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 out the employee’s salary. When introducing a so-called economic employer concept, several other factors will instead be taken into account 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 within the Special Income Tax Act for non-residents (SINK), employees are tax liable in Sweden for their work performed in 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
- The remuneration is not borne by a permanent establishment that the foreign employer has in Sweden
In today’s proposed legislation, above exemption 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 in Sweden for foreign employees working temporarily in Sweden.
However, it has been suggested that some exemptions will apply when it comes to limited working days in Sweden. According to the proposal, the regulation regarding hiring of labor will not apply 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. If the 45 day threshold is exceeded, only the exceeding days will be evaluated to determine if the work in Sweden can be seen as hiring out of labor. This will to some extent limit the number of foreign employees who will become tax liable in Sweden.
Example 1
If a foreign employee is working in Sweden for nine consecutive days during six different stays in Sweden in one calendar year, the five first stays in Sweden will fall under the exemption. The reason for this is that all stays are less than fifteen consecutive days and not more than 45 days during the full calendar year. The sixth stay, however, will need to be evaluated to confirm if the work in Sweden can be seen as hiring out of labor.
Example 2
If the first visit to Sweden in the example above instead would amount to 16 consecutive days, this first stay needs to be evaluated to confirm if the work in Sweden can be seen as hiring out of labor. The first period in Sweden (16 days) should however not be taken into account when calculating the 45 days threshold in the calendar year.
Once a Swedish tax liability has been confirmed according to Swedish domestic legislation, applicable tax treaties should be applied to avoid a double taxation with regards to the temporary work in Sweden. Going forward, Sweden would then use an economic employer concept instead of taking into account who is paying out the salary.
The suggested legislation will lead to increased reporting obligations in Sweden for foreign employers. The Swedish government is proposing that also foreign employers without a permanent establishment in Sweden will be obligated to withhold preliminary tax for its employees, to the extent the work has been performed in Sweden. The foreign employer paying out the salary must then register with the Swedish Tax Agency to be able to file the monthly employer PAYE returns and report and pay the withheld preliminary tax to the Swedish Tax Agency. According to the suggested legislation, the reporting cannot be handled by the entity who is considered as the Swedish economic employer, however, our current legislation enables for a possible Swedish group entity (for example) to assist with the reporting on the foreign employer’s behalf.
Next steps
The proposed legislation will come up for a vote in the Swedish parliament shortly. Our assessment is that the legislation will be approved. The proposed legislation would then be effective as from 1 January 2021.
The suggested changes will lead to more foreign employees being tax liable in Sweden, and foreign employers having Swedish reporting obligations. In order to meet the new requirements, we recommend that foreign employers start reviewing their employees’ travel pattern and work tasks in Sweden in order to determine which employees could create Swedish obligations. The ongoing pandemic, where short-term workers and business travelers into Sweden to a great extent has ceased, creates a great opportunity for foreign employers to prepare for what will come.
Once Swedish employer obligations have been confirmed, the following actions should be taken:
- Necessary registrations with the Swedish Tax Agency
- Establish a monthly PAYE reporting in Sweden
- Tax filing in Sweden for the employees
- Internal process should be established to track workers and business travelers into Sweden
For more information, please reach out to us.
- Sevim Güven – Partner – People Advisory Services – +46 72 230 95 20
- Marie Liebich – Director – People Advisory Services – +46 72 573 12 40
