Sweden, the largest and most populous Nordic country in Northern Europe, ranks among the top 10 competitive nations of the world. It also ranks 10th, out of 190 economies, for the ease of doing business as per World Bank’s 2020 report. With a GDP of USD 541.22 billion, the Scandinavian country is one of the highest performing economies in Europe and worldwide.
Sweden is internationally known for its global competitiveness, pro-business climate, innovation, productivity, diversity, and high living standards. The country is a prime choice for expats looking to establish a subsidiary business.
Like most other nations, setting up a subsidiary in Sweden calls for a thorough understanding of and compliance with the local laws, rules, and regulations. Expanding into the Swedish market has challenges, and you must be well-versed with the country’s subsidiary laws.
What are the Types of Subsidiaries in Sweden?
Foreign investors setting up a subsidiary company in Sweden must decide upon the type of company from the structures permitted by the country’s laws.
Different companies fall under varying tax regimes and are subject to specific registration rules, financial reporting, auditing, and compliance. Moreover, the kind of company you choose to set up in Sweden will depend on your available capital, business goal, the number of investors involved, and other criteria.
Below are the main types of companies you can set up in Sweden for your business expansion:
Limited liability company
A limited liability company (Aktiebolag) is one of the most popular options for foreign investors setting up a subsidiary in Sweden. It is an independent legal entity. A limited liability company includes one or more people with a board of directors.
The board supervises the company’s general affairs and is responsible for making critical business decisions, and the shareholders elect directors on the board. While a managing director is mandatory for public limited companies, the position is optional in private firms. The managing director oversees and runs the company’s daily operations and is appointed by the board of directors. One of the board members (except the managing director) must be appointed chair of the board. There must be a minimum of one deputy member if there are less than three board members.
The minimum share capital required for a private limited liability company in Sweden is SEK 25,000 (SEK 500,000 for public limited companies), or the equivalent amount in Euros. However, you cannot sell the shares on the stock market. Moreover, the liability of the shareholders is limited to their investment in the share capital.
In limited liability companies, an annual corporate tax of 20.6% applies to the profit. Moreover, the profits earned by these firms are divided amongst shareholders through dividends.
Since a Swedish limited liability company is a distinct legal entity, it can enter into debts and agreements in its name and must be registered with the Swedish Companies Registration Office. An LLC must also register with the Swedish Tax Agency because it is subject to corporate income tax on profits. In addition, limited liability companies in Sweden must appoint an auditor and submit an annual financial report.
Sweden’s Partnership and Non-registered Partnership Act allows the setting up of a general or trading partnership (Handelsbolag). You can form such a partnership through an agreement between two or more partners, individuals, or legal entities. A significant advantage of setting up a trading partnership in Sweden is its flexibility. Since a trading partnership is free from corporate restraints, the partners can organize their business relations as they deem fit.
While there is no minimum capital requirement to set up a trading partnership in Sweden, the business partners are personally liable for their debts and agreements.
The liability is generally shared in proportion to the partner’s initial contributions toward the partnership. You must register a trading partnership in Sweden with the Swedish Companies Registration Office and the Tax Agency. This entity’s lack of limited liability protection for partners is a drawback.
Sweden’s limited partnership (Kommanditbolag) structure is similar to the general or trading partnership agreement. There is no minimum capital requirement, and at least two individuals or legal entities must be involved in setting up the partnership.
A limited partnership differs from a general partnership in one aspect: the liability of the partners. In a limited partnership agreement, at least one member must be a limited partner, while one member must have general liability. In other words, the limited partner bears no liability for the company’s obligations above their contribution to the partnership. Hence, they are a “limited partner”; all other partners are general partners. However, all partners must pay tax on their profits.
Like a general partnership, a limited partnership in Sweden offers ample flexibility. The partners have complete freedom to determine and organize their business relations without any corporate limitations. Registration with the Swedish Companies Registration Office and the Tax Agency is mandatory.
How to Set Up Subsidiaries in Sweden?
Incorporating a foreign subsidiary in Sweden involves several procedures, and it takes approximately two weeks to officially set up a subsidiary company in Sweden.
The main steps to set up a subsidiary business in Sweden include:
Step 1: Preparing the company documents
You must prepare the company documents, including the memorandum of the company and the articles of association.
Step 2: Shareholder subscription
Next, the foreign company of the subsidiary purchases shares in the latter and is listed as a company shareholder in its constitutive documents.
Step 3: Signing the company documents
The founders must sign the constitutive documents after you’ve drafted the memorandum and the articles of association and determined the shareholder structure.
Step 4: Opening a corporate bank account
The next step in setting up a subsidiary in Sweden is opening a corporate bank account in the country and depositing the startup capital in it. The bank issues a written statement which you should retain for submission to the Swedish Companies Registration Office (Bolagsverket) later.
This written statement includes the information related to the subsidiary and founders/ shareholders like the name of the subsidiary, name, and address of the founders, etc.
Step 5: Registering the subsidiary
You must register the company with the Swedish Companies Registration Office. Submit the necessary documents and a special form at the registration office. Remember that you must submit the registration application within six months of signing the memorandum and articles of association.
Step 6: Registration with the tax agency
The last step of setting up a subsidiary in Sweden is registering with the Swedish Tax Agency. They can use the registration certificate issued by the Swedish Companies Registration Office to get registered for tax purposes.
In addition, you may need to obtain appropriate licenses from the Swedish Financial Supervisory Authority, municipalities, the County Administrative, or police authorities, depending on the nature of the subsidiary business. Foreign investors opening a company in Sweden are also subject to a registration fee imposed by the Swedish Companies Registration Office. The cost for registering an LLC in Sweden is SEK 2,200 (as of 2021).
Benefits of Setting Up a Sweden Subsidiary
Setting up a subsidiary company in Sweden has benefits, both for the parent company and the newly established subsidiary.
First, setting up a subsidiary in Sweden gives you legal permission to operate your business in the country. It offers your company growth, opportunities to earn profits, and establish your brand image.
In the case of an LLC, the parent company has no liability for any loss or litigation faced by the subsidiary. It is a win-win situation since the subsidiary gets complete freedom and autonomy to make business decisions, establish its company laws, and operate independently.
Moreover, Sweden offers the lowest corporate tax rate at 20.6%, which makes doing business in the country easier. It has an open and innovative economy with a well-functioning infrastructure to offer. Sweden also provides highly competitive and educated employees to help businesses grow.
Establishing a business presence in Sweden allows you to expand into European markets. Entry into foreign markets means new customers and sales opportunities, enabling the parent company to build its brand on the international stage.
Documents to Prepare When Opening a Subsidiary in Sweden
When setting up a subsidiary business in Sweden, you must keep relevant documents ready for submission to the Swedish Companies Registration Office.
Below is a list of the documents and formalities that need to be filed for opening a subsidiary in Sweden:
- The minimum share capital for a limited company (SEK 25,000 for a private limited company and SEK 500,000 for a public limited company)
- A written statement issued from the bank where you have opened a corporate account for your company
- The resolution of the parent company stating its decision to open a subsidiary
- The memorandum and articles of association of the subsidiary
The articles of association contain information regarding the name of the subsidiary company, the total amount of capital, the founders’ names and their addresses, the shareholders’ names and their contribution to the company’s capital, and the company’s organizational structure.
A certified translator must officially notarize and translate all relevant documents into Swedish.
What Business Forms can Sweden Subsidiaries Take?
The Swedish law recognizes several types of companies foreign investors can set up in the country, including limited liability companies, branch offices, trading partnerships, limited partnerships, and sole proprietorships.
Incorporating a limited liability company is the most common course foreign entities take to establish a business presence in Sweden. A limited liability company can either be public or privately owned. All you require is minimum capital (depending on the ownership).
Setting up a limited liability company is advantageous since it creates a separate legal entity and eliminates the possibility of the parent company having to bear any risks and liabilities. On the contrary, setting up a Swedish branch office lets a company trade directly in Sweden. However, the foreign company has to assume all liabilities of the branch since the latter is legally an extension of the foreign company and not a separate legal entity.
Sweden Subsidiary Laws
Setting up a subsidiary in Sweden requires compliance with specific laws. Below we list some of the significant rules you need to take care of while setting up a subsidiary in Sweden:
For limited liability company
A limited liability company is a common type of subsidiary in Sweden. Employers must adhere to the following rules:
- It must have at least one shareholder.
- The shareholders are generally not liable for the company’s debts.
- The company must appoint an auditor.
- At least one board member for a private limited company and three for a public limited company.
- An individual serving as a director must not be a legal person, must be above 18 years of age, and must not be declared bankrupt.
- The managing director can serve as a board member but cannot become the chairperson.
- The company must pay corporate tax on its corporate income, and shareholders must pay tax on the company’s distributed profits.
- Registration of the subsidiary with the Swedish Companies Registration Office with relevant documents is mandatory.
- The company must also register with the Swedish Tax Agency for corporate tax and VAT.
Trading partnership or limited partnership
- To set up a trading partnership or limited partnership, companies require at least two partners.
Post Incorporation Compliance
Subsidiaries in Sweden must comply with post-incorporation requirements:
- The company must submit its annual report to the Swedish Companies Registration Office.
- A limited liability company in Sweden must hold an annual shareholders’ meeting. Limited companies can also conduct general meetings within six months of the company’s financial year.
- There is no legal necessity to conduct any minimum number of board of directors meetings.
- The company must file annual tax returns with the Swedish Tax Agency.
Taxes on Subsidiaries in Sweden
Regarding the taxation of foreign subsidiaries in Sweden, a corporate income tax and VAT applies to all companies, including limited liability companies and branch offices.
- The Swedish corporate income tax rate is 20.6%, with no reduced or branched tax rates.
- The standard value-added tax rate is 25%, chargeable on most goods and services.
- Reduced VAT rates of 6% and 12% apply to certain goods and services
- Foreign companies must also pay a 30% tax on dividend distributions in Sweden. Exemptions and reductions apply to countries involved in tax treaties with Sweden.
- Other taxes may include social security contributions (31.42%), stamp duty, and real property tax.
Tax Incentives for Businesses Setting Up a Subsidiary in Sweden
Foreign corporate investors in Sweden enjoy specific tax incentives through a beneficial holding regime. Advantages include:
- No tax on capital gains from business-related shares
- No tax on dividends received from business-related shares unless the dividend payment is deductible at the level of the foreign company.
- No stamp duty on securities
- On interest paid, there is no withholding tax
Other Important Considerations
A sound understanding of the Swedish subsidiary laws and other legislation is crucial while setting up a subsidiary company in Sweden. One must comply with the local laws to avoid errors or penalties.
Most importantly, business owners must plan their budget carefully since opening a subsidiary in Sweden entails significant financial commitment. They may also need to travel to Sweden multiple times during the incorporation process.
How Can Multiplier’s Employer of Record Help You Hire & Expand in Sweden?
Setting up a subsidiary in Sweden can be overwhelming. With so many laws and regulations to keep in mind, it’s easy to miss out on essential details and disrupt the entire process. Here, a professional EOR service like Multiplier can help you.
Multiplier offers the infrastructure and solutions to expand abroad without having to start a subsidiary. You can employ talent in a foreign country and leverage the potential of new markets without going through the hassles of the subsidiary establishment.
Our experts will help you engage with global employees by complying with foreign country laws. Multiplier offers a wide range of solutions, including employment contract generation, payroll management, multi-currency payments, insurance and benefits, workforce management, etc., to enable your smooth expansion into international markets.