tax. Finally, this article explains what payroll tax is and how it is calculated in Sweden.
[Estimated Reading Time: 7 minutes]
1. What does “permanent establishment” mean?
A permanent establishment is defined as a permanent location from which business operations are conducted. If the enterprise has a permanent establishment, it is considered to be equivalent to a domestic company.
Permanent establishment refers to a fixed location where a company carries out its business activities. This can include an office, a branch, or any other physical presence. When a company has a permanent establishment, it is treated as a domestic company for tax purposes.
2. What are the rules for a permanent establishment in sweden?
In Sweden, a foreign company is considered to have a permanent establishment if it has a fixed place of business in Sweden, either through a branch office, a factory, a workshop, a mine, or other similar places of business. A permanent establishment can also be created if a foreign company has a dependent agent in Sweden who has the authority to conclude contracts on behalf of the company.
The following are the rules for a permanent establishment in Sweden:
Business activity requirement - the foreign company must carry out business activities in Sweden to create a permanent establishment.
Fixed place requirement - the business activities must be carried out through a fixed place of business in Sweden.
Duration requirement - the fixed place of business must exist for a certain duration, either continuously or intermittently, to qualify as a permanent establishment.
Economic ownership requirement - the foreign company must have economic ownership or control over the assets used to conduct business activities in Sweden.
Once a foreign company has a permanent establishment in Sweden, it is subject to Swedish taxation on its business profits and may be required to pay social contributions. The rules for permanent establishment in Sweden are in line with international tax standards set by the Organisation for Economic Co-operation and Development (OECD).
If you answer yes to at least one of these, it is considered a permanent establishment.
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A room in your home (working from home)
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An office at another location
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A workspace on another company's premises. (like an office space)
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A site, like a building or construction.
3. Are there exemptions from being a permanent establishment?
There are several exemptions from being a permanent establishment in Sweden, including:
Independent agents - if the foreign company has an independent agent in Sweden who acts on behalf of the company but is not an employee or representative of the company, the company is not considered to have a permanent establishment in Sweden.
Preparatory or auxiliary activities - if the activities in Sweden are of a preparatory or auxiliary character and are not considered to be the core business of the company, then the company is not considered to have a permanent establishment in Sweden.
Fixed duration activities - if the foreign company carries out activities in Sweden for a fixed duration, such as a construction project, and the activities do not exceed the time limit specified by Swedish tax law, the company is not considered to have a permanent establishment in Sweden.
Service PE exemption - if a foreign company provides services in Sweden through its employees or other personnel for a period not exceeding 183 days in any 12-month period, the company is not considered to have a permanent establishment in Sweden.
It is important to note that these exemptions are subject to interpretation and should be assessed on a case-by-case basis.
Legal guidance:
https://www4.skatteverket.se/rattsligvagledning/edition/2022.1/2971.html
4. What types of business entities exist in Sweden?
There are multiple business entity options available, with the ideal choice depending on the nature of your business. Limited companies and branches are commonly selected by international entrepreneurs looking to establish their business in Sweden. As a result, this guide will primarily focus on these two business structures.
5. If we plan to employ one person in Sweden, do we need to start a limited company or branch? What are the rules in this case?
If you plan to hire a sales representative or someone else without conducting business in Sweden, you don't have to register a branch or a limited company. However, you must register with the Swedish Tax Agency as an employer and pay payroll tax on the wages paid to the employee. The employee is required to pay social security contributions related to each paycheck unless you have an agreement where the employee pays the payroll tax.
It usually takes about two to six weeks for the Swedish Tax Agency to process an employer registration application. If you have already hired someone without registering as an employer, you can still pay wages, but you'll need to submit retroactive reports to the Swedish Tax Agency.
6. What distinguishes a limited company from a branch?
A limited company is a registered legal entity in Sweden with a corporate identity number, and it requires a minimum capital investment of SEK 50,000. It is an independent legal entity that is not owned by a foreign company. The limited company is started by one or more individuals and is capable of paying dividends to its shareholders.
In contrast, a branch involves a foreign company operating in Sweden as an extension of its parent company. It is treated as a department of the foreign company and managed by the foreign company's CEO. A branch does not require any share capital.
7. How do I make the choice between a limited company and a branch?
Your business activities and existing circumstances determine the optimal choice between the two structures. To compare and contrast more variations between the two, see below:
Branch:
• Treated as a foreign company's department.
• Managed by the CEO.
• No share capital required.
Limited Company:
• Independent legal entity not owned by a foreign company.
• Started by one or more individuals and necessitates a capital investment.
• Capable of paying dividends to shareholders.
8. What is a payroll tax?
A payroll tax is a tax that a company with employees in Sweden pays to the Swedish Tax Agency. Payroll tax is determined by several factors, including the presence of a permanent establishment in Sweden, the employee's salary
The employer deducts the payroll tax from the employee's salary and remits it to the Swedish Tax Agency on a monthly basis. The amount of payroll tax varies based on the employee's salary and is calculated as a percentage of the gross salary.
9. What are social security contributions?
Social security contributions are payments made by employees and employers into a national social security system, which provides various social benefits such as pensions, healthcare, disability insurance, and unemployment benefits.
In Sweden, social security contributions are deducted from an employee's gross salary, and both the employer and employee make contributions.
The employer is responsible for deducting the contributions from the employee's salary and paying them to the Swedish Tax Agency along with the payroll tax. The amount of social security contributions varies depending on the employee's salary and the type of benefits covered by the social security system.
10. What is the structure of a limited company?
Limited companies in Sweden are composed of a Board of Directors, a Chairperson, a CEO, and one or more signatories.
11. What are shelf companies?
Shelf companies refer to pre-existing businesses that can be purchased during limited company registration. This method accelerates the process by utilizing an existing corporate identity number.
12. What is the cost of starting a company?
To register a limited company, you must pay SEK 1,900 to the Swedish Companies Registration Office (Bolagsverket) during registration. Additionally, you must have SEK 25,000 in share capital after establishing the company. Registration as an employer with the Swedish Tax Agency (Skatteverket) is free of charge.
On the other hand, to register a branch, you must pay SEK 2,000 to the Swedish Companies Registration Office at the time of registration.
13. Is a bank account necessary when starting a business?
The necessity of a bank account is determined by the type of payment involved. Examples include:
• A Swedish bank account is required to make payment to the Companies Registration Office when registering a company in Sweden. However, if you do not wish to open a Swedish account, you may utilize an accounting firm with a client account.
• To register a limited company, a Swedish bank account is required to deposit the capital investment.
• If registered as an employer but not as a branch or limited company, a Swedish bank account is not required for payroll purposes.
14. Is it required to submit annual financial statements?
Different types of business entities in Sweden have varying requirements for annual financial statements and reports.
Limited companies are required to file an annual report and a tax return, while the rules for branches depend on their type. For example, branches of foreign-based companies within the European Economic Area (EEA) that are comparable to limited companies are required to file an annual report with the Swedish Companies Registration Office, while branches of foreign-based companies outside the EEA must file both annual accounts and an annual report.
Even if a branch or foreign-based company is not currently conducting business activities in Sweden, they must still file the required reports. An exception can be made if the foreign-based company is considered dormant and is not required to file reports in its home country, but this must be verified by the registration authority of that country.
15. What is the process for making payments to the Swedish Tax Agency?
Upon registering a company, whether as a branch, limited company, or employer, a tax account is opened with the Swedish Tax Agency. All fees, including sales tax (VAT) and payroll tax, must be paid into this account using a single payment reference number. On the due date of each month, the Swedish Tax Agency withdraws the reported amount from the account.
16. Do I have to register for VAT?
The registration for VAT is mandatory for both limited companies and branches in Sweden. The process can be done without any charges through the Swedish Tax Agency. As for the frequency of VAT payments, it's at the discretion of the company, whether they opt for monthly or quarterly payments. However, if a company's yearly sales exceed SEK 40 million, they are obligated to submit monthly VAT reports.
17. Is it necessary to have an auditor, and if yes, what are the requirements?
If you meet certain criteria for two consecutive years, you are required to engage an auditor for your branch or limited company in Sweden.
These criteria include having:
an average of more than 3 employees
a balance sheet total of more than SEK 1.5 million
or a net turnover of more than SEK 3 million.
Newly established limited companies are exempted from appointing an auditor until the third financial year if they meet the criteria for two consecutive years. The limited company must appoint an authorized or approved auditor, elected by the shareholders at the annual general meeting or a general meeting.
The auditor is usually appointed for one year, but can be appointed for a maximum of four years if stated in the articles of association.