Economic Employer Concept
Due to new rules, the threshold for becoming tax liable has been lowered for foreign employees who are temporarily working in Sweden. Moreover, the reporting obligation for foreign employers has increased as well as the exposure in view of corporate tax liability.
Up until 1 January 2021, Sweden applied a formal employer concept. Employees with limited tax liability employed by a foreign company without a permanent establishment in Sweden would not be taxed for work performed in Sweden, provided their stay did not exceed 183 days over a twelve-month period. Today, under this new legislation, this same employee could be taxed in Sweden if the work benefits a Swedish company or a Swedish permanent establishment. Work benefits a Swedish entity if the employee is made available to perform work in Sweden and is under the management and control of the Swedish entity. Foreign short-time workers in Sweden may however be exempt from Swedish tax liability if the work is executed for a maximum of 15 consecutive days and the total workdays in Sweden do not exceed 45 days in a calendar year.
It should be noted that these new rules also cover arrangements where the costs for an employee are invoiced by the foreign formal employer to a company within the same group that conducts business in Sweden. When determining the economic employer, the financial terms between such group companies are one of the many factors that are considered. Often, the company which in the end bears the majority of the employer’s costs is considered to be the economic employer. Therefore, internal group relationships should be reviewed, as these relations may be affected by the new rules.
These rules further entail that foreign companies without a Swedish permanent establishment will be responsible to deduct and report Swedish tax on the remuneration paid for work performed in Sweden. Thus, the foreign company must register as an employer in Sweden. There will be no option to transfer this responsibility to a Swedish entity. Moreover, upon request, such a foreign company must provide specific information to the Swedish Tax Agency (STA) so that the STA can determine the company’s tax liability in Sweden.
Expanded obligations for making tax deductions
As of January 2021, new rules obligate Swedish companies to make tax deductions of 30 per cent on payments to foreign companies for work performed in Sweden. If the foreign company is not subject to Swedish taxation, the STA will reimburse the tax withheld at source once the company’s tax liability and final tax has been determined. This can take some time, and to avoid such a situation the foreign company has three options:
- apply for approval for Swedish F-tax,
- request a decision on the exemption from tax deductions or
- apply for a special calculation basis or for early repayment.
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