Setting up business in the Baltic/Eastern Europe versus Sweden/Scandinavia regarding authorities and bureaucracy:
Scandinavia/Sweden |
The Baltics/Eastern Europe |
– Collected application to few authorities |
– Several applications to various authorities |
– Special licences, permissions very unusual |
– Special licences often required |
– High minimum investment for limited company |
– Low minimum investment for limited company |
– MD responsible for accounting records |
– Bookkeeper personally responsible |
– Bookkeeper/accountant secondary |
– Bookkeeper/accountant primary |
– Does not matter what tax office you belong to |
– Important what tax office you belong to, some more tricky to deal with |
– No need to visit a notary public |
– Several visits with notary public to register |
No big difference in how fast you can register a company in Eastern Europe compared to Scandinavia. In both areas it takes a month or two to establish a limited company. Somewhat more paperwork in the East.
Contacts with authorities:
Scandinavia/Sweden |
The Baltics/ Eastern Europe |
– Most of it can be done on-line, by telephone and mail |
– Presence required as well as paper stamps (change under way) |
– Little use for stamps, authorizations and attests |
– The other way around in Eastern Europe |
– Tax authorities understanding with minor errors |
– Inflexible tax authorities |
– VAT and other tax refunds work relatively well |
– Struggle for return of surplus tax or deduct from future taxes |
– Small risk for tax field audit |
– Larger risk for tax field audit |
– Small risk for unfair tax field audit |
– Larger risk for unfair tax field audit |
– Authorities rarely picky |
– Authorities always picky |
The key to a successful business expansion in Eastern Europe is probably a good accountant/bookkeeper with contacts and experience. It is also important to choose a good tax office. In Sweden these choices are not as critical for business development. Legislation in several East European countries is based on the preconception that all entrepreneurs are tax dodgers with illicit business. In some Baltic and East European countries, each minor expense has to be verified by a receipt with complete information about the company’s registration number, address etc. In many purchase and sale situations you cannot invoice without a valid agreement translated into the local language. Should you overbill or undercharge because of a complaint or a supplement order, you will be automatically suspected of fraud if you don’t file a written explanation together with the credit invoice. Unfortunately, you cannot always trust the tax authorities in most East European countries. (I mean a small part of their personnel and some corruption. You never know exactly for what purpose they are auditing your company.)
Norwegian and French tax authorities, for example, can be overactive and picky but rarely corrupt. I have watched closely how “bought” tax audits have been conducted at totally legit companies in Riga. This is how it happens: a competitor “tips off” about suspected illegitimate business. The tax authorities/fiscal police make a raid and confiscate accounting material for some time to create disorder. If you hire a lawyer, they will dismiss the case after a while. However, this is not very common these days in Latvia or in the rest of the Baltic countries.
Overall, I am happy with how the authorities have treated my company in Latvia. The tax authorities, however, are asking for preliminary profits tax based on last year’s profit despite logic reasons for the current year’s changed profit levels. If you accept a complete tax audit (risking unfair fines), you may get a reduction of preliminary profits tax payments.
As a private individual, I have been correctly taxed and treated well by the tax authorities in Latvia. A while ago, I got a smile and assistance in correcting a small error in my tax return.
To compensate for the somewhat larger Baltic bureaucracy, tax levels are not as high in the Baltics/Eastern Europe and are generally lower than in all Scandinavian countries. In certain countries the social taxes are as high as in Sweden, for example the employment tax. When speaking about taxes and authorities, it is hard to generalise between countries. You have to examine your own situation in detail and make the best of it. The Baltic countries as well as the entire EU have its varieties…
For you, dear Baltic enthusiasts, I am pleased to inform you that I will shortly return with part 4 of this chronicle. It will include comparisons between Scandinavia and the Baltic countries in the job market, employments and bank services.
This chronicle is dedicated to all Baltic/Eastern Europe enthusiasts in Sweden and abroad.
Part 1 of "Stories of a Baltic veteran" >>
Part 2 of "Stories of a Baltic veteran" >>
Jacob Lalander, business administration graduate, with 14 years in the Baltic countries and Eastern Europe. He runs a consulting company for purchasing and acts as contact agent in both directions Scandinavia/the Baltics/Eastern Europe in the construction industry and other industries. Apart from English, Jacob also speaks fluent Latvian and decent Russian.
In part 2 as well as in this part and the next, these are excerpts from my lectures at the EC Education in Stockholm, course for Logistics and Trade with Eastern Europe, spring of 2007.