Are you a foreign company with employees in Sweden, hiring out foreign personnel to a Swedish company or posting employees for temporary work in Sweden? This article will help you sort out the payroll obligations as a foreign employer in Sweden.
Sweden recently introduced a so-called "economic employer concept" which affects how people who work temporarily in Sweden are taxed.
The rules effective from January 2021 also means that foreign companies that conduct certain activities in Sweden must make tax deductions and are covered by the rules for registration, F-tax and the obligation to provide information in a similar way as Swedish companies. Thus, foreign companies, similar to Swedish companies, must perform a monthly payroll reporting under certain circumstances.
In this article we will go through the obligations for foreign companies in Sweden from a payroll and reporting perspective.
What does "economic employer concept" mean?
Economic employer concept means that the company that pays the employee's salary is not necessarily considered to be the employer. What determines whether the employee should be taxed and where is rather who he performs the work for, i.e. which company gains from the work performed by the employee. Prior to this change, foreign companies hiring out personnel to Swedish companies on a temporary assignment could exempt income from taxation in Sweden under certain circumstances. An employee hired from a foreign company that did not have a permanent establishment in Sweden and whose stay did not exceed 183 days during a twelve-month period could be exempted from taxation in Sweden, unlike an employee who is employed by a company in Sweden. The new rules entail that more foreign workers who work temporarily in Sweden will be taxable here.
The new rules entail that more foreign workers who work temporarily in Sweden will be taxable here.
Since January 2021, if the receiving company in a hire situation (a Swedish company) is deemed to be the economic employer, it is no longer possible to exempt the income from taxation in Sweden. The 183-day-rule however still applies if the work in Sweden is performed for a company without a Permanent Establishment in Sweden, there is no economic employer in Sweden and the employee does not spend more than 183 days in Sweden. Please be observant however, even if the employee does not spend more than 183 days in Sweden, he may still be considered tax resident in Sweden if he stays in Sweden for more than six months in Sweden during a twelve-month period. This will entail reporting obligations in Sweden for the foreign company on a monthly basis even if there is no tax withholding requirement. Separate applications need to be filed with the Tax Agency for an adjustment of the tax withholding.
If an employee is hired out or made available to perform work in a business in Sweden, tax liability for earned income may arise from the first day of work. According to the new rules, the economic employer concept shall not be applied for shorter working periods of a maximum of 15 consecutive working days, and a total of a maximum of 45 working days during a calendar year.
The formal employer, i.e. the foreign company, must register as an employer in Sweden and withhold a preliminary tax of 30% and possibly pay social security contributions on a monthly basis.
The new rules also affect foreign companies with employees in Sweden where there is no receiving company in Sweden, for example employees who is working remotely from Sweden.
What factors determine whether there is an economic employer in Sweden?
The countries that have applied the economic employer concept in the past have slightly different ways of assessing whether there is an economic employer in the country. In Sweden, the assessment is made by looking at factors such as: control and management, who is responsible for work tools and materials, decides on work schedule and holidays, and whether the cost of the employee's salary is invoiced from the formal employer to where the work is performed in Sweden.
Who is responsible to be compliant with the new rules?
The new rules place higher demands on employers to have a process for identifying which employees are in Sweden and how much time is spent here.
In addition to the introduction of the concept of economic employer, the new regulation entails the following responsibilities:
• Obligation for Swedish companies to check whether the foreign company hired for work in Sweden is registered with the Swedish Tax Agency and approved for F-tax. If the company is not approved for F-tax, the Swedish company (the payer) is obliged to make a tax deduction of 30 percent on the payment. This must be reported via the Swedish company's AGI (employer paye tax return at individual level).
• Foreign companies that conduct certain activities in Sweden must provide special information for assessing their tax liability in Sweden. This information must be submitted annually to the Swedish Tax Agency at the same time as a Swedish company or a foreign company with a permanent establishment submits its annual income tax return. This gives the Swedish Tax Agency the opportunity to annually analyze a foreign company's activity in Sweden in order to decide whether there is a permanent establishment in Sweden or not.
Does your company need assistance with payroll in Sweden? Our experts can help!
We understand that the rules may be complex and as a foreign company it is not easy to keep track of all the requirements and obligations a foreign company might have in Sweden.
We can assist with registrations, calculation of taxable income, preliminary tax withholding, social security contributions and reporting towards the authorities in Sweden.
Our team at Expatriate Payroll can help you with everything you need in relation to registering the company as employer in Sweden, monthly payroll management and reporting in Sweden. Our team holds together over 25 years of experience within global mobility, tax and expatriate payroll and can provide advice on employer and employee obligations.
We have great experience in helping foreign companies registering in Sweden and all other obligations in order to be compliant, run a payroll smoothly and help their employees adjust to the Swedish tax system. We assist with assessing the tax status of the company’s employees, taxable compensation in Sweden, convert foreign net salaries to Swedish gross salaries through net to gross calculations, perform calculation of preliminary tax and employer contributions and prepare and/or make the reporting to the Swedish Tax Agency. We also advice on and assist with required and possible applications to be filed with the Tax Authority.
If you want help with getting processes and routines for managing your expatriates or employees in Sweden, we will help you with that as well.
We are happy to get in touch with you to tell you more about us, our services and how we can help you!