Sweden

Investing in Sweden

What to think about when making an investment in Sweden, relating to M&A, Taxation and Accounting and Assurance

Sweden - attractive investment opportunities

Few countries can match Sweden’s potential to benefit from intense technology-driven global competition. Sweden already hosts one of the most internationally integrated economies in the world and has been recognised as a gateway to strategic markets. Sweden’s business sector is unique for its large number of multinational corporations in relation to the relatively small size of the national economy. Sweden is home to many leading brands supported by competitive small and medium-sized enterprises. Two segments where Swedish companies have a global competitive edge are Infocom and Technology, ICT, (eg wireless technology) and Life Science, where Sweden’s Biotech industry is considered Europe’s fourth largest.

The World Economic Forum (WEF) in 2005 ranked Sweden in third place in its survey of 104 economies and their capacity for growth in the medium term. Sweden’s prosperity rests on very healthy macroeconomic environments and public institutions that are highly transparent and efficient. Major strengths that make Sweden particularly attractive for doing business include a large supply of advanced technologies, qualified workforce, high innovation capacity, competitive costs for skilled staff, rents and other major business expenses and good infrastructure.

Strong activity in foreign direct investments (FDI)
Both FDI into Sweden and Swedish FDI abroad show a positive trend since the drop in M&A activity in 2001. As of today, Swedish investment activities have recovered fully and both the current level of inbound (eg from Germany and the US) as well as the outbound FDI into/from Sweden are expected to continue to further improve in 2006. There are more than 10.000 foreign-owned companies in Sweden today, where US corporations alone employ more than 100,000 people.

Sweden — One of the most advanced private equity markets in Europe
Venture capital growth, together with highly capitalised buyout funds in Sweden, such as EQT, Industrikapital and Nordic Capital, has contributed to a highly active and efficient private equity market, reinforced by strong growth in the Stockholm Stock Exchange (index grew by > 30% in 2005) and strong investment influx. The Swedish private equity market is one of the most advanced in Europe and is becoming more and more attractive for foreign investors, primarily UK and US-based funds. 2005 was overall a very successful year for the private equity and venture capital industry where the buyout segment has dominated, and growth is expected to continue throughout 2006, driven by both good investment opportunities, low borrowing costs and an expected positive exit climate.

Taxation

Low levels of corporate tax, the absence of withholding tax on dividends and a favourable holding company regime combine to make Sweden particularly attractive for doing business.

Corporate tax
The Swedish corporate tax rate is 28%. A company is considered to be resident if it is incorporated in Sweden. Branch income (permanent establishment income) is taxed at corporate tax rates. No withholding tax is levied on the repatriation of taxed profits. Capital gains tax exemptions apply for Swedish corporate entities for gains related to the disposal of shares held for business reasons.

The same applies to foreign companies resident in the European Economic Area (EEA) and conducting business from a permanent establishment (PE) in Sweden when the shares are allocated to the PE. Companies resident outside the EEA may by application of the non-discrimination clause in a tax treaty also benefit from the participation exemption. A consequence of the participation exemption is that losses on shares held for business reasons will not be deducible. Participation exemptions will also apply for dividends received on shares held for business reasons.

Losses may be carried forward without limitation, but they may not be carried back. Income taxes are assessed on companies individually, not on consolidated results. To enable the levelling profits within a Swedish group, so-called group contributions can under qualifying conditions be exchanged between related companies.

There are no Swedish taxes on interest and services fees paid to non-resident corporations or individuals. Following the increased focus on transfer pricing and the introduction of formal transfer pricing documentation legislation in a number of countries over the past few years, the Swedish National Tax Board in 2003 proposed the introduction of documentation rules in Sweden. Preparations have over the last few years been ongoing at the Ministry of Finance. The proposal is expected to be enacted before summer 2006 and the new legislation is expected to be in force as of 1 July 2006 or 1 January 2007.

Individual tax
Individuals tax resident in Sweden are taxed on their worldwide income. Taxable income is subject to progressive rates going from 31% (average municipal tax rate) to 56%. Capital income is taxed a flat rate of 30%. Net wealth in excess of SEK 1,500,000 for single tax payers and SEK 3,000,000 for families is taxed at a flat rate of 1.5%.

Accounting and assurance

Accounting principles and practices
There are significant differences between both International Financial Reporting Standards (IFRS) and Swedish GAAP, as defined below, compared to US generally accepted accounting standards. The board of a limited liability company prepares and submits financial statements to shareholders and files a copy with the Swedish Patent and Registration Office, normally on an annual basis. The enterprise‘s board of directors bears the responsibility for the preparation of financial statements and for adequate disclosures. The company’s accounts must give a true and fair view of its financial position at the balance sheet date and of its profit or loss for the financial year, and must follow a prescribed format set by the Annual Accounts Act. The parent company should generally present consolidated financial statements.

From 1 January 2005, all listed companies should apply IFRS in their consolidated financial statements. Also, nonlisted companies may apply IFRS in their consolidated financial statements. Accounts of non-listed public interest entities are to be prepared in accordance with the standards issued by the Swedish Financial Accounting Standards Council (Redovisningsrådet). The Standards of Redovisningsrådet form guidance also for any other entities (small, medium-sized or large non-listed, non-public interest entities), but such companies may choose instead to apply certain guidance issued by the Swedish Accounting Standards Board (Bokföringsnämnden).

Audit requirements and practices
In Sweden, statutory audits are required for all limited liability companies as well as other specified entities. The statutory auditor issues an audit report in accordance with the Swedish Audit Act. This act covers audit requirements for the financial statements and accounting and further, of the administration of the board of directors and the managing director. If the annual report, including the statutory administration report, is in compliance with laws and regulations, and the auditor is satisfied on the administration of the board of directors and the managing director, the auditor will, among other things, recommend in the audit report that the managing director and the board of directors be discharged from liability for the financial year. The concept of discharging of liability does not exist in the US. However in certain situations, such as thin capitalisation, there is the practice of pass-through of the “corporate veil”.

The Swedish statutory audit is carried out in accordance with the generally accepted auditing standards of Sweden. The Swedish Standard on Auditing (RS) is based on the International Standards on Auditing (ISA) and facilitates compliance with Swedish laws and regulations. Auditors test their independence according to a certain model of analysis, which is in line with the conceptual model of independence by the International Federation of Accountants (IFAC). There are certain significant differences in ISA procedures compared to US auditing standards.

Contact details:
Assurance and Accounting: Christine Rankin Johansson Tel: +46 8 555 332 04 E-mail: christine.rankin-johansson@se.pwc.com
Corporate finance and invesments: Magnus Rembacken Tel: +46 8 555 332 15 E-mail: magnus.rembacken@se.pwc.com
Tax services: Jörgen Haglund Tel: +46 8 555 331 51 E-mail:joergen.haglund@se.pwc.com
Website: www.pwc.com/se/us-desk

 

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