Which business form to prefer in Sweden

A wise entrepreneur examines the possibilities of doing business in Sweden well in advance before entering the Swedish market, and determines which business form best suits their needs. This article discusses three different ways to operate as a legal entity in Sweden. There are other business forms as well, but they are mostly used for very small businesses (e.g., sole proprietorships) or in exceptional cases.

The three business forms discussed in this article are:

1. Foreign company registered in Sweden;
2. Foreign company with a branch in Sweden;
3. Swedish AB (AB is short for "Aktiebolag," which translates to "Stock Company" and is equivalent to an Estonian OÜ).

Making the right decision is also influenced by how long you plan to operate in the Swedish market. If you plan to operate for less than 6 months, registering your company in Sweden is sufficient. However, if you plan to operate for more than 6 months, you will need to establish either a branch or a Swedish AB.

Regardless of the business form chosen, it is necessary to register for F-skatt, VAT number, or employer registration, depending on whether the company engages in taxable sales or hiring employees. Some companies may require all three registrations. These registrations are done at Skatteverket (Swedish Tax Agency), and the processing time is 3-6 weeks.

Swedish company registration numbers are 10-digit (XXXXXX-XXXX) and can identify the type of business form.

Foreign company registered in Sweden (50XXXX-XXXX)

+ Suitable for entrepreneurs with occasional short-term projects in Sweden.

+ No additional obligations beyond submitting declarations.

+ The smallest investment cost, both in terms of time and money.

- If a permanent place of business is established (more than 6 months), a branch or AB must be created. Later establishment of a branch or AB requires transferring previous activities, which can be cumbersome and time-consuming.

- Swedes prefer to collaborate with Swedish companies. Often, companies that are not branches or ABs are offered less favorable conditions.

Required registrations

Most entrepreneurs start their activities in the Swedish market using this business form. The company likely has a short-term project in Sweden, lasting less than 6 months, and that's where it ends. In such cases, registering for F-skatt, VAT number, or employer registration is sufficient. 

A VAT number is required if you sell goods or provide services to individuals in Sweden that are not subject to EU reverse charge rules. It is also required if you voluntarily want to pay VAT in Sweden.

An employer registration must be made if employees need to pay income tax in Sweden, i.e., if they receive income for work done in Sweden for more than 6 months or if their "actual employer" is a Swedish company.

By making one of these three registrations, the company receives a temporary 10-digit registration number starting with 5 and 0 (50XXXX-XXXX). The registration process takes 3-6 weeks. This number is not permanent and does not represent a separate branch of the company. It is essential to know this because many larger Swedish companies (especially in the public sector) collaborate only with Swedish companies or branches. Companies with registration numbers starting with "50" ARE NOT branches.

Foreign company with a branch in Sweden (51XXXX-XXXX)

+ The most cost-effective business form for a foreign company with a permanent place of business.

+ A branch can do almost everything an AB can do.

- Not the most optimal form for building long-term trust. Swedes prefer to collaborate with ABs.

- A branch is not a separate legal entity. If business in Sweden goes bad, it may affect the obligations of the company's other branches.

- The risk of not recording or double-recording company transactions is higher. This is because a branch may appear as a separate entity even though it is not. It is essential to clearly define which transactions are conducted by other branches of the company and which are done by the branch, especially concerning cross-border transactions.

Permanent establishment in Sweden and associated obligations

If it is known that the company will have a permanent establishment in Sweden, it is required to register a branch. A permanent establishment occurs when the following criteria are met:

• There is a specific geographic location for conducting business.
• The business activity lasts for more than 6 months.
• The company conducts its main business activities locally.

With a permanent establishment comes additional obligations for the company:

• The company must submit an income declaration and pay income tax for the income generated in Sweden.
• The branch must maintain separate accounting for its business activities.
• The company must submit an annual report to the Swedish Business Registry. The same document can be submitted to both Estonian and Swedish business registries, but translated into either Estonian or Swedish.

The branch of the company must operate according to Swedish laws, just like other Swedish companies. It is important to remember that despite this, the branch is not a separate legal entity or an independent company. The branch is just one part of a foreign company. Therefore, Swedish branches have the same obligations as other Swedish companies but not all the same rights.

When registering a Swedish branch, the company will receive a registration number starting with 5 and 1 (51XXXX-XXXX). The registration process takes 1-2 weeks. The application process is extensive, and all documents must be translated into Swedish.

After registering the branch, it is also necessary to register for F-skatt, VAT number, or employer registration, which takes an additional 3-6 weeks. In total, the registration of documents for the branch takes 4-8 weeks.

Swedish AB (55XXXX-XXXX)

+ The simplest business form for operating in Sweden. Customers and partners have the highest trust in ABs, and it is easier to demand transactions on Swedish terms, especially if there have been a few successful fiscal years.

+ It is much easier to submit various declarations and applications.

+ Domestic and Swedish companies are kept separate, reducing risks.

- The initial investment is expensive and time-consuming. However, the share capital is not a cost; it can be used to acquire assets for the company later.

For long-term operations in Sweden, creating a Swedish AB is the most reasonable option. There are several good reasons for this. For instance, Swedes themselves take ABs much more seriously than other business forms. ABs appear more like "real companies" to them and create trust. As mentioned earlier, a branch can do almost everything that can be done with an AB, but branches are not as common.

Information about a Swedish AB is easy to find since company details, including annual reports, are publicly available. Interested parties can quickly gain insight into the company's financial situation. This may not always be possible with the other two options.

Advantages of Swedish AB

Another advantage of operating under a Swedish AB is that it is much easier to keep its business activities separate from other branches. This is crucial, especially when operating in multiple countries. Confusion about whether a specific transaction was made by another branch or the branch itself is eliminated. A Swedish AB is an independent company responsible for its obligations. The responsibilities of an AB do not transfer to the home-based company, making this form of operation secure.

Creating a Swedish AB can also reduce the time and cost involved in accounting activities. Swedish accounting programs, e-environments of various country authorities, and form submissions are all designed for Swedish ABs. Therefore, handling business with this form and communicating with various government agencies are significantly more straightforward.

To establish a Swedish AB, a share capital of 25,000 SEK is required. Depending on whether you want a Swedish or Estonian bank account for your company, registering a new AB takes 2-6 weeks. After that, you need to register for F-skatt, VAT number, or employer registration, which takes an additional 3-6 weeks. At the same time, you must register changes in management, new owners, a new business address, etc. All these procedures take 5-8 weeks in total.

You can expedite the process by purchasing a ready-made shelf company, where the AB is already established, and you only need to register for F-skatt, VAT number, or employer registration. Shelf companies can cost between 250 to 1000 euros, depending on how much assistance the selling company provides with the transfer.

Wisecounter's recommendation

In summary, registering your Estonian company in Sweden is suitable for those who do not undertake significant projects in Sweden and operate there on a short-term basis, less than 6 months.

A branch is suitable for those conducting large-scale projects in Sweden that last longer than 6 months and are uncertain about whether it is a one-time project or there will be more work. This is also a good solution for companies engaged in seasonal work.

AB is recommended for companies planning to operate in Sweden in the long term and develop their business there. Doing business in Estonia and Sweden is entirely different, and it is essential to follow the local customs in both countries. Even if you plan to operate in Sweden for only a year, we still recommend establishing an AB because it adds credibility. Additionally, if you no longer wish to conduct business in Sweden, you can sell the Swedish company.

However, to make the right choice and find the best solution, you should consider various other factors. It is advisable to consult with an expert who has enough experience in this field and can anticipate obstacles, ensuring a smooth and efficient entry into the Swedish market with your business.