Entry visas

In Sweden, entry visas are governed by the rules in the Schengen Agreement. Under the Agreement, all the EU countries (except Ireland and the UK) as well as the EEA countries of Norway and Iceland have opened their borders to one another. A visa issued for a visit to one of these countries is normally valid in all of the other countries as well. Only in exceptional cases can a person be granted a visa that is valid in one country only.

Together with the other EU countries, Sweden has decided that the citizens of certain countries do not require entry visas. This means they can enter Sweden and stay here for three months without a visa. The citizens of all other countries require visas to enter Sweden (www.migrationsverket.se).

For a business or conference visit, you must enclose an invitation – a letter – with your visa application from the company concerned or from whoever is organizing the conference. The invitation must contain details about you, the applicant, such as: personal particulars; arrival and departure dates; the purpose of your visit; who will support you during your stay in Sweden.

Work permits

You must have a work permit to work in Sweden. Once you have been granted a permit, it must be entered into your passport before your arrival. Obtaining a Swedish work permit is not easy. Swedes, foreign citizens already living in Sweden and EU/EEA citizens have preference over others in obtaining work here.

If there is a temporary shortage of labour, or if you have obtained employment as part of an international exchange program, the Migration Board may grant you a work permit.

If the offer of work is for more than three months you will also require a Swedish residence permit.

If you will be in Sweden for less than three months, you will not require a residence permit. You may, however, require an entry visa. Visas are normally granted for three months only.

Requirements

1. A written offer of work in Sweden made out on a special form (AMS PF 101704) which your employer can obtain from the employment office. Your employer must complete it and send it to you so that you can enclose it with your application.

2. Your employer must guarantee that you will be paid a minimum of SEK 13,000 per month before tax.

3. Accommodation must have been arranged for you in Sweden.

4. You must be fully prepared to leave Sweden when your term of employment is over.

Applications for work permits

Applications for first time work permits can be made at Swedish embassies or consulates in your country of origin or in your country of domicile.

To renew your permit, send an application to the Migration Board – Migrationsverket, Arbetstillståndsenheten, SE 601 70 Norrköping, Sweden. Alternatively, you can apply at any of the Migration Board offices in Sweden.

Length of work permits

Work permits are normally granted for one year, or, if it is less than one year, for the period for which employment is offered. Permits are granted for a maximum of 18 months altogether if the employment is due to a temporary labour shortage.

If the work is part of an international exchange programme or the like, the permit may be extended up to a total stay of four years. The permit is restricted to the trade or profession envisaged in the offer and to the employer who made you the offer.

Permits for family members

Your family (spouse/cohabitant and children under 18) can obtain residence permits for the same period as you. If you have a work permit valid for at least six months, your spouse/cohabitant can also obtain one for the same period. Whether applied for at a Swedish embassy abroad or at the Migration Board, handling times can be up to one year.

Types of businesses in Sweden

Corporations exist as: non-trading partnerships (enkla bolag), partnerships (handelsbolag), limited partnerships (kommanditbolag); limited liability companies (aktiebolag).

The latter is the only corporate form with no personal liability in Sweden and is by far the predominant type of business organization. It is also the form most often used by foreign companies.

There are two categories of limited liability companies (aktiebolag), private (privat) and public (publikt). The difference between the two categories is determined by the right to turn to the public for capital.

Generally, no operating licenses are required to conduct business in Sweden. There are exceptions for specific areas such as insurance, banking and financial services though investors approved by other EU countries may benefit from mutual recognition of such licenses.

Limited Liability Company

Incorporating a limited liability company (Ltd.) in Sweden is simple for a foreign investor. An off-the-shelf company, already fully organized and registered can be acquired for a nominal fee from law firms or consultant firms. The share capital must be at least SEK 100,000 in a private limited liability company and SEK 500,000 in a public limited liability company.

Private Swedish stock corporation

The minimum capital stock for a private Swedish stock corporation is SEK 100,000. No capital stock is required to establish a branch office. The registration fee at the Swedish Patent and Registration Office, PRV, for both a stock corporation and branch office is SEK 1,700. The cost, excluding capital stock, of acquiring an existing stock corporation – so-called off-the-shelf – is approximately SEK 5,000-10,000

For information on costs for establishing a business in Sweden visit http://www.isa.se/upload/english/PDF/Costs%20for%20Establishing.pdf

Foreign branch

A foreign company wishing to establish a business in Sweden without starting a Swedish company may also conduct its operations through a Swedish branch (filial). Such a branch may be established without permission from the Swedish authorities. The only requirement is that the branch is entered in the Register of Branches kept by the Swedish Patent and Registration Office (PRV). A branch of a foreign company is taxed on the profits of the branch as though it was a Swedish limited liability company.

Income tax

In Sweden taxable income belongs to one of three categories: earned income from employment, income from capital or income from business. Different tax regulations and rates apply to these three sources of income.

Income from employment

The following taxes are levied on earned income: local tax at a rate of 26-35 percent (depending on the municipality); national income tax of 20 percent on annual taxable earnings of between SEK 252,000 and 390,400 and 25 percent for income above SEK 390,400 (year 2001).

Typical sources of income in this category are salaries and pensions as well as all forms of fringe benefits such as meals, travel and use of a company car plus reimbursement for expenses, per diem allowances and travel.

There are relatively few deductions permitted for this income category. In principle, the deduction of costs necessary for the earning of income is allowed. However, the link between the expense and the income must be extremely strong. Deductions are granted primarily for: travel to and from work; on-the-job (business) travel with a private vehicle; higher living expenses in conjunction with business trips.

Income from capital

Generally speaking all income in this category is taxed at a rate of 30 percent regardless of the amount. Examples of income from capital are dividends, interest, capital gains arising from the sale of stocks, bonds, real estate, personal property and other similar assets plus income from the rental of flats or houses unless this is undertaken as a business activity.

Half of the sum of a capital gain resulting from the sale of a private residence is taxable. It is also possible to defer payment of the tax if the seller in turn purchases an equivalent property or tenant-owner flat not later than the year following the year of sale. If the sale concerns a property owned for business activity, then 90 percent of the capital gain is liable to taxation. Income from the sale of other private assets is taxable if the profit exceeds SEK 50,000.

If a capital deficit results a tax reduction is granted. The tax reduction is 30 percent for that portion of the loss that is below SEK 100,000 and 21 percent for the balance.

Income from business

The regulations governing taxation of business activity are largely the same for limited companies and businesses operated by individuals. As a general rule, all income from business activities is liable to taxation. Income from capital is considered as part of the business activity if it is generated by capital invested in the business.

Taxable income is calculated on the basis of generally accepted accounting principles and is therefore closely linked to the company's accounts. The calculation of taxable income is based on principles used in business economics with minor adjustments on fiscal grounds.

All costs necessary to maintain and develop the business operation are deductible expenses.

Annual depreciation is permitted for assets invested in the business operation. One method applied to equipment allows depreciation at 30 percent per annum on the book value of remaining equipment.

Alternatively, depreciation can be calculated at a rate of 20 percent annually based on the acquisition value of the remaining equipment. The cost of equipment with a shorter economic life (less than three years) as well as equipment of a lesser value can be deducted in its entirety. Lesser value in this context normally means below SEK 2,000 while for larger companies the limit is SEK 10,000. In the case of buildings, scheduled depreciation is allowed at a rate of 2-5 percent of the acquisition cost depending on how the building is used.

Employer contributions are deductible in the calculation of the taxable income from business operations.

Profit equalization is possible for most business operations, via so-called accrual accounts, where a private business can deposit a maximum of 25 percent of profits and a limited company 20 percent. The amount deposited must be reversed and subjected to taxation not later than five years from the year of deposit. Losses can be carried from year to year without any time limitation.

A group of companies does not constitute a single taxable subject in Sweden. All companies in the group are regarded as individual taxable subjects. To avoid consideration of tax regulations in the selection of organizational form, such as a single company or a corporate group, there are regulations that permit the transfer of funds from one Swedish company to another, for example via group contributions. Such contributions are regarded as a deductible expense for the contributor and taxable revenue for the recipient.

Basic deduction and tax reduction

Individuals are entitled to deduct a basic deduction and pension contributions from their taxable earnings. The size of the basic deduction is linked to the price-indexed base amount* as regulated by the National Insurance Act and must be at least 0.27 percent of the base amount. In 2001 the base amount is SEK 36,900, which gives a lowest basic deduction of SEK 10,000. For annual earnings of between SEK 68,700 and 206,900 the basic deduction is higher and reaches a maximum, SEK 19,500, on incomes between SEK 106,400 and 112,800.

Pensioners are granted a special basic deduction of up to SEK 57,600 for singles and SEK 51,000 for married pensioners (2001).

A special tax reduction of SEK 1,320 is granted to those with earned incomes of up to SEK 135,000. If income exceeds that amount the tax reduction is gradually reduced up to a maximum income of SEK 245,000.

Other direct taxes

Real estate tax and real estate taxation

National real estate or property tax is levied on private houses, residential buildings on farms and rented residential and business premises.

The real-estate tax is calculated on the basis of the assessed taxable value. The residential parts of a building dating from 1991 and later are not taxed for the first five years, while the tax rate is reduced by 50 percent during the subsequent five-year period.

Houses and residential apartments in blocks of flats are taxed at a rate of 1.2 percent of the taxable value, whereas floor space used for other purposes is charged at a rate of 1.0 percent. The real estate tax on industrial premises is 0.5 percent. The assessed real estate value is expected to equal approximately 75 percent of the market value of the property. The taxable value is used in the calculation of real estate tax as well as inheritance, gift and wealth taxes.

VAT

Value-added tax (VAT, moms) is a state sales tax that is levied on all increases in value throughout the production and distribution chain and reported to the tax authorities.

The obligation to pay VAT arises when a taxable transfer of goods or services is carried out in Sweden in a professional context.

VAT must also be paid on the value of acquisitions from other businesses within the EU and for the import of goods and services from countries outside the EU. No VAT is paid on exports to non-EU nations.

The Swedish tax authorities and the Customs Department (Tullverket) are responsible for VAT taxation. Since Sweden's entry into the EU in 1995 the border control of trade with other member states has ceased. Taxation on the acquisition of goods within the EU is instead carried out in accordance with the domestic regulations that apply in each member state.

The tax authorities are responsible for levying taxes on domestic trade and EU acquisitions while the customs department supervises imports from countries outside the EU.

The general VAT rate is 25 percent and this is applied to the turnover of all goods and services excepting foodstuffs, hotel accommodation, campsites and passenger transport (12 percent), as well as books, newspapers and certain goods and services in the cultural sphere (6 percent).

VAT is reported by the person liable to pay the tax, either by submitting the information in their tax return or in a special VAT return. Individuals and companies who are liable to pay tax declare their VAT in the annual tax return if their tax base is not higher than SEK 1 million. The VAT is then included in their final tax assessment.

If the tax base exceeds SEK 1 million the company has to account for the VAT in a special return that is submitted and paid monthly.

Excise Duties

Special consumption taxes or excise duties are levied on some goods and services. The majority of these purchase taxes have been introduced for reasons other than the generation of revenue for the state. These duties are also a means of steering the consumption of such commodities as energy, alcohol and tobacco.

The 16 excise duties which exist at present include taxes on fuel (petrol, oil, coal and liquefied petroleum gas), electrical power, alcohol, tobacco, gaming, motor vehicles and roads.

Social security contributions

Rights of citizens of the EU/EEA to social security benefits and the obligation to make contributions are determined by EU regulations and the EEA Agreement. In other words, citizens of other countries can be covered by a social insurance agreement.

Social security is financed via general pension charges, social insurance contributions, a state old-age pension fee and general tax revenue.

The general pension contribution is levied to finance income-based pensions and supplementary pensions. The contribution is paid individually and is calculated on the basis of income from employment and other earned income. It is applied to the portion of the aggregate income that does not exceed the equivalent of a normal income.

Tax accounts

As of 1998 the tax authorities administer a tax account for everyone obliged to pay taxes or other charges. All accounting, payments and credits are reported in that account. Generally, the account handles the payment of preliminary tax (pay-as-you earn, PAYE), payroll taxes and VAT. All information that the tax subject is required to submit is to be presented in a single document, a tax return.

The tax return is to be submitted monthly by employers and those self-employed who are registered for VAT purposes.

Tax withholding

The tax collection system is arranged in such a way that estimated taxes are withheld and paid at intervals during the income year (PAYE). In principle, these preliminary tax payments should add up to the amount calculated according to a person’s final tax assessment.

In the case of employees, the employer is in charge of the withholding and payment process. Self-employed people make their own estimated tax prepayments. Banks and other financial institutions withhold preliminary tax on interest and dividends.

After the final tax assessment is determined with the help of a person’s tax return, its amount is compared with the sum of the preliminary tax payments made over the year. If the prepayments were too small, the taxpayer is billed for the difference plus interest. If they were too large, the excess is refunded and the taxpayer is paid interest.

Income tax returns

Individuals and legal entities are required to file an income tax return every year.

Spouses are assessed individually for all taxable income and therefore both spouses must declare their income. Joint taxation is only applicable to wealth tax.

For individuals with relatively straightforward financial circumstances there is a simplified, pre-printed tax return that can be supplemented, signed and returned to the local tax authority. The simplified income tax return is to be submitted not later than 2 May following the income year (the so-called assessment year).

Other individuals and legal entities file a more detailed type of tax return which should be submitted by 31 March of the following year. The new option of supplying this information electronically is a distinct advantage for this category of taxpayer.

Appeals

Tax returns are assessed by the local tax offices. A person who wishes to challenge a decision can ask the office to reconsider its decision at any time during the five years following the income year in question, or otherwise appeal the decision to the county administrative court (länsrätt).

Appeals are submitted to the local tax office, which reconsiders the decision before any documents are turned over to the county administrative court. In some cases, as a result of this reconsideration, the tax office approves the taxpayer’s request and the appeal is dropped, thus never reaching the court.

Advance rulings

There is a special judicial board (Skatterättsnämnden) that issues advance rulings on particular tax assessment issues upon a taxpayer's request. The National Tax Board (Riksskatteverket) is Sweden’s central administrative agency in charge of promoting correct and uniform enforcement of the tax laws, and plays an adversarial role vis-à-vis the taxpayer in these cases.

Advance rulings are issued if it is especially important to a taxpayer to know the tax consequences of a particular action or if it is of importance for uniform interpretation or enforcement of the law. Decisions of the judicial tax board may be appealed to the Supreme Administrative Court.

Legal sanctions

A person who submits incorrect or insufficient information in a tax return is charged a penalty. This is an administrative, economic sanction determined by the tax authorities. The rule of thumb is that this penalty amounts to 40 percent of the tax that should have been paid. This penalty does not prevent a person from also being prosecuted for tax evasion. Cases of alleged tax evasion are handled by the regular court system. The maximum punishment for tax evasion is normally two years' imprisonment.

For information on taxes in Sweden visit www.sweden.se/templates/FactSheet____3927.asp

For information on business culture in Sweden visit http://www.sverigeturism.se/smorgasbord/

March 2004

Netherlands-based journalist and author Elise Krentzel is a Swiss/American citizen, who has lived and worked in Japan, Switzerland, Sweden, France, USA and Holland.