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09STOCKHOLM34 16 January 2009 No clasificado Embassy Stockholm

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P 161213Z JAN 09




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REF: 08 STATE 119784




General Conditions

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 and foreign investment. 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. The Swedish growth rate is in the EU’s upper range;
trade is at record levels; and there is an international confidence
in the long-term viability of the Swedish economy.

The General Government Attitude Toward Foreign Direct

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 is state
assets during the time period 2007-2010 to further stimulate growth
and raise revenue to pay down the federal debt. To date, the
Swedish government has 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. The ongoing financial crisis
may require some deals to be postponed, but aside from that,
privatization should continue. Sweden is also seeking ways to
ensure wider ownership in Swedish industry, which it believes will
increase competition and lead to greater efficiency. As a result,
foreign ownership in Sweden has increased rapidly in the last
decade. Approximately 50% of them 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 industries. Foreign ownerships are
dominated by other EU countries.

The Swedish Moderate Party-led coalition government elected in
September 2006 has pursued a macroeconomic policy that is favorable
to the business sector. In a 2003 public referendum on whether or
not to joint eh European Monetary Union (EMU), a majority voted for
Sweden to remain outside the monetary union. In 2008, public opinion
shifted somewhat and a majority of Swedes viewed the Euro positively
for the first time ever. However, Sweden is not likely to join the
Euro area in the next three years.

Conditions for doing business in Sweden have improved under the
Moderate Party-led coalition government that was 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, with a major share of both consumers and
economic activities. 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,
the devaluation of the Swedish krona in 1992 and the country’s entry
into the European Union 1995. As an example, the number of foreign
subsidiaries in Sweden has 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.

The value of Swedish holdings of international portfolio shares
decreased during the first six months 2008 by nearly SEK 333 billion
($50.5 billion) to SEK 1,514 billion ($230 billion). It should be
noted that Swedes continued to purchase foreign shares for the
equivalent of SEK 46 billion ($7 billion) during the period. (Note:
The U.S. Federal Reserve 2008 average exchange rate of $1 = SEK 6.6
has been used throughout this document. End Note).
Foreign holdings of Swedish portfolio shares decreased in value by
approximately SEK 344 billion ($52.1 billion) to SEK 965 billion
($146.2 billion) during this period. Aside from the fall of the
Swedish stock exchange, the decrease was due to foreign investors
also selling Swedish shares for approximately SEK 10 billion ($1.5
billion) during the first half of the year.

In 2008, foreign companies in Sweden employ about 570,000 employees.
About 1,300 U.S. companies with 110,000 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 (around
20% of the work force employed by foreign-owned firms and the trend
is rising) among foreign-owned companies in Sweden.

Surveys conducted by investors in recent years ranking the
investment climate in Sweden show rather uniform results: positives
mentioned are competent employees, 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 the overall high costs in Sweden.

Financial Crisis

Although conditions in Sweden are better than in many other
countries, Sweden and Swedish banks have been affected to an
increasing extent by not having access to long-term funding.
Sweden has not been affected by the ongoing financial crisis to the
same extent as the U.S., since Swedish banks have been more
restrictive with loans because of the lesson learned from the
financial crisis in Sweden 1990-1994. The design of the U.S. rescue
package was allegedly inspired by the Swedish "Bank Emergency" from
the 1990s.

However, the global economic downturn will have significant effects
on the real economy in Sweden. GDP is predicted to decrease by
almost 1% in 2009. Inflation was 2.5% in November 2008, but had
climbed as high as 4% in fall 2008. The government is expected to
propose further fiscal policy measures to stimulate the economy, and
the Central Bank will lower the repo rate to 1%. Unemployment, which
was 6.2% in October 2008, is expected to rise sharply in the next
two years.

The exposure of Swedish banks to financial turbulence in the Baltic
states is of particular concern, although Central Bank Governor
Stefan Ingves is confident in the Swedish banking sector. Ingves
commented that Swedish banks are sufficiently strong to be able to
manage increasing credit losses in the region.

Sweden’s economy is set to resume its growth trend in 2010 as the
ongoing financial crisis tails off in 2009, according to a new
prognosis from Sweden’s central bank. Inflation is expected to
continue to drop during 2009. Swedish Central Bank forecasts, and
those of most other experts, indicate that growth will recover in
2010 but inflation will increase.

In October 2008, Sweden joined other European countries in taking
steps to stabilize its financial system by guaranteeing up to $205
billion of new bank borrowing and creating a fund to take direct
stakes in banks. The state deposit insurance was doubled to include
savings of up to $61,600 per customer and bank. During the period
July 2007 to October 2008, the Stockholm Stock Exchange index OMXS30
fell by 57.8%. The Swedish krona has dropped sharply in value both
against the dollar and euro. The auto industry (Volvo has announced
that 5,200 people in Sweden may be laid off) and its subcontractors
and the construction sector are predicted to be most affected.

Sweden’s total net International Investment Position (IIP) showed a
net debt of SEK 321 billion ($48.7 billion) at the end of June 2008.
The net debt has thus increased by SEK 112 billion ($17 billion)
compared with the end of the year 2007. Debt increased from 7 to 9%
when calculated as a percentage of GDP.

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
pharmaceuticals and alcoholic beverages.

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 area
has been tax reductions to encourage employers to hire long-term
unemployed people. The additional cuts for personal income taxes
initiated by the conservative government entered into force in 2008
and were followed by an additional step in January 2009.
Expectations are that the taxes will stay at this level during the
year and will not increase or decrease because of the financial

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 his or her 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.

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.

Stock options: There is no exit taxation and no specific rules
regarding the tax 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 U.S.

A.2. 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.

A.3. 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.

A.4. Dispute Settlement

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.

A.5. Performance Requirements/Incentives

Sweden imposes no performance requirements on presumptive foreign

A.6. 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.

A.7. 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 has, however,
to deal with a serious internet piracy problem. The Parliament is
expected to pass a bill which will implement EU’s Intellectual
Property Rights Enforcement Directive (IPRED) 2004/48/EC. The new
law is expected to enter into force on April 1, 2009. Industry in
Sweden and abroad state that this legislative measure will be
insufficient to come to terms with the piracy problem. They argue
that the Swedish government should also allocate additional
enforcement resources to address it.

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.

A.8. 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.

A.9. 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

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 balance sheet total of Sweden’s banking sector increased
dramatically during 2008, but the expanded balance sheet items have
not increased the revenue risk in the bank sector.

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
($37,900) of their deposits in case of bank insolvency. As
mentioned earlier, this guarantee was doubled in fall 2008 in
response to the crisis in the financial systems.

A.10. Political Violence

Sweden is politically stable and no changes are expected.

A.11. Corruption

Sweden has comprehensive laws on corruption, which are fully
implemented. It has ratified the 1997 OECD Anti-bribery

B. 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.

C. Labor

Sweden’s labor force of 4.5 million is disciplined, well- educated,
and experienced in all modern technologies. About 80% 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 year 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 other professions. 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 ILO conventions dealing with workers
rights, freedom of association, collective bargaining, and the major
working conditions and occupational safety and health conventions.

D. 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.

E. Statistics

In the first half of 2008, there was a surplus of SEK 13.4 billion
($2.1 billion) in the current account balance, compared with the
corresponding period last year. The trade balance improved by SEK
2.5 billion ($378.8 million) to a surplus of SEK 71.2 billion ($10.8
billion), and the service balance deteriorated by SEK 4.5 billion
($681.8 million), yielding a surplus at SEK 49.5 billion ($7.5

Total Swedish merchandise exports increased in value by 10% and 7%
in volume, in the first half of 2008. Medicines, iron ore and cars
declined in volume, while paper pulp, oil products,
telecommunications, food and trucks increased in volume.

Foreign Direct Investment Statistics

Direct investment abroad resulted in an outflow of SEK 171.4 billion
($25.9 billion) during first half of 2008. Foreign investment in
Sweden resulted in an inflow of SEK 131.2 billion ($19.8 billion)
thus a net direct investment outflow of SEK 40.2 billion ($6.1

Table I: Flow of FDI into Sweden (SEK Million)

A positive value indicates that investment is larger than
disinvestment. (Note - figures for 2008 are until September)

Selection of countries 2006 2007 2008

---- ---- ----
EU15 64,675 64,495 84,692
EU27 73,856 63,022 84,089
United States 73,806 -3,358 -4,009

Total 177,406 168,599 131,407

Source: National Board of Trade

Table II: Stock of FDI in Sweden (SEK Billion)

Selection of countries 2004 2005 2006

---- ---- ----
OECD 1,267 1,297 1,482
EU 877 899 1,073
United States 256 247 225

The Nordic countries 282 293 345

Total 1,302 1,363 1,552

Source: Statistics Sweden

Table III: Swedish Stock of FDI Abroad (SEK Billion)

Selection of countries 2004 2005 2006

---- ---- ----
OECD 1,291 1,479 1,584
EU 917 1,058 1,200
United States 214 246 216
The Nordic countries 428 506 543

Total 1,379 1,625 1,760

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: Volvo Car Corporation (Ford), Manpower, SAAB
Automobile (General Motors), IBM Corporation, McDonald’s, Hewlett
Packard and Lear Corporation.


In Swedish public debate there is sometimes a tendency to fear
foreign ownership, but surveys show that foreign companies have in
general been beneficial to the Swedish economy and employment
market, since multinational corporations usually pay higher