At Azets, we’re often asked what the difference is between having a subsidiary in Sweden compared with conducting business via a branch office. In this article, we explain the differences.
A foreign principal can conduct business in Sweden by way of a limited company or a branch office. A branch office is not a legal entity but an extension of its principal (a foreign company) even if the branch office has its own company registration number. The financing of a branch office is made directly via its principal, unlike a limited company, which has its own equity. This means that the principal is responsible for all obligations arising out of the branch office. For those who conduct business by way of a limited company, the risk (in theory) is limited to the invested share capital.
A limited company needs articles of association describing the activities that are to be conducted and in which forms, etc. This is not required for a branch office but it is regulated in the notification made when the branch office is registered.
Accounting and tax rules
The accounting and tax requirements are largely the same for both types of company. Both a branch office and a limited company are subject to the Swedish Book-keeping Act (BFL), the Swedish Annual Accounts Act (ÅRL), and the Swedish Income Tax Act (IL), among others. The limited company must have its own accounts, while the branch office’s accounts can be part of the principal’s, provided that they are clearly separable. All accounting material for both types of company must be stored in Sweden.
Board and CEO
A limited company must have a board of directors in accordance with what is stated in its articles of association. The board may consist of one or more members, but if only one board member is appointed, there must also be at least one deputy. There are also special requirements in respect of residence in the EEA for the board and signatories of a Swedish limited company. A limited company must sometimes, but not always, appoint a CEO. The same residency requirements apply for the CEO as for the board members.
Unlike a limited company, a branch office must always appoint a CEO.
Annual accounts and annual report
The rules on what branch offices must submit and how are outlined in the table below. These rules apply regardless of whether the branch office or company is dormant or operating.
|Type of branch office||Closing of the branch office’s accounts||Must the branch office’s annual accounts be submitted?||Must the foreign company’s annual accounts be submitted?|
|Branch offices of companies in the EEA that are comparable to a limited company||Annual accounts or annual report||Not mandatory||Yes|
|Branch offices of companies in the EEA that are not comparable to a limited company||Annual report without confirmation certificate||Yes||Yes|
|Branch offices of companies outside the EEA||Annual report without confirmation certificate||Yes||Yes|
After the end of the financial year, a limited company must always submit an annual report to the Swedish Companies Registration Office. If the owner is a foreign company, it is sufficient for the limited company to refer to where the parent company’s annual report can be found online. An annual report must always be submitted for large companies and branch offices. Large companies are those that meet at least two of the following criteria (the same two criteria) at least two years in a row:
- Average number of employees > 50
- Balance sheet total > SEK 40 million
- Net sales > SEK 80 million
Permanent place of business
A branch office must have a permanent place of business in Sweden. This is not required for a limited company. The rules on a permanent establishment and when these are assumed to have been met are complicated, but according to the main rule, all of the following must be met:
- there is a designated place for business activities
- the location is used permanently
- business activities are conducted in whole or in part from the location
What should you choose?
Unfortunately there’s no simple answer to whether it’s best to choose a limited company or a branch office as circumstances vary from business to business. Whatever you decide, Azets can help. Get in touch and tell us more about your plans so we can help you get started.