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.
World Bank Ease of Doing Business Ranking (1-190)
Tax rates 2020
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.
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.
Setting Up in Sweden FAQs
How long does it take to set up a Swedish entity?
It takes around 11 weeks to complete the process of setting up a business entity in Sweden. You may need to wait at least another week after this before you can confirm your first hire.
What are the most common business structures in Sweden?
The most popular type of business in Sweden is an Aktiebolag, abbreviated to AB. This is a Swedish limited company. Such a business will be charged a flat corporate tax rate of 21.4%.
As with all limited companies, any financial difficulties are technically tied to the business, though directors may become personally liable if wilful mismanagement of funds is suspected.
If a business wishes to trade shares on the open stock market, it must be a Publikt Aktiebolag, usually denoted with the abbreviation AB (publ).
What is the minimum share capital required to establish an entity in Sweden?
For a limited company (Aktiebolag), the minimum share capital required is 25,000 Swedish kronor (SEK). This translates to around £2,200. A publicly traded company (Publikt Aktiebolag) needs a minimum share capital of 50,000 SEK, or £4,400.
Can you establish a branch of your company in Sweden?
You will be welcome to open a branch of an existing company in Sweden, as long as the parent business is registered within an EU or EEA member state. The regulation for this process is laid out in the Act on Branches of Foreign Companies (Lagen om utländska filialer). Sweden welcomes international business, so this should not be too painful.
What are the Bolagsverket & Skatteverket?
The Bolagsverket is the Swedish Companies Registration Office – this nation’s equivalent of Companies House. The Bolagsverket handles all registration and information gathering of businesses that trade in Sweden. The Skatteverket is the Swedish Tax Agency, to whom you will pay social security tax, business taxes and withheld income taxes from employee salaries.
Do you need to set up a local bank account in Sweden?
Yes, you must have a local bank account in Sweden to trade as a business. It is advisable to have at least one resident senior team member to act as your local agent and liaison for this.
How much must employees and employers contribute to social security in Sweden?
At the time of writing, employers pay 31.42% of an employee’s salary as a social security tax. That could be a substantial outlay, so factor that into any salary offers. Employees pay a further 7% of their salary for this tax.
What is the total cost of employment to hire an employee in Sweden?
Due to the social security taxes involved in bringing employees into a Swedish business, expect to pay between 1.31 and 1.47 times an employee’s annual salary when making a new hire.
What is a common probationary period for employees in Sweden?
A probationary period, or provanställning, is subject to agreement between employer and employee. This could be as long as six months if agreed by both parties.
During this time, notice is not required from either side to terminate employment at will. If you do not insert a probationary period into a contract, employees enjoy all the protections of a permanent team member from their first day.
What are the main options for setting up payroll in Sweden?
Sweden offers 4 primary types of payroll.
Remote Payroll – open to international businesses with a Swedish branch. A local business in Sweden will employ and pay staff from a local bank account. The parent company remains responsible for all legal compliance pertaining to payroll.
Local Payroll Administration – A business registered in Sweden will be responsible for hiring staff and legal compliance, but the outsourced payroll company will handle the administration involved with payroll and filing reports with the Skatteverket.
Fully Outsourced Payroll – This option can be taken by a Swedish business that wishes to hand over all payroll responsibility to an external business, including legal compliance, administration and withholding and paying tax payments to paid to the Skatteverket.
Internal Payroll – theoretically the cheapest way to manage payroll, but also the most labour-intensive. This involves a business handling anything pertaining to payroll in-house through an accounting and HR departments.
What is the standard working week in Sweden?
Officially, a Swedish working week is 40 hours, from Monday to Friday. Swedish nationals care deeply about retaining a work-life balance, though. Some businesses prefer to work a six-day week, with shortened hours. Others simply close their doors early and only make staff work closer to 30 hours per week. Assess any expectations of employees before making hires for your business.
What are common supplementary employee benefits in Sweden?
Although high social security taxes ensure that Swedish nationals receive free healthcare and a government pension, you may wish to sweeten a contract with more benefits. Private healthcare policies and additional pension funds are popular supplementary benefits in Sweden. In addition, many businesses offer company cars, subsidised meals, stock options and additional holiday days.
In Sweden, can employment contracts be terminated at will by the employer?
No, any intention to terminate a Swedish employee’s contract must be put in writing, along with an acceptable reason for the decision. The standard notice period depends on the length of employee service. This breaks down as:
• Less than 2 years’ service – 1 month
• 2 to 4 years’ service – 2 months
• 4 to 6 years’ service – 3 months
• 6 to 8 years’ service – 4 months
• 8 to 10 years’ service – 5 months
• Over 10 years’ service – 6 months
By law, an employer is not required to make a severance payment in addition to this notice period.
What is the standard annual leave entitlement in Sweden?
Swedish employees are entitled to a minimum of 25 personal holiday days per year, in addition to 13 nationwide public holidays.
What is the primary municipal and county council tax in Sweden?
Swedish employees pay three levels of income tax. They pay into the municipality, the local county council, and if applicable, a state income tax.
Combined, an employee will pay anywhere between 29 and 37% of their salary on primary municipal tax and county council tax, depending on location and local laws. Those that earn above 509,300 SEK also pay a 20% state income tax on top of this.
What are the different types of work permits and visas in Sweden?
Citizens of EEA member nations can work in Sweden without a Visa or work permit, provided they have a current passport. Anybody else will need a work permit or Visa.
A standard Swedish work permit requires a passport, a job offer with a gross salary no lower than 13,000 SEK and a full benefits package, and proof of a permanent residential address in Sweden. In addition, as an employer looking to hire somebody that requires a work permit, you must advertise the job within the EAA for at least 10 days.
An alternative is an EU Blue Card, which is open to highly skilled employees. Anybody applying for an EU Blue Card must have a degree that is worth 180 university credits or more, or at least 5 years of work experience relevant to a job offer. Such individuals will also need a job offer with a salary of at least 1.5 times the average salary in Sweden. Typically, this means a salary above 51,000 SEK.
Finally, we have ICT permits. These are for employees without an EEC passport that wish to transfer to a Swedish branch of a business. An ICT permit is only open to managerial positions. To qualify for this permit, the employee must have been employed in a senior position by the parent company for at least 3 months and prove the ability to complete professional duties in accordance with Swedish law.
Each of these work permits cost 2,000 SEK (around £175) and can take up to 3 months to be approved. The Swedish embassy or an immigration lawyer will be able to assist with the application process.