Attitude toward Foreign Direct Investment
Until the mid-1980s, Sweden's approach to direct investment from abroad was quite restrictive and governed by a complex system of laws and regulations. Sweden’s entry into the European Union (EU) in 1995 has greatly improved the investment climate and attracted foreign investors to the country.
The number of foreign subsidiaries in Sweden increased significantly from the mid1990s, from just over 3,000 to over 10,000, ten years later. However, despite substantial FDI inflows, the stock of Swedish assets held abroad still exceeds the stock of foreign assets in Sweden.
The Swedish Government recognizes the need to further improve the business climate for entrepreneurs, education, and the flow of research from the lab to the market. Swedish authorities have implemented a number of reforms to improve the business regulatory environment and to attract more foreign investment.
Other Investment Policy Reviews
Sweden has not undergone recent Investment Policy Reviews by either the Organization for Economic Cooperation and Development (OECD) or United Nations Committee on Trade and Development (UNCTAD). The Economist Intelligence Unit and World Bank's "Doing Business 2016" Economic Profile provide current details on Sweden's investment climate.
Laws/Regulations on Foreign Direct Investment
During the 1990s, Sweden undertook significant deregulation of its markets. In a number of areas, including the electricity and telecommunication markets, Sweden has been on the leading edge of reform, resulting in more efficient sectors and lower prices.
Nevertheless, a number of practical impediments to direct investments remain. These include a fairly extensive, though non-discriminatory, system of permits and authorizations needed to engage in many activities and the dominance of a few very large players in certain sectors, such as construction and food wholesaling.
Regulation on foreign ownership in financial services is liberalized. Foreign banks, insurance companies, brokerage firms, and cooperative mortgage institutions are permitted to establish branches in Sweden on equal terms with domestic firms, although a permit is required. Swedes and foreigners alike may acquire shares in any company listed on NASDAQ OMX.
Sweden’s taxation structure is straightforward and corporate tax levels are low. In 2013, Sweden lowered its corporate tax from 26.3 percent to 22 percent in nominal terms. The effective rate can be even lower as companies have the option of making deductible annual appropriations to a tax allocation reserve of up to 25 percent of their pretax profit for the year. Companies can make pre-tax allocations to untaxed reserves, which are subject to tax only when utilized. Certain amounts of untaxed reserves may be used to cover losses.
Due to tax exemptions on capital gains and dividends, as well as other competitive tax rules such as low effective corporate tax rates, deductible interest costs for tax purposes, no withholding tax on interest, no stamp duty or capital duties on share capital, and an extensive double tax treaty network, Sweden is among Europe’s most favorable jurisdictions for holding companies. Unlisted shares are always tax-exempt, meaning there is no qualification time or minimum holding of votes or capital. Listed shares are exempt if the holding represents at least 10 percent of the voting rights (or is contingent on the holder’s business) and the shares are held for at least one year.
Sweden’s personal income taxes are among the highest in the world. Since public finances have improved due to extensive consolidation packages to reduce deficits, the government has been able to reduce the tax pressure as a percentage of GDP: currently it is below 50 percent, for the first time in decades. One particular focus has been tax reductions to encourage employers to hire the long-term unemployed.
Another tax reform to help bring foreign experts to Sweden is a reduction of key foreign personnel’s income tax. Under the reform, only 75 percent of the person’s income is taxable for the first three years of employment in Sweden. Likewise, their employers pay social security contributions on only 75 percent of the taxable salary. This tax relief applies to all salaries and benefits in kind, as well as stock options and other compensations offered by the employer. For tax purposes this applies to foreign key personnel such as executives, researchers, and experts who work temporarily in Sweden and are resident in Sweden. The tax relief is not applicable to individuals assigned to Sweden by a foreign company that has no operations in Sweden.
U.S. citizens who have paid income tax in Sweden should be aware that there have been numerous instances of the Swedish tax authority, Skatteverket, failing to contact U.S. citizens who have left the country to alert them of significant overpayments of taxes. A recent court case revealed that Skatteverket had been defrauded of hundreds of thousands of dollars by two individuals who allegedly used false claims against 14 foreigners, including U.S. citizens, to gain access to the foreigners’ overpayments held by Skatteverket. Skatteverket has declined responsibility for loss of the money and has asserted that the owners of the overpaid taxes must seek restitution directly from the defendants in the case.
Dividends paid by foreign subsidiaries in Sweden to their parent company are not subject to Swedish taxation. Dividends distributed to other foreign shareholders are subject to a 30 percent withholding tax under domestic law, unless dividends are exempt or taxed at a lower rate under an applicable tax treaty. Tax liability may also be eliminated under the EU Parent Subsidiary Directive. Profits of a Swedish branch of a foreign company may be remitted abroad without being subject to any other tax than the regular corporate income tax.
Sweden has no exit taxation and no specific rules regarding taxation of stock options received before a move to Sweden. Instead, cases of double taxation are solved by applying tax treaties and cover not only moves within the EU but to all countries, including the United States.
On July 1, 2014, Sweden signed the Foreign Account Tax Compliance Act (FATCA) agreement with the United States. Financial institutions in Sweden are now obligated to submit information about U.S. account holders in accordance with FATCA to the Swedish Tax Agency. In February 2015, the Swedish Parliament decided on new laws and regulations necessary to implement FATCA. The Parliamentary decision means the government’s proposals in Bill 2014/15:41 were adopted, including for example, the introductions of:
- a new law on the identification of reportable accounts with respect to the agreement
- changes to tax procedure act
- new legislation on the exchange of information with respect to the agreement
- consequential amendments to the Income Tax Act and other laws.
The provisions entered into force on 1 April 2015. For full text of Bill 2014/15:41, please see http://www.regeringen.se/contentassets/bd8cf7f897364944b35f5f30c099bc0c/genomforande-av-avtal-mellan-sveriges-regering-och-amerikas-forenta-staters-regering-for-att-forbattra-internationell-efterlevnad-av-skatteregler-och-for-att-genomfora-fatca-prop.-20141541
For detailed tax guidance see the Swedish Tax Administration’s website: http://www.skatteverket.se/servicelankar/otherlanguages/inenglish.4.12815e4f14a62bc048f4edc.html
All forms of business enterprise, except for sole traders, have to be registered with the Swedish Companies Registration Office, Bolagsverket, before starting to operate. Sole traders may apply for registration in order to be given exclusive rights to the name in the county where they will be operating. Online application to register an enterprise can be made at http://www.bolagsverket.se/en and is open to foreign companies. The registration process is clear and complete, providing the applicant with relevant and updated information concerning processing times and necessary permits. The process of registering an enterprise can take a few days or up to a few weeks, depending on the complexity and form of the business enterprise.
All business enterprises, including sole traders, need also to be registered with the Swedish Tax Agency, Skatteverket, before starting to operate. Relevant information and guides can be found at: http://www.skatteverket.se.
Depending on the nature of business, companies may need to register with the Environmental Protection Agency, Naturvårdsverket, or, if real estate is involved, the county authorities. Non-EU/EEA citizens need a residence permit, obtained from the Swedish Board of Migration, Migrationsverket, in order to start up and/or run a business. At http://www.verksamt.se, a collaboration of several Swedish government agencies, relevant guides and services pertaining to registering, starting, running, expanding and/or closing a business can be found.
“Business Sweden”, The Swedish Trade and Invest Council, is Sweden’s investment promotion agency. The services of the agency are available to all investors. More information concerning the agency is presented in the following section.
Sweden defines a micro-enterprises as those withless than 10 employees, a small enterprise with less than 50 employees, and a medium enterprise with less than 250 employees.
Sweden is actively seeking ways to ensure wider ownership in Swedish industry, which it believes will increase competition and lead to greater efficiency on the markets. As a result, foreign ownership in Sweden has increased rapidly in the last decade. Approximately 35 percent of foreign-owned firms are acquisitions, and 44 percent are new establishments. Foreign owned firms now employ almost 22 percent of the work force in the business sector, mostly in the service and manufacturing industries. In 2014, this comprised about 640,200 employees. Americans are one of the largest groups of foreign investors in Sweden with approximately 1,378 companies, accounting for 71,118 employees. U.S. companies representing a wide range of industry sectors; many Fortune 500 Companies have their Nordic/Baltic headquarters in Sweden.
Business Sweden and the Swedish Foreign Trade Association provide access to contacts and networks at all levels and facilitate investment opportunities for foreign companies in Sweden. Their mission is to attract foreign investment to Sweden and to facilitate establishment and operations by providing support to various kinds of investments such as Greenfield, expansion of existing business, strategic partnerships with Swedish companies, capital investments, and mergers and acquisitions. For detailed guidance and information, please see Business Sweden’s website at http://www.business-sweden.se/en/.
Limits on Foreign Control and Right to Private Ownership and Establishment
Individuals and Swedish entities are well protected by the legal system. Foreign investors as a general rule enjoy equal access to markets necessary for conducting business operations. However, Sweden does maintain some exceptions in a limited number of situations:
- Air transport: Foreign enterprises may be restricted from access to international air routes unless bilateral intergovernmental agreements provide otherwise.
- Air transport: Cabotage reserved to national airlines.
- Maritime transport: Cabotage is reserved to vessels flying the national flag.
- Accountancy: Investment in the accountancy sector by non-EU-residents cannot exceed 25 percent.
- Legal services: Investment in a corporation or partnership carrying out the activities of an “advokat”, a lawyer, by non-EU residents is prohibited.
Swedish company law provides various forms under which a business can be organized. The main difference between these forms is whether the founder must own capital and to what extent the founder is personally liable for the company’s debt. The Swedish Act (1992:160) on Foreign Branches applies to foreign companies operating some form of business through a branch and also to people residing abroad who run a business in Sweden. A branch must have a president who resides within the European Economic Area (EEA). As previously mentioned, all business enterprises in Sweden (including branches) are required to register at the Swedish Companies Registration Office, Bolagsverket. An invention or trademark must be registered in Sweden in order to obtain legal protection. A bank from a non-EEA country needs special permission from the Financial Supervision Authority to establish a branch in Sweden.
The former coalition government (Moderate Party-led center-right also known as the Alliance Government) was elected in September 2006 with a goal of selling some USD 31 billion in state assets between 2007 and 2010, to stimulate growth and raise revenue to pay down the national debt. In 2008, the Swedish government sold liquor company V&S (Vin & Sprit AB) to French company Pernod Ricard for USD 8.3 billion and the Swedish OMX stock exchange to NASDAQ for USD 318 Million.
Further deregulation progress was made in the beginning of 2010 as the state-owned and former Government-run pharmaceutical company Apoteket was split into two parts, one public and one private. Approximately 600 pharmacies were sold to private enterprises.
The previously monopolized market for vehicle emissions testing was opened to certified private parties in 2010, the vehicle emissions testing centers were divided into three equivalent groups, two of which became independent subsidiaries.
This privatization trend was reversed in March 2011 by one vote in Parliament, led by the Social Democratic Party, putting a halt to the planned sale of stakes in SBAB bank, telecom firm TeliaSonera, power utility Vattenfall, and Posten, the Swedish postal service. Such a consolidated opposition indicates that the future of privatization will be a function of politics, and thus is difficult to predict.
However in 2013, the Swedish Government divested its remaining shares in Nordea Bank, and in Vectura Consulting, and in 2014 AB Bostadsgaranti, and resolved to divest the subsidiary Försäkringsaktiebolaget Bostadsgaranti. This divestment is part of the ongoing phase-out of Bostadsgaranti as a whole; the company’s remaining operations are expected to be terminated by 2016.
Currently, the Swedish center-left Government, voted into office in September 2014, has the mandate to divest or liquidate the holdings in Bilprovningen (Swedish Motor-Vehicle Inspection Company), Bostadsgaranti, Lernia, Orio (formerly Saab Automobile Parts), SAS and Svensk Exportkredit (SEK).
Screening of FDI
As an EU member, Sweden has altered its legislation to comply with the EU’s stringent rules on competition. The country has made extensive changes in its laws and regulations to harmonize with EU practices, all with a view to avoiding distortions in or impediments to the efficient mobilization and allocation of investment. The competition law rules are contained in the Swedish Competition Act (2008:579), which entered into force in November 2008. The fundamental antitrust provisions have been the same since 1993. The Swedish Competition Authority (SCA) is the main enforcement authority of the Swedish Competition Act.