(Update 2022-11-24 with tax figures for 2023)
One of the most frequent questions we get from aspiring business owners is what company entity or company type to choose. Here are some aspects of and differences between the most common company types in Sweden. In most places I’m using the Swedish terms to avoid “translation confusion”.
Summary of company types
Basically a corporation, however still fairly easy to start up and handle. The aktiebolag is its own legal entity and tax entity. Ownership through shares. Needs a starting share capital of at least 50 kSEK. From year 3 it may need a registered auditor, if it exceeds certain thresholds. Liability is limited to invested capital, assuming compliance with all regulations.
Usually translated as “sole trader” or “sole proprietor”. Not its own legal entity or tax entity. Basically a single individual running a business in his/her own name. No capital or auditor requirements (usually). Unlimited liability for the owner.
In some ways similar to an American LLC with pass-through taxation. Is its own legal entity, but not a tax entity. Income is taxed by the owners. Must have two or more owners. No capital or auditor requirements (usually). Unlimited liability for the owners.
Variation of handelsbolag where at least one owner has unlimited liability, but other owners can limit their liability to invested capital. Apart from this pretty much identical to handelsbolag, and I won’t go into kommanditbolag here.
Comparison of company types
All company types can choose to hire an auditor to audit their books, although normally only some aktiebolags do. Aktiebolags may be required to have a registered auditor after the first two financial years, if they exceed certain thresholds (see below). Theoretically, other company types also have thresholds for auditor requirements, but exceeding these is so rare that I won’t even mention them here.
For aktiebolags, if the company exceeds at least two of the following thresholds for two years in a row (and it has to be the same two), the company needs a registered auditor from the following year on:
- More than 3 employees (average)
- More than 1,5 MSEK in book assets
- More than 3 MSEK in sales/turnover
In other words, all privately held aktiebolags can go without auditor the first two years, and pretty much all one-person aktiebolags never have to hire an auditor. Read more at Bolagsverket.
The cost for an auditor starts somewhere between 6 and 12 kSEK per year, and up from there depending on the company, where you’re located and which auditor you choose.
The only company type that requires invested capital is aktiebolags, that need at least 50 kSEK in share capital.
A common misconception is that the share capital is a cost or that the cash has to be untouched in a bank account, none of which is true. The money can be invested in assets or to finance the company’s activities.
However, what is important is that the share capital isn’t depleted. Exactly what this means is a topic for a separate post. But simply put, the company’s equity consists of share capital, shareholder contributions and profits, less losses and dividends. This should preferably stay above the share capital and, even more preferably :), never below half the share capital.
Worth mentioning is that owners may never borrow money from their aktiebolag, this is forbidden by law.
By liability I mean personal liability for the company’s liabilities (e.g. debts).
Many are drawn to aktiebolags in order to limit their personal liability in case the company gets into financial problems, which of course makes sense. If your company has large fixed costs such as office/store space and staff, it’s wise to consider an aktiebolag for your company. But what does personal liability really mean?
If you have an enskild firma and you can’t pay the company’s bills, a creditor can collect this money from you personally. You have unlimited liability for the company’s debts. For a handelsbolags it works the same way, only that the owners have joint and several liability. This means a creditor can go after one or more of the owners for the whole amount, and the owners then must sort things out between themselves.
An aktiebolag, on the other hand, can go bankrupt without it affecting the owners. The only thing the owners risk is invested capital. However, this assumes you don’t deplete the company’s share capital, and follow all regulations regarding control balance sheets, liquidation etc, lest the company’s board, CEO and even owners may become personally liable for the company’s debts.
Administration & costs
Enskild firma is easy and fast to set up. You don’t have to register with Bolagsverket, and if you still want to do this to protect your company name, it costs 900 SEK.
You do have to register for F-tax and usually VAT with Skatteverket, which is free of charge. You don’t need an auditor and you don’t have to submit an annual report. The only official document to produce at the end of the year is the NE form with your private tax return.
Closing down an enskild firma is really fast and easy – you simply register this online with Skatteverket. Any profits of the current year, as well as any deferred income from previous years, will then be taxed on the current year.
What can be a bit tricky with enskild firma is to keep track of your tax debt and to separate “business money from private money”. You can freely move money between the company and your private account with no tax effects, and taxation is done at a personal level based on your profit for the year.
Countless times have our EF clients asked us “So how much money is actually mine and how much is tax?”, and we go “Weeell, it depends…”.
Aktiebolag is a bit more work. It has to be registered with Bolagsverket which costs 1900 SEK. It also has to be registered with Skatteverket for F-tax and usually VAT, which is free of charge. Some aktiebolags require an auditor, and each year has to be closed with an annual report that is submitted to Bolagsverket, and a shareholder meeting has to be held.
The income tax return for an aktiebolag is however quite easy once the year is closed. Additionally, each owner must include a K10 form with their private tax return (or sometimes a K12 form). The K10 form can be everything from very easy to quite complicated, depending on the situation and on whether you have employees in your business.
Usually you take out salary from your aktiebolag, which means that social fees and withheld tax must be reported and paid monthly, and annual income statements need to be sent in after the end of the calendar year.
The tax situation for an aktiebolag is much easier to understand than for an enskild firma. You can get income from your aktiebolag as salary or dividends, and in both cases the tax situation is quite clear.
Closing down an aktiebolag is actually more work than starting it, and takes about 5-6 months. Usually it’s a better deal to first empty your company and then sell it to a “quick liquidator”, a company specialized in liquidations who will pay you your equity less their fee of around 10 kSEK and up. This takes a few days and then you’re done.
Handelsbolag is like a messy combination between these two. They have to be registered with Bolagsverket at a cost of 900 SEK. The same registration with Skatteverket as the other two is necessary as well as individual registration of each owner. No auditor or annual report necessary.
The handelsbolag submits its own income tax return, which isn’t that scary. However, the N3A form that each owner needs to include with their private tax returns is the stuff of nightmares. Taxation is done similarily to enskild firma, but divided among the multiple owners of the handelsbolag.
Caveat for non-Swedes
A caveat regarding registration with Skatteverket: usually this is quite painless, but for non-Swedes with limited or no “tax history” in Sweden, you may need to acquire certain documentation from the tax authorities in your home country in order to register with Skatteverket. This is mostly with enskild firma and handelsbolag, but may also be required for aktiebolags. It may be a good idea to give Skatteverket a call and check before even starting the registration process, in order to save time.
To summarize, the absolutely simplest company type to start up is enskild firma, while an aktiebolag requires more administration but is on the other hand more clear and understandable.
We touched briefly on taxes in the last section. And let’s do the easiest (sort of) part first.
An aktiebolag is its own tax entity and pays 22% corporate tax (which is about to be lowered starting 2019) on its profits, end of story. If an owner takes out salary, the company withholds tax and pays social fees on this salary directly to Skatteverket, just like with any other employees.
Dividends and capital gains are a bit trickier. Since salaries are taxed much more heavily than capital income in Sweden, especially at higher income levels (due to progressive marginal tax rates), legislators want to stop you from taking out dividends instead of salary, thus avoiding the progressive tax. Basically, they’ve put a cap on how much capital income you can receive from your own aktiebolag, taxed as capital income. Above this cap, it is taxed as salary.
If you’re the only owner of your aktiebolag and this is your only aktiebolag, there’s a fixed amount of 169 125 SEK (2018) you can receive each year. Any unused “allowance” is saved and accumulated for later years. If you are multiple owners, you share this amount. However, if your company pays out salaries above a certain amount per year, this allowance can get much higher. This is where it gets tricky and where you either need to do a deep dive in these regulations, or just hire an accountant.
All in all, the total tax rate on corporate pre-tax profits when taxed with 22% corporate tax and then 20% capital tax on dividends, is 37,6% (the math is: 100 * 0,78 * 0,8). If you instead take out salary, the total tax rate including 31,42% social fees and income tax on salary, amounts to somewhere between 40% and 67%. Note that this is the marginal tax rate – you’ll never pay 67% on your entire income.
Enskild firma and handelsbolag
An enskild firma or a handelsbolag is not its own tax entity. The profits generated during the year are taxed by the owner of an enskild firma or co-owner in a handelsbolag. How much you actually withdraw from the company doesn’t affect your tax. Let’s take that again: Transferring money from your company to yourself doesn’t affect your tax! This is usually a bit difficult to grasp if you come from a salary paradigm, but it’s just a different way of calculating and paying taxes.
From the profit, a deduction for social fees is made and what’s left is your business income (inkomst av näringsverksamhet). This is then added to your salary income in your private income tax return, and taxed with normal income tax and social fees (egenavgifter).
Your total tax rate in an enskild firma or handelsbolag, including social fees and income tax, is somewhere between 40% and 67%, i.e. similar to salary in an aktiebolag.
The tricky part in an enskild firma or handelsbolag is to keep track of your tax debt during the year, which you basically don’t know for sure until the year is closed and you can make a final tax calculation, including all adjustments etc.
Most beneficial for you?
So which one is the most beneficial for you tax-wise? Well, legislators normally strive towards “tax neutrality” between tax entities, but there are some differences.
If we assume a company with no employees and no other significant income for the owners than the business. We also assume all profit is taxed, i.e. we’re not deferring income between years etc.
The state tax threshold was increased quite a bit to 613 900 SEK for 2023, so let’s run a simulation on that. Turns out that up to an annual profit in your EF of around 775 kSEK in 2023 you’re staying below that threshold (after deducting social fees), and thereby paying lower taxes due to EF:s lower social fees. In other words, if you consistently have profits (before salary in an AB) of well over 800 tkr annually, you’re probably better off with an AB, and vice versa.
This is a gross simplification, and does not take into account different running costs for AB vs EF/HB, more detailed aspects of tax regulations or cases where the company has employees or the owner has a more complicated situation. As I said, just a rule of thumb.
Another aspect is that aktiebolag is much better for building up capital. Enskilda firmor can only own business assets (machinery, inventory, cash etc), while aktiebolag can invest in mutual funds, listed or unlisted shares and so on. So if you want your company to be your “piggy bank”, and perhaps not always take out all your profits, aktiebolag is the way to go.
Co-owners and growth companies
An enskild firma can cooperate with another business owner, but in your business you’re always the sole owner. Only handelsbolag and aktiebolag can have multiple owners. In handelsbolag the owners can decide at the end of each year how to divide profits, but it’s difficult to specify different levels of ownership. For a company with multiple owners with varying ownership, and for companies that are growing and might raise external capital, aktiebolag is the only reasonable way to go.
To change your company type
This is also a topic of its own. But briefly, it’s usually not a big problem to change your company type. Usually we’re talking about going from an enskild firma or handelsbolag to an aktiebolag. In practice, what you do is start a new aktiebolag and then sell the entire business from your EF/HB to your new AB. Then there are special rules about pricing, if and how you can transfer deferred income and implicit tax debt and so on. If you want to change company types and this entails anything else than just stopping using the old company and starting using the new one, make sure to do your homework or run the whole thing by an accountant.
Other company types
So what other company types are there? Well, here are a couple:
- Ekonomisk förening (Economic association): suitable for cooperatives and similar associations. Biggest upside is that it’s easy to add or subtract owners/members.
- Enkelt bolag: not really a company type but a way to describe multiple people with enskild firma who work together, e.g. owning real estate together.
- Filial (branch office): meant for international corporations who establish an office in Sweden. If this is not you, stay away. Seriously, don’t buy into any of the sales people trying to get you to register a UK Ltd company with a 1 GBP share capital and a filial in Sweden. Take my word for it.
So what should I do?
If any one of these factors apply to you, you should probably go with an aktiebolag:
- Multiple owners with varying ownership shares
- Fast growing company
- Looking to raise capital in the future
- High risk and/or fixed costs
- External board
- Want to have the company as a “piggy bank” to save capital
- The business is your only salary income and you’ll consistently make pre-tax profits (before your salary) of well over 600 kSEK per year
- You have a full-time job and run the business on the side with decent profits, meaning the only income that makes sense for you tax-wise is dividend income
Conversely, if any one of these factors apply to you, consider an enskild firma:
- You have pre-tax profits of well below 600 kSEK per year and no other substantial salary income
- You’re not sure how long you’ll run your business, but want to “try it out” for a few months
- You have no way of raising the 50 kSEK for share capital right now
And handelsbolag? Well, if you’re multiple people and really don’t want to commit to an aktiebolag (for lack of funds, or not sure how long you’ll be running the business), this might be an option.