Establishing your business in Sweden

Why do business in Sweden?

Sweden welcomes foreign investment and overseas business. It is an easy country to do business within, with little in the way of bureaucracy and red tape. It also experiences very little corruption and boasts a highly-skilled, diverse workforce.

Like most Nordic countries, Sweden is also progressive. The infrastructure of Sweden is perfect for tech-based businesses. Some of the most notable industries in Sweden include telecommunications. pharmaceuticals and motor vehicle production.

Territory data

How to set up payroll in Sweden

If you plan to do business in Sweden, you will likely need to set up payroll. The Swedish authorities keep this fairly simple. 

Your first step will be opening a local bank account (employees should be paid from a Swedish account), and registering your business with the Bolagsverket, Sweden’s national company registration office. You will need a minimum share capital of 25,000 Swedish kroner before your application to register a business is accepted.

Next, you need to register with the Skatteverket, the Swedish tax office. This is simple enough – you’ll only need to complete one form, the SKV 4632B. Once your registration is approved, you will receive:

• VAT registration (VAT is payable at 25% in Sweden)
• Employer’s registration
• Personal income tax registration for your own salary and dividends

Levels of taxation in Sweden may initially raise an eyebrow. First and foremost, you will pay a flat business tax of 21.4% on all profits. You will also pay a social security tax of 31.42% of the salary of every employee. This means that, including social security tax, a new hire will cost you up to 1.47 times an employee’s salary. The average salary in Sweden is 32,800 SEK. There is no nationally assigned minimum wage.

Employees also pay 7% of their wages in social security taxes. Social security tax pays for the healthcare system in Sweden, as well as government pensions and local infrastructure. Employees in Sweden also pay primary municipal and county council taxes, which are withheld from salary. These range from 32 – 57.2%, depending on the municipality and income. 

The higher percentage applies to employees that earn over 509,300 SEK per year, as they pay an additional 20% of state income tax. This may seem high, but Sweden has a very socialist culture. Employees are happy to pay their taxes as they consider it good value for the services and local infrastructure they receive in return. It is considered fair and right by Swedish nationals that higher earners pay more tax than their lower-paid equivalents. 

Swedish employment law and HR considerations

Swedish employees are well protected. If you wish to terminate a contract of a permanent employee, you will need a good reason to do so. However, Swedish employees also typically have lengthy probationary periods. By law, this can last for 6 months. Many businesses take this opportunity to protect themselves in the event of a relationship not working out.

The holiday package of Swedish employees is very generous. You must provide a minimum of 25 vacation days, in addition to 13 national holidays. Many employers reward loyalty with even more holiday. Sick pay is payable at 80% of a salary for 14 days. After this, the government pays the employee an insurance package. This is part of the reason that employer social security taxes are so high.

Sweden’s parental leave policies are the envy of many nations outside the Nordic region. Both maternity and paternity leave packages run for 240 days on full pay and can start 60 days before the birth of a child. This means that two-parent families are entitled to 480 days of leave on full pay. As a legal requirement, each parent must take at least 90 of these days.

Setting up a subsidiary entity in Sweden

For most businesses, setting up a subsidiary business in Sweden is the easiest way to do business. This will be known as an Aktiebolag and acts as a limited liability company.

If you wish to create an Aktiebolag, you should first consider your location. Different municipalities of Sweden have different implications for a business. Employee income taxes, for example, vary. This may impact the kind of work, and expected salaries, that potential staff will seek. In addition, Sweden is governed by statutory law, not federal. Some municipalities make it easier than others to set up and trade as a new business than others.

Once you have settled on a location, you’ll need a board of directors, a permanent Swedish trading address and 250,000 Swedish kroner. This is a minimum share capital that needs to be placed in a local bank account. Once this is complete, you can approach the Bolagsverket (Swedish Companies Registration Office) and register your business. An Aktiebolag will pay a company tax rate of 21.4% in Sweden. 

Naturally, you could also open a branch of an existing business in Sweden. The authorities do not make this too complicated. The UK and Sweden have a double-taxation agreement, so a branch will still only be taxed on local profits. Just remember, a parent company is legally and financially responsible for any difficulties encountered by a Swedish branch.

Country nuances

If you plan to do business in Sweden, you should be aware of how things work. Perform due diligence on the many and varied nuances of local municipalities. Every territory in Sweden will have its own regulations for businesses. Some rules and regulations are inscribed in national law, though.

First and foremost, ensure you have enough capital to get started. You will need a minimum of 25.000 Swedish kroner to register a new business. Double this to 50,000 if you plan to open a public company that can be traded on the stock market. You will also need an address in Sweden legally registered to your business, and a local bank account.

Before you approach the Bolagsverket to register your business, you should also ensure your business meets all necessary criteria. Ensure that you hold all necessary licenses to trade in your municipality of choice. Your business will also need a board of directors. 

All these positions must be held by people aged 18 or over, and at least half must be citizens of European Economic Area countries. For the avoidance of doubt, this means EU member nations plus Iceland, Liechtenstein and Norway. You do not need a Swedish national on your board of directors, but if you do not have a Swedish director, appoint a local contact to act as a liaison with the authorities.

Work-life balance is very important in Sweden, so do not expect your staff team to build their day around business. It is quite common for companies to close in mid-afternoon and allow employees to make up their hours another day. In addition, Sweden has some distinctive cultural norms that may require a period of adaptation. 

Avoid conflict in business meetings, as arguments and aggression make Swedes uncomfortable. Stick to facts when discussing business, too. Swedish nationals dislike exaggeration or bragging and asking personal questions in a business setting is considered bad manners. Never complain about the taxation placed on a Swedish business, either. Swedes cheerfully pay tax and are proud of their way of life.