Typical due diligence issues
Due diligence in Sweden is typically fairly narrowly scoped, with a focus mainly on identifying findings of some materiality. Due diligence reports are generally limited to material issues and practical matters that need to be handled in connection with the transaction, and are not very descriptive, unless requested by the buyer. Experienced buyers may request that the due diligence report also focus on matters of importance for the post-closing integration.
The focus areas of the due diligence depend on the nature of the target's business. In recent years, trade compliance, privacy, anti-bribery, information security and related matters have risen in prominence due to an increased focus on compliance in general.
Pricing and payment
No independent appraisal report to support the valuation of the target company is required in a share deal or asset deal. Buyers typically rely on their internal valuations.
Wire transfers of funds are common and wire transfers through the SWIFT Code international system are also common.
There are no foreign exchange control restrictions or other approvals required to transfer funds into Sweden.
Signing/closing
Share sale
Whether signing and closing is simultaneous depends on whether there are conditions that must be satisfied, including regulatory approvals (e.g., merger control or FDI approval), divestments of certain parts of the target entity, third-party consents/waivers, drawdown of funds or the resolution of issues discovered during due diligence. Simultaneous signing/closing is common where there are no such conditions to consider.
Asset sale
Simultaneous signing/closing is also common in asset sales where there are no conditions that will delay closing to take into account. However, the need to get counterparty consent to the transfer of contracts will, in most cases, occasion a bifurcated signing and closing.
A local acquisition vehicle company may be set up in Sweden in a matter of days. Tax registration may take four to eight weeks, but the company may start operations upon filing the tax registration application. No general business licenses are required. In some cases, the company may require industry-specific permits and/or licenses.
Foreign investment restrictions
Sweden has a foreign investment screening procedure in place. The reviewing authority is the Inspectorate of Strategic Products (Inspektionen för Strategiska Produkter (ISP)).
For further information, see the more detailed section on "Foreign investment restrictions".
Antitrust/merger control
Sweden has a mandatory and suspensory merger control regime, which means that transactions that meet the relevant criteria need to be notified to the competition authority and cleared before they can be completed.
It is also necessary to consider EU merger control rules. Mergers involving companies active in several EU member states and reaching certain turnover thresholds are examined at EU level by the European Commission. This allows companies trading in different EU member states to obtain clearance for their mergers in one go. For further information, see the more detailed section on "Antitrust/merger control".
EU Foreign Subsidies Regulation
As of 12 October 2023, the EU Foreign Subsidies Regulation (FSR) requires qualifying transactions and bids in response to certain large public tenders in the EU to be notified for upfront clearance by the European Commission where the companies involved have benefited from foreign financial contributions (a broad concept) that exceed certain (low) thresholds. Acquisitions of a target with annual revenues in the EU of at least EUR 500 million will trigger FSR deal notifications. Acquisitions of smaller targets will not, regardless of deal value. Outright mergers and large joint ventures will trigger a notification requirement if the EUR 500 million EU-wide revenue threshold is met by one of the merging parties or the joint venture.
Other regulatory or government approvals
In general, the sale of shares or assets of a Swedish company does not require other regulatory or government approvals. In some fairly rare cases, the company may require industry-specific regulatory or government approvals.
Share sale
In a share sale/acquisition, the employment conditions of the employees of the target company generally remain unchanged, unless otherwise proposed and agreed, as the employer remains the same. In share transfers, the target company is normally not obligated to consult on the share sale/acquisition as such with any union. However, if the ultimate seller is bound by a Swedish collective bargaining agreement (CBA), the seller may be obliged to consult any unions that are parties to the CBA, if the transaction would entail a substantial change to the seller's business.
Similarly, if the transaction would entail a substantial change to the working or employment terms and conditions of any employees who are members of any of those unions, the relevant unions may also need to be consulted. Union consultation obligations may also apply in the absence of a CBA.
Asset sale
In an asset transfer, Sweden has implemented EU Directive 2001/23/EC on the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses. This means that on the transfer of an undertaking or a division/merger of an undertaking, the employees are entitled to transfer to the buyer. The transferred employees have the right to transfer on unchanged terms and conditions of employment, or on terms and conditions as similar as possible. The only change is that the buyer is the new employer under the contracts of employment.
In Sweden, an employee may object to being transferred to a new employer. If an employee refuses to transfer, the employee will remain employed with the seller but may then be at risk of being terminated due to redundancy, subject to due process and the applicable statutory requirements.
If there is a CBA in place, the seller is obliged to consult with the unions parties to it, or, in the absence of any CBA, with any union that has members among the impacted staff, about the pending decision to transfer the business. The unions cannot veto the employer's decision, but are merely entitled to be consulted before the decision is made. If the consultation is not concluded properly, the employer will be liable for damages to the unions.
If the buyer has no CBA, it will be bound by the CBA of the seller upon the transfer. This could be avoided if the seller terminates the CBA prior to the transfer. Some provisions of the CBA will remain for an interim period.
The statutory corporate income tax rate in Sweden is 20.6%.
No stamp tax or other similar taxes or charges are payable in connection with the execution, delivery, performance or enforcement of a share acquisition.
Stamp duty is only payable on the transfer of real property if the real property is sold as an asset.
Sweden levies withholding tax on dividends. The statutory withholding tax rate is 30% if the dividend is paid to recipients that are not subject to tax in Sweden.
Dividends are, however, often exempt from Swedish withholding tax, or subject to a reduced rate of withholding tax, by virtue of applicable tax treaties and exempt by way of an available reclaim mechanism in several situations, for example, if the holding criteria in the Parent-Subsidiary Directive are met.
No withholding tax is levied on interest payments and Sweden has no formal thin capitalization rules in place. Interest expenses are subject to certain restrictions prohibiting deduction when interest is paid to a non-cooperative jurisdiction or when the negative net interest exceeds 30% of EBITDA, unless the exemption for interest amount not exceeding SEK 5 million applies. Interest expenses relating to debts provided by other group companies may, however, only be deducted if certain criteria are met, for example, the recipient of the interest is taxed at least 10% and the main reason for the debt is not for the group to receive a tax benefit. For such companies within the EEA, lower requirements are set, for example, interest expenses may be deducted if the company within the group of companies that is actually entitled to the income corresponding to the interest expense is domiciled in another state within the EEA, provided that the debt relationship is not part of an artificial arrangement whose purpose is for the community of interests to receive a significant tax benefit. In such case, the interest expenses may not be deducted in whole or in part. These rules are very complex and a proper debt analysis should be conducted before any debt pushdown or other intragroup lending. Interest income will be subject to corporate income tax at statutory rates.
No withholding tax on royalties is applicable. However, unless exempt in accordance with a tax treaty or the EU Interest and Royalty Directive, foreign recipients of royalties paid by Swedish companies are deemed to have a permanent establishment in Sweden from which the royalty is considered to be paid. The royalty payments are taxed as income from the permanent establishment in Sweden at the ordinary statutory corporate income tax rate of 20.6%.
Foreign shareholders of Swedish companies are not subject to tax on capital gains in Sweden, unless the shares are allocated to a permanent establishment in Sweden. As a consequence of the Swedish participation exemption rules, capital gains from the sale of shares or partnership interests by Swedish companies are exempt from corporate income tax if the sold shares have been held for business reasons. Correspondingly, the acquisition cost is neither deductible nor depreciable. Non-listed shares/interests held as capital assets are always considered held for business reasons. Listed shares/interests held as capital assets are considered held for business reasons if the shares/interests have been held for at least 12 months and the holder controls at least 10% of the votes or holds the shares as a result of the business conducted by the holder or an affiliate of the holder. If shares are held in an EU company, the shareholding also qualifies as holding for business reasons if the holding is at least 10% and the shares are current assets, provided that certain conditions are met.
Sweden has a tax consolidation regime in place. A Swedish parent company owning more than 90% of a subsidiary may provide or receive a group contribution to/from the subsidiary, provided that the ownership has existed during the entire fiscal year of both companies or since the subsidiary started its business, and provided that returns are submitted to the Tax Agency in the same submitting period. Consolidation is also allowed between two subsidiaries.
Tax losses may be carried forward indefinitely. Tax losses carried forward may be transferred with the company, but following a change of control in a company (i.e., when the decisive influence over the company has changed), there may be restrictions on the right to deduct losses. These rules are complex and a proper analysis should be conducted before directly or indirectly acquiring a Swedish company with tax losses.
As a member of the EU, Sweden has implemented the EU VAT directive. Value-added tax (VAT) is levied on the transfer of most goods and the provision of most services. The standard rate is 25%. A transfer of shares is VAT-exempt under the Swedish VAT Act. Sweden also has transfer of going concern (TOGC) rules in place with the effect that the transfer of a well-separated business is out of scope of VAT provided that the recipient intends to continue the business and is able to recover VAT. The VAT exemption, however, does not apply if the recipient is not entitled to deduct input VAT, and it also does not apply if the recipient does not conduct a business that is fully subject to VAT. This applies regardless of whether the transferor has had a right to deduct input VAT in its business or not. This constitutes a change from the previous opinion of the Swedish Tax Agency, where the VAT exemption was considered to be applicable when both the transferor and the recipient lacked such rights.
OECD's Two Pillar Solution
The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting has put forward a so-called Two-Pillar Solution to address the tax challenges arising from the digitalization of the economy. Pillar Two is intended to introduce a global minimum effective rate of tax of 15% for large businesses in each jurisdiction where they operate and will lead to fundamental changes in the international tax system. It is currently being implemented in a large number of jurisdictions.
Groups will need to consider how the Pillar Two rules could impact the life cycle of M&A transactions from the pre-acquisition phase (including transaction planning (such as the choice of acquisition structure and financing) and due diligence of the target group), the acquisition phase (such as contractual risk allocation around Pillar Two) and the post-acquisition phase, including the impact of Pillar Two on any post-acquisition integration.
For information on post-acquisition integration matters, please see our Post-acquisition Integration Handbook.