Under the current Swedish tax legislation, a formal employer concept is used. This means that the assessment of who is considered to be the employer is based on who is actually paying the employee’s salary. When introducing a so-called economic employer concept, several other factors will be taken into account instead, such as who the work is carried out for, who is responsible for the risk and result of the employee, who bears the cost and who gives instructions to the employee.
This will have an effect when determining if foreign employees are tax liable in Sweden for their work performed here. According to the main rule in the Special Income Tax Act for Non-residents (SINK), employees are tax liable in Sweden for work performed here. However, the 183-day rule in the SINK legislation can limit this tax liability if the following conditions are met:
- The employee spends not more than 183 days in Sweden in a 12-month period,
- the remuneration is not paid by or on behalf of an employer who is domiciled in Sweden, and
- the remuneration is not borne by a permanent establishment that the foreign employer has in Sweden.
According to the confirmed legislation, the 183-rule will not be applicable if the employee’s work can be seen as hiring of labor to a Swedish company, i.e. to a Swedish economic employer. Hiring of labor means that an individual is directly or indirectly made available by a foreign employer to perform work in a company’s business in Sweden and the work is performed as an integrated part of that company’s activities and under the Swedish company’s control and management. In these situations, a taxation would then arise from day 1 for foreign employees working temporarily in Sweden.
Exemption when the working days in Sweden are limited
The regulation regarding hiring of labor in the new legislation is not to be applied if the work in Sweden is carried out for a maximum of fifteen consecutive days and for a maximum of 45 days per calendar year. Also, if the 45 days threshold is exceeded, only the exceeding days should be evaluated to determine if the work in Sweden can be seen as hiring of labor. To some extent, this will limit the number of foreign employees who will become tax liable in Sweden.
The legislation will lead to increased reporting obligations in Sweden for foreign employers. Foreign employers without a permanent establishment in Sweden will also be obligated to withhold preliminary tax for its employees, to the extent that the work has been performed in Sweden. The foreign employer paying the salary must then register with the Swedish Tax Agency to be able to file employer PAYE returns, and report and pay the withheld preliminary tax to the Swedish Tax Agency every month.
For examples and further information on how the confirmed legislation is to be applied, please find link below to our previous article.
Additional legislation approved – withholding obligations in no-employment situations
In addition to the new rules introducing the economic employer concept in Sweden, the confirmed legislation as from 1 January 2021 also includes amendments concerning the obligation for Swedish and foreign entities to withhold preliminary tax, and the obligation to provide the Swedish Tax Agency with certain information:
- A Swedish company is obligated to withhold preliminary tax of 30% on payments to foreign companies for work performed in Sweden, unless the foreign company is registered for class F tax.*
- Foreign companies are obligated to withhold preliminary tax of 30% on payments for work performed in Sweden, unless the receiver of the payments is registered for class F tax. In some cases, work outside of Sweden can also be seen as performed here and lead to withholding obligations, if the work has been performed within the payer’s business in Sweden.
- Foreign self-employed individuals and companies without a permanent establishment in Sweden will need to provide the Swedish Tax Agency with information regarding the time spent in Sweden and the nature of the work performed, in order for the Swedish Tax Agency to assess the tax liability. Further information on how to provide this information is not yet available, but it will need to be filed on an annual basis and the deadline will be the same as the deadline for the income tax return.
*When a company is registered for class F tax (i.e. holds a Swedish “F-skattsedel”), it means that the company is registered with the Swedish Tax Agency for business tax purposes.
Next steps
The confirmed changes will lead to more foreign employees being tax liable in Sweden, and foreign employers and companies having Swedish reporting obligations. In order to meet the new requirements, we recommend that foreign employers start reviewing their employees’ travel patterns and work tasks in Sweden in order to determine what employees could create Swedish obligations.
We further recommend for companies to set up a process when self-employed individuals as well as foreign companies are used for work performed in Sweden, in order to be compliant in accordance with the new legislation.
For more information and guidance, please reach out to us.
Read our previous article on this topic: Sweden prepares to tax foreign employees once short-term workers and business travelers return to Sweden (2020-06-23)
Authors:
- Sevim Güven – Partner – People Advisory Services – +46 72 230 95 20
- Marie Liebich – Director – People Advisory Services – +46 72 573 12 40
