Sweden jumped two places ahead of its ranking last year and remained the top Nordic country, with Finland seventh, Denmark ninth, Norway 14th and Iceland 31st. The US slipped to fourth from second, while the UK came in 12th.
"The country benefits from the world's most transparent and efficient public institutions, with very low levels of corruption and undue influence and a government that is considered to be one of the most efficient in the world," the report wrote.
Sweden's strong auditing and reporting standards and focus on education have developed a sophisticated business culture, the report added.
The rankings are calculated from both publicly available data and the executive opinion survey, a comprehensive annual survey conducted by the WEF together with its network of partner institutes.
The newest survey has expanded to include 139 countries from the previous 133.
Under the institutions indicator, Sweden topped the rankings in intellectual property protection, efficiency of legal framework in challenging regulations, ethical behaviour of firms, efficacy of corporate boards and protection of minority shareholders' interests.
Other areas where Sweden excelled included the quality of its overall infrastructure, quality of railroad infrastructure and effectiveness of anti-monopoly policy.
In terms of IT and planning, Sweden was praised for the availability of the latest technologies, broadband internet subscriptions, willingness to delegate authority and company spending on R&D.
Areas cited as the most problematic for doing business included restrictive labour regulations, tax rates, tax regulations, access to financing and inadequate supply of infrastructure.