2010 Investment Climate Statement - Sweden
Sweden is generally considered to be an attractive country in which to invest. 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, capital, and foreign investments. 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. Low levels of corporate tax, the absence of withholding tax on dividends and a favorable holding company regime combine to make Sweden particularly attractive for doing business. Sweden, like other EU countries, has been highly affected by the financial crisis, but the Swedish growth rate is in the EU’s upper range; trade is still at high levels; public finances are relatively sound; and there is an international confidence in the long-term viability of the Swedish economy in the aftermath of the financial crisis.
The General Government Attitude Toward Foreign Direct Investment
Until the mid�'1980s, Sweden's approach to direct investment from abroad was quite restrictive and governed by a complex system of laws and regulations. Sweden’s entry into the European Union (EU) in 1995 has greatly improved the investment climate and attracted foreign investors to the country.
Swedish authorities have implemented a number of reforms to improve the business regulatory environment that benefits investment inflows. The Moderate Party-led coalition government elected in September 2006 set a goal of selling some $31 billion in state assets during the time period 2007-2010 to further stimulate growth and raise revenue to pay down the federal debt.
In 2008, the Swedish government sold V&S (Vin & Sprit AB) to French Pernod Ricard for some $8.3 billion and the Swedish OMX stock exchange to Borse Dubai/Nasdaq for $318 Million. Further progress in terms of deregulation was taken at the beginning of 2010 as the state-owned and former Government-run pharmaceutical company Apoteket was split up in a State-owned and a privately-owned part. The financial crisis has slowed down the pace of continued privatization, but this reflects a pragmatic stance in view of temporarily lower potential yields, rather than a change of policy. Sweden is also actively seeking ways to ensure wider ownership in Swedish industry, which it believes will increase competition and lead to greater efficiency on the markets. As a result, foreign ownership in Sweden has increased rapidly in the last decade. Approximately 50% of foreign-owned firms are acquisitions, and 30% are new establishments. Foreign�'owned firms now employ almost 25% of the work force in the business sector. To an increasing extent, those employees work in service and manufacturing industries. Foreign ownership in urban areas of Sweden is dominated by Norway and EU countries. The U.S. is the single largest foreign employer.
The Swedish Moderate Party-led coalition government elected in September 2006 has pursued a macroeconomic policy favorable to the business sector. In a 2003 public referendum on whether or not to join the European Monetary Union (EMU), a majority voted for Sweden to remain outside. In 2009, public opinion shifted somewhat and a majority of Swedes viewed the Euro positively for the first time ever.
The EMU issue will likely not figure prominently in the 2010 Parliamentary election campaign, nor do we expect politicians to put the EMU issue to the electorate in the next four-year political cycle. At most, politicians might commission a study into the effects of a potential Swedish EMU entry.
Conditions for doing business in Sweden have improved under the coalition government elected in September 2006. Corporate income taxes have decreased to 28%, and are now among the lowest in Europe. Combined with a well-educated labor force, outstanding telecommunications network, and a stable political environment, Sweden has become more competitive as a choice for American and foreign companies establishing a presence in the Nordic region. Sweden is the largest market in the Baltic Sea region, and is ranked among the most competitive and corruption-free economies in the world, third out of 180 countries ranked in Transparency International’s yearly ranking. It is seen as a frontrunner in adopting new technologies and setting new consumer trends. Products can be tested in a market with demanding customers and high levels of technical sophistication.
FDI inflows to Sweden surged in the second half of the 1990s, a trend fueled by accelerating globalization, deregulation in Sweden, devaluation of the Swedish krona in 1992 and the country’s entry into the European Union 1995. For example, the number of foreign subsidiaries in Sweden increased sharply from the mid 1990s, from just over 3,000 to over 10,000 ten years later. Despite the substantial FDI inflows, the stock of Swedish assets held abroad still exceeds the stock of foreign assets in Sweden.
In 2008, foreign companies in Sweden employed about 620,000 employees. About 1,300 U.S. companies with 101,700 employees are established in Sweden, many of which are active in computer software or hardware, pharmaceuticals, the automotive industry, telecom or finance. This makes the U.S. the largest country of origin (among foreign-owned companies in Sweden). Around 20% of the work force employed by foreign-owned firms and the trend is rising.Surveys conducted by investors in recent years ranking the investment climate in Sweden show rather uniform results: positives mentioned are a well-trained and educated workforce; low corporate tax rates; excellent infrastructure and good access to capital. On the minus side are high cost of labor; rigid labor legislation; high individual tax rates; and overall high costs in Sweden.
Although conditions in Sweden are better than in many other countries, Sweden and Swedish banks have been affected by not having access to long-term funding, and by commercial bank exposure to the Baltic region. Swedish banks experienced a similar crisis in 1990-1994 involving real-estate loans and defaults on high figure loans. Swedish banks since then became more restrictive with loans. The experience from the 1990-1994 crisis helped prepared the government and the banks to respond quickly to the 2008/9 global financial crisis.
By 2008/9, Swedish banks had a relatively high reliance on wholesale funding, with deposits ranging from 30% to 40% of total liabilities at the larger banks. As funding in international capital markets became more difficult in 2008, Swedish authorities responded with a bank support package that included $205 billion of guarantees for new debt issuance, a $6 billion recapitalization, doubled deposit insurance coverage to include savings of up to SEK 500,000 ($65,400) per customer and bank, and creating a fund to be prepared to take direct stakes in banks. The balance sheet of the Central Bank tripled during 2008, mainly due to increased lending facilities to commercial banks. These efforts, and follow-up measures including additional lending to the banks, have avoided a banking crisis in Sweden.
Swedish banks have been affected by the financial crisis mostly through their exposure to the Baltic region, but not all Swedish banks face the same level of risk. The Swedish banking sector is highly concentrated, with the four large banking groups – Nordea, Svenska Handelsbanken, Swedbank and SEB – accounting for roughly 80% of sector assets. Swedbank and SEB have extensive operations and exposure in the Baltics, so they face the greatest challenge from ongoing loan losses and any major currency devaluation in the Baltic region.
By late 2009, all four major Swedish banks continued to see deteriorations to their credit portfolios primarily as a result of exposure to the Baltic region and Ukraine, but signs of improvement appeared in the form of decelerating credit losses. Central Bank stress tests revealed that all four banking groups had adequate capital. To further reassure investors, both Swedbank and SEB lifted their core tier one capital ratio to 12.3 percent and 11.8 percent respectively, which is among the highest in Europe.
The banks proved to be sufficiently strong and managed to navigate through the global financial turmoil without any bankruptcies, but with substantial credit losses. Market commentators continued to express confidence in the stability of the Swedish banking sector, but also noted that significant challenges remain in the form of sizeable credit losses. With its decision to keep the benchmark rate flat and extend additional loans, the Central Bank recognized that the situation on financial markets, while much improved, had not returned to pre-crisis levels.
The high absolute level of losses in Eastern European operations could require recapitalization of subsidiaries in the future. Political risks in Latvia and Ukraine, combined with a sharp economic downturn, remain high; and credit losses could quickly accelerate if Latvia is forced to devalue. A large devaluation in Latvia combined with investor concern about the Baltic region as a whole and pressure on neighboring Estonia and Lithuania to devalue could result in a confidence crisis and a setback for the recovery of the Swedish banking sector.
The global economic downturn has had significant effects on the real economy in Sweden. GDP contracted by around 4 % in 2009, but is predicted to increase by 3.0% in 2010 and 3.6% in 2011. The repo rate set by the Central Bank is at 0.25%, and is expected to remain at these record-low numbers until the second half of 2010. Inflation was at 0.9% in December 2009 (measured as CPI) and is expected to come in at 1.3 for the full year 2010, and 2.1% for 2011.
The Stockholm Stock Exchange Index OMXS30 fell by just over 40% during 2008, but regained in value during 2009 as the Index OMXS30 experienced a record year and closed at an increase by around 50%. The Swedish krona dropped sharply in value both against the dollar and euro at the outset of the financial crisis, in a sharp display of the dangers of having a small, marginal currency.
Sweden's total net International Investment Position (IIP) showed a net debt of SEK 443 billion ($57.9 billion) at the end of June 2009. The net debt has thus increased by SEK 122 billion ($15.9 billion) compared with 2008.
Laws/Rules/Practices Affecting Foreign Investment
During the 1990s Sweden made considerable progress deregulating its product markets. In a number of areas, including electricity and telecommunication markets, Sweden has been on the leading edge of reform. These reforms have resulted in more efficient sectors and lower prices. Nevertheless, a number of practical impediments to direct investments remain in Sweden. These include a fairly extensive, though non-discriminatory, system of permits and authorizations needed to engage in many activities and the dominance of few, very large players in certain sectors, such as construction and food wholesaling.
Regulation on foreign ownership in financial services has been liberalized. Foreign banks, insurance companies, brokerage firms, and cooperative mortgage institutions are permitted to establish branches in Sweden on equal terms with domestic firms, although a permit is required. Swedes and foreigners alike may acquire shares in any company listed on the Stockholm Stock Exchange.
Government monopolies: Despite extensive deregulation, foreign and domestic investors are still barred from retail sale of alcoholic beverages. In early 2010, the Swedish Government went through with the privatization of pharmaceutical company Apoteket, allowing for private retailing of pharmaceuticals.
Legal Aspects: Swedish company law provides various forms under which a business can be organized. The main difference between these forms is whether the founder must own capital and to what extent the founder is personally liable for the company’s debt. The Swedish Law, Act (1992:160) on Foreign Branches, applies to foreign companies operating some form of business through a branch and also to people residing abroad who run a business in Sweden. A branch must have a president who resides within the European Economic Area (EEA). All business enterprises in Sweden (including branches) are required to register at the Swedish Companies Registration Office. An invention or trademark must be registered in Sweden in order to obtain legal protection. A bank from a non-EEA country needs special permission from the Financial Supervision Authority to establish a branch in Sweden.
Taxes: Sweden’s taxation structure is straightforward and corporate tax levels are low. Sweden has a corporate tax of 28% in nominal terms. Companies can make pre-tax allocations to un-taxed reserves, which are subject to tax only when utilized. Availability of this allocation makes Sweden’s effective corporate tax rate about 26% of undistributed profits. Certain amounts of untaxed reserves may be used to cover losses. Personal income taxes are among the highest in the world. Since public finances have improved due to extensive consolidation packages to reduce deficits, the government has been able to reduce the tax pressure as a percentage of GDP. Currently, it is below 50% for the first time in decades. One particular focus has been tax reductions to encourage employers to hire the long-term unemployed. The government introduced additional cuts for personal income taxes in 2008, followed by additional cuts in January 2009 and 2010. Expectations are that the taxes will stay at this level during the year and will not increase or decrease because of the financial instability.
One tax reform to help bring foreign experts to Sweden is a reduction of key foreign personnel’s income tax. The tax is based on 75% of the person’s income. This applies to foreign key personnel, such as executives, researchers and experts, employed by a Swedish company. The tax relief is not applicable to individuals assigned to Sweden by a foreign company that has no operations in Sweden.
Dividends paid by foreign subsidiaries in Sweden to their parent company are not subject to Swedish taxation. Dividends distributed to other foreign shareholders are subject to a 30% withholding tax under domestic law. Profits of a Swedish branch of a foreign company may be remitted abroad without being subject to any other tax than the regular corporate income tax. Sweden has no foreign exchange controls or restrictions.
The Swedish system of allowing A/B preferred stock has been identified by some, both in and outside of the EU, as an obstacle to takeover efforts of Swedish companies and the free flow of capital. A and B stocks differ from common and preferred stocks in that owners of A stocks have a greater number of votes than owners of B stocks. Both A and B stocks have the same right to dividends.
Stock options: There is no exit taxation and no specific rules regarding taxation of stock options received before a move to Sweden. Instead, cases of double taxation are solved by applying tax treaties and cover not only moves within the EU but all countries, including the United States.
Index/Ranking: For ease of comparison, we have included some reputable international ranking indexes.
-- Transparency International Corruption Index: Sweden was ranked number three out of 180 countries.
-- Heritage Economic Freedom: Sweden was ranked number 21 out of 179 countries.
-- World Bank Doing Business: Sweden was ranked number 18 out of 183 countries.
Conversion and Transfer Policies
There are no foreign exchange controls in Sweden, nor are there any restrictions on remittances of profits, of proceeds from the liquidation of an investment, or of royalty and license fee payments. A subsidiary or branch may transfer fees to a parent company outside of Sweden for management services, research expenditures, etc. In general, yields on invested funds, such as dividends and interest receipts, may be freely transferred. A foreign-owned firm may also raise foreign currency loans both from its parent corporation and credit institutions abroad.
Expropriation and Compensation
Private property is only expropriated for public purposes, in a non�'discriminatory manner, with reasonable compensation, and in accordance with established principles of international law.
There have been no major disputes over investment in Sweden in recent years. The country has written and consistently applied commercial and bankruptcy laws, and secured interests in property are recognized and enforced.
Sweden is a member of the International Center for the Settlement of Investment Disputes and is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards. The Arbitration Institute of the Stockholm Chamber of Commerce is one of the leading arbitration centers in the world, with many of its cases originating in East�'West business relations. An agreement between the American Arbitration Association and the Russian Federation Chamber of Commerce, stemming back to the 1990’s, provides for arbitration to take place in Sweden under the rules of the United Nations Commission on International Trade Law, with the Stockholm Chamber of Commerce administering the cases and acting as appointing authority if needed.
Sweden imposes no performance requirements on presumptive foreign investors.
Incentives: The Swedish government offers certain incentives to set up a business in various targeted depressed areas. Loans are available on favorable terms from the National Board for Industrial and Technical Development (NUTEK) and from regional development funds. A range of regional support programs, including location and employment grants, low rent industrial parks, and economic free zones are also available. Regional development support is concentrated in the lightly populated northern two-thirds of the country. There are also several European funds that offer subsidies for starting enterprises and a range of incentives to research and development programs provided by the Swedish Government.
Right to Private Ownership and Establishment
Rights of this kind are not specifically written into Swedish law, but individuals and Swedish entities are well protected by the legal system. Private and public enterprises enjoy equal access to markets necessary for conducting business operations.
Protection of Property Rights
Swedish law generally provides adequate protection of all property rights, including intellectual property. As a member of the European Union, Sweden adheres to a series of multilateral conventions on industrial, intellectual, and commercial property.
Patents �' Protection in all areas of technology may be obtained for 20 years. Sweden is a party to the Patent Cooperation Treaty and the European Patent Convention of 1973, which both entered into force in 1978.
Copyrights �' Sweden is a signatory to various multilateral conventions on the protection of copyrights, including the Berne Convention of 1971, the Rome Convention of 1961, and the WTO's trade related intellectual property (TRIPS) agreement. Swedish copyright law protects computer programs and databases. Sweden became known as somewhat of a safe haven for internet piracy, due to excellent internet connections, a lag in implementing EU Directives, and weak enforcement efforts. Over the course of 2009, however, Sweden implemented the EU’s Intellectual Property Rights Enforcement Directive (IPRED) 2004/48/EC, and continued to step up its enforcement against internet piracy. The year also saw the conviction of the operators behind the Pirate Bay.org, a notorious BitTorrent tracker for illegal file-sharing, and an increase in legal file-sharing. Legislative measures, combined with added resources on the enforcement side, and the emergence of successful legal alternative such as Sweden-based sites Spotify and Voddler all contributed to a substantial increase in 2009 for music and film distribution using legal means.
Trademarks �' Sweden protects trademarks under a specific trademark act (1960:644) and is a signatory to the 1989 Madrid Protocol.
Trade secrets �' proprietary information is protected under Sweden’s patent and copyright laws, unless acquired by a government ministry or authority, in which case it may be made available to the public on demand.
Transparency of the Regulatory System
As an EU member, Sweden has altered its legislation to comply with the EU’s stringent rules on competition. The country has made extensive changes in its laws and regulations to harmonize with EU practices, all with a view to avoiding distortions in or impediments to the efficient mobilization and allocation of investment.
Efficient Capital Markets and Portfolio Investment
Credit is allocated on market terms and is made available to foreign investors in a non�'discriminatory fashion. The private sector has access to a variety of credit instruments. Legal, regulatory, and accounting systems are transparent and consistent with international norms.
The Stockholm Stock Exchange is a modern, open, and active forum for domestic and foreign portfolio investment. It is an official institution and operates under specific legislation.
The banking crisis of the early 1990s changed the structure of the banking sector. A large number of savings banks were converted into commercial banks. Several foreign banks have established branch offices, and several niche banks have started to compete in the retail bank market. A deposit guarantee system was introduced in 1996, whereby individuals received protection of up to SEK 250,000 (USD 32,700) of their deposits in case of bank insolvency. This guarantee was increased to SEK 500,000 (USD 65,400) in the fall of 2008 in response to the crisis in the financial systems.
Competition from State-Owned Enterprises (SOE’s)
Private enterprises compete with public enterprises under the same terms and conditions with respect to access to markets, credit, and other business operations.
There are currently 54 state-owned enterprises (SOE’s) in Sweden, 40 of which are fully-owned. These SOE’s employ some 170,000 people. The government has committed to privatizing some of them, but even after the conclusion of that process -- which has been delayed by the financial crisis -- several major actors will remain. Sectors where there are SOE’s include energy/power generation, forestry, mining, finance, telecom, postal services, gambling, and liquor retail sales.
These companies operate under the same laws as private companies, although the government appoints board members representing the owners. Like private companies, SOE’s have appointed boards of directors, and the government is constitutionally prevented from direct involvement in the company’s operations through the ban against direct Ministerial involvement. Like private companies, SOE’s publish their annual reports, and they are subject to independent audit.
There is no sovereign wealth fund in Sweden.
Corporate Social Responsibility (CSR)
There is wide-spread awareness of corporate social responsibility among both producers and consumers in Sweden. Firms who pursue CSR are viewed favorably, and they often publicize their adherence to generally accepted CSR principles such as OECD guidelines.
Sweden is politically stable and no changes are expected.
Sweden has comprehensive laws on corruption, which are fully implemented. It has ratified the 1997 OECD Anti-bribery Convention.
Bilateral Investment Agreements
Sweden has concluded investment protection agreements with the following countries:
Albania, Algeria, Argentina, Belarus, Bolivia, Bosnia and Herzegovina, Bulgaria, Chile, China, Cote d’Ivoire, Croatia, Czech Republic, Ecuador, Egypt, Estonia, Guatemala, Hong Kong, Hungary, India, Indonesia, Kazakhstan, Kirgizstan, Kuwait, Laos, Latvia, Lithuania, Lebanon, Madagascar, Macedonia, Malaysia, Malta, Morocco, Mexico, Mozambique, Montenegro, Oman, Pakistan, Peru, Poland, Republic of Korea, Romania, Russian Federation, Senegal, Serbia, Slovakia, Slovenia, Sri Lanka, South Africa, Tanzania, Thailand, Tunisia, Turkey, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Venezuela, Vietnam and Yemen.
There is a bilateral taxation agreement between the U.S. and Sweden, but no bilateral investment protection agreement.
OPIC and other investment insurance programs
Sweden's labor force of 4.5 million is disciplined, well-educated, and experienced in all modern technologies. About 71% of the workforce belongs to labor unions. Swedish unions have helped to implement business rationalization, and strongly favor employee education and technical progress. Management�'labor cooperation is generally excellent and non�'confrontational.
The cost of doing business in Sweden is generally comparable to most OECD countries, though some country-specific cost advantages are present. Overall salary costs have become increasingly competitive due to relatively modest wage increases over the last decade and a favorable exchange rate. This development is even more pronounced for highly qualified personnel and researchers. The leverage in terms of high productivity and skills is substantial and offers investors good value for money.
There is no fixed minimum wage by legislation. Instead, wages are set by collective bargaining. The traditionally low wage differential has increased in recent years as a result of increased wage setting flexibility at the company level. Still, Swedish unskilled employees are relatively well paid, while well-educated Swedish employees are low-paid compared to those in competitor countries. The average increases in real wages in recent years have been high by historical standards, in large due to price stability. Even so nominal wages in recent years have been slightly above those in competitor countries, about 3% annually. Some U.S. companies have encountered high costs due to the need to pay overtime during non-regular hours regardless of how many hours the employee worked during so-called regular hours.
Employers must pay social security fees of about 38% for workers and 41% for professionals. The fee consists of statutory contributions for pensions, health insurance and other social benefits. For employees under 25, the fee is about 22%.
Sweden has co�'determination legislation, which provides for labor representation on the boards of corporate directors once a company has reached a certain size. This law also requires management to negotiate with the appropriate union or unions prior to implementing certain major changes in company activities. It calls for a company to furnish information on many aspects of its economic status to labor representatives. But in the end, management has the final say. Labor and management usually find this system works to both sides' benefit.
Sweden has ratified most International Labor Organization (ILO) conventions dealing with workers rights, freedom of association, collective bargaining, and the major working conditions and occupational safety and health conventions.
Foreign Trade Zones/Free Ports
Sweden has foreign trade zones with bonded warehouses in the ports of Stockholm, Goteborg, Malmo, and Jonkoping. Goods may be stored for an unlimited time in these zones without customs clearance, but they may not be consumed or sold on a retail basis. Permission may be granted to use these goods as materials for industrial operations within a free trade zone. The same tax and labor laws apply to foreign trade zones as to other workplaces in Sweden.
Foreign Direct Investment Statistics
Foreign Direct Investments abroad resulted in an outflow of SEK 205.5 billion ($28.86 billion) during the first three quarters of 2009, compared to SEK 159.9 ($20.9 billion) during the first three quarters of 2008. Foreign Investments in Sweden during the equivalent quarters of 2009 resulted in an inflow of SEK 90 billion ($12.64 billion), and in the first three quarters of 2008 SEK 203.8 billion ($26.64 billion). All taken together, hence a net direct investment outflow of SEK 115.5 billion ($15 billion) in the first three quarters of 2009.
Table I: Flow of FDI into Sweden (SEK Million)
A positive value indicates that investment is larger than disinvestment. (Note – figures for 2009 are 1-3 Q)
|Selection of countries
|Percentage of GDP
Source: National Board of Trade
Table II: Stock of FDI in Sweden (SEK Billion)
|Selection of countries
|The Nordic countries
|Percentage of GDP
Source: Statistics Sweden
Table III: Flow of Swedish FDI abroad (SEK Million)
A negative value indicates a net out-flow from Sweden (Note – figures for 2009 are 1-3 Q)
|Selection of countries
|Percentage of GDP
Source: National Board of Trade
Table IV: Swedish Stock of FDI Abroad (SEK Billion)
|Selection of countries
|The Nordic countries
|Percentage of GDP
Source: Statistics Sweden
Major Foreign Investors
Major foreign investment in the past few years has been in the chemical and pharmaceutical industry, as well as in the energy and automotive sectors. Other sectors that figure prominently are the IT-sector, consulting services, staffing services, and the defense industry. Major U.S. investors, in terms of number of employees in Sweden, include: Manpower, IBM Corporation, McDonald’s, Hewlett Packard, and Lear Corporation.