Most foreign enterprises use a limited liability company when setting up business activities in Sweden. Investors can purchase a limited liability company ‘off-the-shelf’ or register the company themselves. Both are quick procedures.
Limited liability company Minimum capital 50 000.
Most companies choose not to form the limited company themselves. The easiest way is to buy a shelf-company.
A shelf-company will not have previously been traded or been engaged in commercial activity. This solution means that the company can start business as soon as the share purchase agreement is signed.
In a private limited liability company, the board of directors consists of one or more board members. If there are fewer than three board members the company must have at least one deputy board. The number of board members and deputy board members is stated in the articles of association.
A managing director is not compulsory in a private limited liability. It is possible for the chairman of the board of directors of a private limited liability company to be managing director.
The following persons must be resident within the European Economic Area (EEA): • At least half of the board members
If the company has no authorized representative resident in Sweden, the board of directors must authorize a person resident in Sweden to receive service of process on the company’s behalf. This person must be registered with the Company Registration Office. The person needs to reside in Sweden but does not need to be employed by the company.
The board of directors oversee the organization and management of the company and appoint the managing director. The board of directors are responsible for ensuring that taxes are paid on time and that annual accounts are prepared and filed with the Company Registration Office. The board’s responsibilities are extensive and its members may, in certain circumstances, be held personally liable for all the company’s debts. For example, in most circumstances they will be held personally responsible for unpaid tax debts.
A foreign-based company can, instead of opening a subsidiary, start a branch. A branch is legally a part of the foreignbased company and has no share capital.
Foreign-based companies can only have one branch in Sweden. A branch is independently run in Sweden in compliance with the Foreign Branch Offices Act.
The branch must submit an annual tax return to the Swedish Tax Agency for the income from its business in Sweden. A branch is subject to Swedish corporate income tax.
A branch needs to have a managing director who is resident in the European Economic Area (EEA). Exceptions from these requirements may be granted by the Swedish Companies Registration Office (Bolagsverket).
If the managing director of the branch does not reside in the EEA, the foreign company must authorize a person resident in Sweden to receive service of process on the branch’s behalf. The person does not need to be employed by the branch but must be registered with Bolagsverket.
A Permanent establishment is defined in the Swedish Income Tax Act. The definition mainly conforms with the permanent establishment definition found in the OECD Model Tax Convention on Income and Capital. The Swedish Tax Agency have a strict interpretation of the rules.
If a company is registered as not having a permanent establishment, the employees pay their withholding tax themselves. Employees can also pay social security tax themselves, if a reverse parity agreement is signed with the employee.
If the foreign-based company is considered not to have a permanent establishment in Sweden, it is not necessary to register a limited company or branch. The company only needs to register directly with the tax agency. No corporate tax is paid by a non-permanent establishment, the social security taxes are approximately 10% lower, and the special pension tax for employee pensions are nil.
Since the rules for not having a permanent establishment are quite complex, it is important to get expert help. It is also recommended that the company makes sure that the employees get help with their taxes.