Sweden

Foreign investment in Sweden

Sweden is a constitutional monarchy, member of the European Union and led by a market-oriented social democratic minority government. The Swedish legal system strikes a good balance between demands for security, reliability, transparency and cost-efficiency

With approximately nine million inhabitants within an area larger than California, Sweden is a small nation in a geographically big country. Sweden benefits from a sophisticated infrastructure, domestic as well as international, and a high degree of technological maturity. The high degree of development in infrastructure is reflected in everything from road, highway and railroad networks, and other transportation systems, to IT, a field in which Sweden is sometimes classified as the most developed nation in the world. There are few countries that can match Sweden’s potential to benefit from the intensifying, technology-driven global competition. Sweden already hosts one of the most internationally integrated economies in the world. The nation’s competitiveness is manifested by large flows of trade and foreign investment. Sweden offers access to new products and technologies, skills and innovations, as well as an attractive location and gateway to Northern Europe/the Baltic Sea region. Swedish trade, with Stockholm as the hub of commerce, is at record levels and the Swedish growth rate is in the upper range within the European Union.

There is an international confidence in the Swedish economy. The solid expansion of internationally competitive clusters — including information and communication technologies, engineering, life sciences, automotive, paper and packaging, energy and food, among others — illustrates the high diversification. The achievements of leading entrepreneurs, strong traditions in education and research, cooperation between business and academia, and access to venture capital and financing are key factors behind this development. The labour market is efficient, smooth running and industrial action is rare.

Corporate: The dominating business form is the limited liability company, for small as well as for larger enterprises. There are two forms of limited liability companies, private and public, where less detailed rules apply to the private. Only a public company has the right to invite the public to subscribe for new shares and other commercial papers. While shares in a limited liability company may be transferred freely to foreign investors, still the articles of association may contain provisions on the right of pre-emption or first refusal. Shares may be divided into classes with different rights to participation in the profits or assets of the company, or different voting rights. The most convenient way of establishing a limited liability company is to buy an off-the-shelf company. Aside from the limited liability company there are other organisational forms, such as trading partnerships, limited partnerships, co-operative societies, foundations and European limited liability companies.

Further, there are special rules, most often based on European Community law, for establishing certain types of corporations, eg financial corporations. Sweden hosts two stock exchanges under authority supervision and several other marketplaces for shares. The exchanges offer trade in a wide range of companies, all of which are bound by specific stock exchange regulations.

Real estate: Any person physical or legal has the right to own and hold land in Sweden. Purchases of real estate (and site leasehold rights) trigger stamp duty, normally paid by the purchaser. The stamp duty is 1.5% of the value of the property (normally the purchase price) if the purchaser is an individual or a tenant-owner association, and 3% if the purchaser is a legal entity. In some cases permissions or notifications to authorities are required, with regard to the purchase of real estate.

Financing: Sweden has a sophisticated banking market, proficient in investment banking. There are a large number of both domestic and international financial institutions involved in Swedish financing transactions. The market is well organised and notable for high market transparency. Swedish credit documentation is usually based on Lone Market Association standards, modified to suit Swedish conditions. Lately, Sweden has become one of Europe’s most liquid markets for property investments, and the access to property financing is good. Depending on the type of transaction, the security package will normally consist of pledges of assets such as shares, bank accounts, intellectual property rights, floating charge certificates, mortgage certificates and insurance policies. Swedish law security can be granted for all kinds of obligations — present, future, limited and contingent claims — as long as the obligation is identifiable and subject to limitations regarding corporate benefit and financial assistance. Further, there are no notarisation, registration or similar requirements and no substantial stamp duties or fees are payable in Sweden in connection with the granting or enforcement of security, other than upon the issuance of new mortgage certificates and floating charge certificates.

Competition issues: The competition rules correspond to a great extent with European Community competition law. The rules contain not only prohibitions against anti-competitive behaviour and abuse of dominance but also measures for premerger control. A merger must be notified to the Swedish Competition Authority if, in the preceding financial year, the undertakings involved had a combined worldwide turnover in excess of SEK 4 billion (approximately $520m) and each of at least two undertakings concerned had a turnover in Sweden in excess of SEK 100 million (approximately $13m). A merger shall be notified by the merging parties or the party or parties acquiring control. The rules do not require the acquirer or the target to be physically present in Sweden, it is sufficient that the parties make sales into Sweden. It is important to note that, as an EU member, Sweden applies the one-stop-shop principle, ie should EU thresholds be met and EU merger clearance be necessary, no separate clearance need to be obtained in Sweden. To date, the Swedish Competition Authority has handled around 1,900 merger filings. Out of these, the Competition Authority has had competition concerns in only 64 cases, of which none has resulted in an outright prohibition. However, approx 15 cases have only been cleared after the parties to the concentration have agreed to make certain commitments, such as divestiture, and in a few cases the parties have abandoned the planned transaction.

Tax: A corporate tax rate of only 28% and tax exemption not only on a company’s capital gains from the sale of unlisted shares (in some cases even listed shares) but also on dividends from subsidiaries to Swedish parents, combine to make Sweden particularly attractive for doing business. In addition, dividends from Swedish subsidiaries to foreign parents are normally exempted from withholding tax. Unlike many other jurisdictions, Sweden does not have any thin capitalisation rules. Interest is fully deductible and no withholding tax is levied on interest paid to foreign investors. Income from employment is taxed progressively and the tax rate range between approximately 30% to 57%. The Swedish expert tax regime allows foreign experts, scientists, and key personnel under certain circumstances to receive 25% of their salary and certain reimbursements tax-free. Sweden has a highly developed administrative tax infrastructure with a well organised Tax Authority, a large number of treaties for the avoidance of double taxation and the possibility of obtaining advanced rulings in complicated tax issues.

Employment: The labour market is well organised and well functioning with a highly qualified work force. Although several aspects of the employment relationship have been regulated by legislation, there is a tradition of avoiding government intervention in favour of governing employer-employee relations through nationwide collective bargaining agreements. The relations between employers and unions are characterised by mutual understanding and industrial peace. Parties bound by a collective bargaining agreement are as a rule not permitted to take industrial action during the term of the agreement with the objective of achieving changes in the agreement. There are no statutory minimum wages. Instead, salaries and other employment terms are generally decided by collective bargaining agreement. Two fundamental principles in Swedish labour legislation are co-determination in the workplace and protection of employment. The former involves the relationship between the employer and the union, such as rules requiring the employer to inform the union. The latter concerns the relationship between the employer and the employee regarding termination of employment. An employer must show just cause in order to terminate an employment. Just cause can be either reasons related to the employee or redundancy. Redundancies can be caused by economic, technical, operational or organisational reasons at the employer’s discretion. In closedown situations there are no specific exit costs as long as staff are working through applicable notice periods.

Intellectual Property: Swedish intellectual property law is well developed and provides extensive protection against copying and different kinds of imitations without consent from the intellectual property owner. In addition to protection of copyright, trademark and trade name, patent, design and plant breeder’s rights, the Swedish rules provide protection for databases and computer programs. Further there is a system of rules providing protection for know-how and against unfair competition. On a large scale the Swedish intellectual property law is based on European Community law, which in cases of incompatibility overrules national law. Copyright is automatically established when the work meets certain legal requirements. A trademark can be established either through use or registration following a national, a Community or international application. The protection for trademark runs for a period of 10 years and may be prolonged for an unlimited number of 10-year periods. Patent is established only through registration based on a national, a Community or international application. A patent is valid for a period of 20 years from the date of the filing of the patent application. Further, there are rules concerning the right to employee’s innovations. A general requirement for the employer’s right to such invention is that it falls within the employer’s field of business.

 

Contact details:
Olle Jansson, Partner and Head of Merger & Acquisition Tel: +46 8 52206560 E-mail: olle.jansson@cederquist.se

 

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