Advantages and Disadvantages for Opening the Business in Sweden
These days, Scandinavian countries are considered among the most promising in terms of business. People can implement the most incredible startups there. Sweden is one of the most successful countries in Europe. It is part of the European Union and the zone of the Schengen Agreement. Stable living standards, the maximum performance of the economy, and democratic direction of state policy in this country attracts many foreigners every year. Most of them want to stay in Sweden for permanent residence. Sweden is the most prosperous country for opening and running a business because the legislation provides optimal conditions of taxation. The most popular business areas are the ones related to IT-technologies, design services, transportation, trade, and leasing operations. Despite the optimal legal requirements, there are some peculiar features for the business in Sweden. These days, Sweden is considered one of the most attractive countries in terms of investment.
General Information on Sweden
Nowadays, there is a term “a Sweden model”. It arose in connection with the formation of Sweden as one of the most developed countries in socio-economic terms. The term emerged in the late 60’s since the time when the foreign experts started noticing a successful combination of the rapid economic growth with extensive policy reforms in Sweden (Bengtsson, 2012). The image of serene and successful Sweden was greatly contrasted with the growth of political and social disputes in various countries around the world (Bengtsson, 2012). These days, Sweden is a highly developed industrial country with well-developed agriculture (Bengtsson, 2012). Sweden is one of the largest countries in Western Europe. However, its population density is relatively low. The population of the country is about ten million people. Although the territory of Sweden is relatively small, its economy is extremely diversified. The Swedish economy is characterized by a high degree of concentration of production and capital (Bengtsson, 2012). Its share in the world production constitutes about 1% and in world trade it exceeds 2% (Bengtsson, 2012).
At the beginning of the XX century, Sweden was mainly an agricultural country and one of the poorest in Europe. However, due to rich inner reserves of iron ore, forests, and hydropower, as well as talented engineers and skilled workers, the country managed to make rapid industrialization that turned Sweden into a country with modern standards of living. Byron Nordstrom (2010) affirms that “Economic growth accelerated in the twentieth century and expanded upon these beginnings” (15). Nowadays, traditional industries are based on two most significant raw material resources – wood and iron ore (Bengtsson, 2012). These industries occupy an important place in the economy of the country. However, the value of other spheres including engineering and various high-tech sectors has also increased (Bengtsson, 2012). The welfare of the Swedish economy is primarily focused on international trade (Bengtsson, 2012). The main trading partners are the countries of the European Union. Exports account for nearly half of Sweden’s GDP – about 46% (Bengtsson, 2012).
Along with the prosperous economy, Sweden has an extremely rich culture. It is a country with rich cultural heritage and traditions. Sweden gave the world many famous people. The most well-known representatives of the Swedish culture are writers such as August Strindberg and Astrid Lindgren. Alfred Nobel is no less famous (Nordstrom, 2010). He is the first patron of the Nobel Institute and a founder of the international prizes. The features of Swedish culture are embodied in the architecture of the Scandinavian country. UNESCO takes under its protection 15 objects situated in the kingdom (Nordstrom, 2010). One of the oldest pieces in the list is Dazu Rock Carvings representing hundreds of drawings made on the former banks of the fjord more than three thousand years ago. Sweden is renowned for the level of education in the country. It is important to note that education is free in this country (Nordstrom, 2010). The character of the Swedes is characterized by deliberation and diligence. They are great conservatives who do not like changes. Thus, the Swedes always make decisions after careful consideration. Due to typical for Swedes calmness and solidity in deeds, hard work, and deliberate policy, Sweden is a role model in many ways on a worldwide scale. The Swedes are able to work, earn money, and give earnings. Thus, it is considered that the Swedes are highly reliable as business partners. It is the most important advantage of selling to Sweden or buying in this country.
The Level of Business in Sweden
The Swedes gave humanity such innovations and inventions as dynamite, matches, ball bearing, milk separator, a propeller, carton packaging for liquids, and many others. Moreover, they have the ability to actively introduce their innovations into the production and simultaneous promotion. Byron Nordstrom (2010) states that “Sweden became a major producer of high-grade steel, ball bearings, paper, ships, automobiles, domestic and military aircraft, weapons, and fine furniture” (p. 15). Sweden spends about 4% of GDP on research and development (Nordstrom, 2010). These days, Sweden exports the highest percentage of goods and services produced in the high-technology sector (Nordstrom, 2010).
Peculiarities of Opening Business in Sweden
Sweden occupies the eleventh position among 189 countries in the ranking of ease of doing business (Katsioloudes & Hadjidakis, 2007). These data are compiled by the World Bank. For the registration of the company in this country, a person needs to pass three procedures in two weeks (Katsioloudes & Hadjidakis, 2007). At the international level, the Swedes are considered simple and reliable trading partners. Sweden is one of the best countries in the world for the trade (Katsioloudes & Hadjidakis, 2007). In the book International Business, it is stated that “With stable political conditions, a skilled workforce, educated population, well-developed infrastructure, and relatively low corporate tax rates, Sweden is an attractive location for foreign investment” (Katsioloudes & Hadjidakis, 2007, p. 475). In the Swedish working culture, the principles of cooperation, respect, and personal responsibility are dominated. In business, the Swedes hold the horizontal hierarchy and balance between work and personal life. Nowadays, foreigners open companies related to IT technologies, transportation, design, and trade in Sweden (Katsioloudes & Hadjidakis, 2007).
The procedure of the registration and running the business in Sweden has changed with time. Nowadays, there are some nuances that every foreign businessman should consider opening a business in Stockholm, Gothenburg, and Malmo (Bill & Johansson, 2010). They are both advantages and disadvantages. Nowadays, any person over the age of majority and without the criminal record can be a director of the company. There are no restrictions based on nationality. Knowledge of the Swedish language is a necessary condition for doing business in Sweden. Knowledge of English is highly desirable (Bill & Johansson, 2010). Apart from that, a director, a founder, or a shareholder of the company must necessarily have a work permit in Sweden. To do this, a person must obtain a special permit national register (Bill & Johansson, 2010). Private companies should have at least one director and joint-stock companies – not less than three (Bill & Johansson, 2010). It should be borne in mind that if the company’s authorized capital amounts to more than one million Swedish kronor with the employees of more than 30 people, one of the directors who will manage the company must be a resident of Sweden (Bill & Johansson, 2010). To run the business, a person needs the share capital and material resources, which are confirmed and evaluated by a licensed auditor. It will be extremely important if, in the future, a person intends to sell the business in Sweden (Bill & Johansson, 2010).
Business in Sweden has many advantages. First, the fee for registration is exempt from VAT. Registration takes place in a very short period of time. A new enterprise can be registered within 5-8 business days (Bill & Johansson, 2010). A great convenience consists in the fact that a person can register the business via the Internet. The fee for registration depends on the legal form of business. For example, for individual enterprises, it is 1200 SEK and for limited liability companies and branches of foreign companies – 2000 SEK (Bill & Johansson, 2010).
In Sweden, plagiarism is strictly prosecuted. In such a way, any company should not be given a name similar to other registered firm. It is necessary to remember that there should be no words in the name of the company that could mislead customers and partners regarding the properties and types of services and products of the company, their promotion, and origin (Bill & Johansson, 2010). Small business in Sweden is obliged to follow this rule.
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The requirements for the places of residence of the subjects of business activities depend on the citizenship of the entrepreneur who has decided to open a business in Sweden. Citizens of Nordic countries such as Denmark, Finland, Norway, and Iceland do not need to register with the Swedish Migration Board or apply for a residence permit (Katsioloudes & Hadjidakis, 2007). Citizens of the European Union, the European Economic Area, and Switzerland have the right to reside in Sweden (Katsioloudes & Hadjidakis, 2007). However, within three months of their arrival in Sweden they should register in the Swedish Migration Board. Citizens of other countries who intend to start a business in Sweden are obliged to apply for a residence permit before arriving in Sweden. To obtain a residence permit, a person needs to own at least 50% of the shares of a company registered in Sweden (Katsioloudes & Hadjidakis, 2007). A person should also have enough money to support a family. At first, the individual will receive a residence permit for two years. After this period, the authorities will review whether a company brings enough profits. If the financial condition will satisfy the authorities, a person has a chance to receive permanent residence in Sweden (Katsioloudes & Hadjidakis, 2007).
There are several disadvantages for running the business in Sweden. The main disadvantage consists in the fact that enterprises are imposed with high taxes. The Swedish tax burden is among the highest in the world. However, the Swedish authorities are regularly cut taxes giving more opportunities for the development of small and medium-sized businesses. Non-residents are inclined to believe that the Sweden tax system is extremely complex. Taxes are divided into direct and indirect taxes. There are also labor and capital taxes. The income tax and tax on business profits are direct taxes (Bill & Johansson, 2010). The income tax rate constitutes 22% (Bill & Johansson, 2010). To calculate the income tax rate, the progressive rates from 30 to 55% are applied (Bill & Johansson, 2010). In Sweden, the income is classified on three items – a type of activity, capital, and business (Bill & Johansson, 2010). There are taxes on capital and labor, excise duties, and taxes on interest income. There is also the national income tax levied on businesses, as well as the council tax. Non-resident companies pay income tax from incomes that they received on the territory of Sweden (Bill & Johansson, 2010). The mechanism of charging of VAT in Sweden is the same as in the whole European Union (Bill & Johansson, 2010). If the annual turnover of the organization is up to 1 million SEK, such a company should not be registered with the tax authorities (Bill & Johansson, 2010). Otherwise, it is necessary to register for VAT (Bill & Johansson, 2010). Typically, this rate stands at 25% (Bill & Johansson, 2010). The tourism activity and food production is taxed at 12% (Bill & Johansson, 2010). Companies engaged in the production of newspapers and magazines are subject to VAT at 6% (Bill & Johansson, 2010). This is the lowest rate of VAT. Dividends that have been received from a foreign affiliate are not taxable, only if the branch is a payer of a 15% tax (Bill & Johansson, 2010). In this case, the minimum equity portfolio must contain at least 25%. The rate on dividends is determined on the basis of an international agreement (Bill & Johansson, 2010). It is done to avoid double taxation. The tax credit can be transferred for three years. Many directors of foreign companies use the services of tax accountants who will prompt what taxes should be paid, help to fill in the declaration, and control the timing of the payment of taxes (Bill & Johansson, 2010).
A great concern for the foreign company consists in the fact that a foreign company can have only one branch in Sweden (Bill & Johansson, 2010). The branch is not a separate legal entity. The foreign company must appoint a managing director to start a business in Sweden. The branch has no separate capital and all of its assets and liabilities are part of the total assets of the foreign company. Opening a branch of the company in Sweden costs 2000 SEK (Bill & Johansson, 2010). Another concern that foreigners can face when running the business is a character of the Swedes. As it was already mentioned, they are rather conservative and reserved. Thus, it is hard for them to make decisions when they consider becoming partners with foreign firms.
The best way to open the business in Sweden is to buy an existing company. In such a way, a person gets a customer base and will be able to accurately calculate the income of the organization. However, there are some limitations for business in Sweden. Non-residents are allowed to establish only several forms of companies such as the Limited Liability Company and the Open Joint Stock Company (Bill & Johansson, 2010). The Limited Liability Company must have at least one director and the Open Joint Stock Company – at least three (Bill & Johansson, 2010). In Sweden, as in other countries, some activities are subject to licensing (Bill & Johansson, 2010). Such activities include investment banking, venture funds and banks, and many others. One of the latest innovations in Swedish business lies in the fact that a company with an annual turnover of fewer than 300 thousand Euros does not need to audit the company (Bill & Johansson, 2010). However, the company’s audit was mandatory in the recent past.
Nowadays, small business is extremely widespread in Sweden. Thus, there is a great competiveness in this sector. However, foreigners who want to open their business in Sweden have the opportunity to take a medium-sized business sector, which is almost completely free from competition. It reduces the payback period for the company and brings the desired profit in the shortest possible time. Thus, a person, whose business is U.S. based, needs to take a niche of the medium-sized businesses in Sweden. However, in the United States, there is a great competition in the medium-sized business. Foreign residents should observe the practice of receiving the tax credit, which help new enterprises to start the business. In Sweden, the US residents should avoid any evasion from taxes. Tax authorities receive information from a single database of social services, banks, and customs administration. The penalty for evasion may reach 40% of the underpayment (Bill & Johansson, 2010). If the tax authorities will be able to prove intentional tax evasion, the defaulters are threatened with a prison sentence of up to two years (Bill & Johansson, 2010).
To convert from a poor agrarian country into one of the richest and most highly industrialized country, Sweden needed only a few decades. Swedish economic miracle happened due to the wealth of natural resources and revolutionary inventions such as a steam turbine and ball bearing. Nowadays, the main resources in Sweden include forest, hydropower, iron ore, and engineering skills. Sweden is an export-dependent country. The welfare of the Swedish economy is primarily focused on international trade. It is one of the most competitive and open economies in the world. Despite the fact that this country has a comparatively small population, Sweden in recent decades has become a world leader in various areas. These days, Sweden is one of the most attractive countries in terms of investment. It is perfectly suited for the opening of a new business, as well as for the opening of a branch of an existing company. For non-residents, there are no restrictions to investing in their organizations. They are free to buy and sell their companies. In Sweden, foreigners often open the business related to IT technologies, design, transportation, trade, and real estate services. However, as other countries, Sweden has its business peculiarities that are necessary to learn before starting the business in this country.