When foreign companies take on projects in Sweden, they must navigate a complex landscape of tax and employment regulations. Understanding and adhering to these regulations is essential to avoid penalties and ensure smooth project operations. This guide breaks down the key considerations foreign companies should be aware of when working in Sweden.
This article is the first of three parts on how foreign companies operating in Sweden can navigate Swedish regulations. You find the other articles below:
Part 2: Navigating Swedish Regulations: Throughout Project in Sweden
Part 3: Navigating Swedish Regulations: After Project Completion
Navigating Employer Obligations, Tax and Compliance — Prior to Project Commencement
If you're a foreign company operating projects in Sweden, as either the main supplier or subcontractor, it's crucial to understand specific country regulations to operate in a compliant manner. Sweden has a well-regulated framework for corporate and employee taxes, and non-compliance can lead to significant penalties.
After winning a project and before commencing work in Sweden, it is thereafter crucial to ensure that all key factors are fulfilled to be compliant with local regulations and potential requirements set by the client to work on the project.
Permanent Establishment
If a foreign company sends employees to Sweden for project work or a long-term assignment, it is important to consider whether this creates a permanent establishment (PE) in Sweden. A PE could lead to corporate tax obligations for the company in Sweden, even if the company itself has no fixed place of business or office here. It also has an impact on the level of social security charges you pay.
Economic Employer
Your employees will become tax liable from day one if there is a permanent establishment or if you register a branch or subsidiary in Sweden. Your employees will also become tax liable if there is an economic employer in Sweden. We recommend an assessment to establish whether it is a question of hire of labor, i.e., work for the economic employer, or work for the formal employer. If the receiving company of services in Sweden (a company tax liable for business income) is deemed to be the economic employer, it affects for example the possibility to apply the 183-day rule.
Registration and Requirements
F-tax Registration
Depending on the tax implications of your presence in Sweden, it may be necessary to register for corporate tax/F-tax with the Swedish Tax Agency. Registration for F-tax is particularly important when selling services within Sweden, as it ensures that the purchaser is not required to withhold tax on payments made for those services. It should also be noted that if you provide services to the building sector and your employees need an ID06 (the most common id card for electronical personnel ledgers) the F-tax registration is needed for this purpose as well.
VAT
An obligation to register for VAT in Sweden can arise for a foreign company even if the company does not have a permanent establishment in Sweden, for instance, a company that transfers its own goods from another EU member state to Sweden is obliged to register for VAT in Sweden.
Collective Bargaining Agreements
Sweden has strong labor protection laws. Employment terms are also often governed by collective bargaining agreements (CBAs), which can provide additional benefits and protections beyond statutory requirements.
It is common in Sweden that clients can set specific requirements in contracts for the provider of services. If the client has signed a CBA, they may require the subcontractor to be part of a certain Collective Bargaining Agreement as well or in construction, obliging all employees to have an ID06 card (personal ledger card). This may require the foreign company to first enter negotiations concerning the CBA before traveling to Sweden. Worst case scenario, a failure to comply can lead to the contract being terminated. It is therefore important to confirm what needs to be in place and enter these negotiations well before project commencement.
Employer Registration
The basic premise, under current legislation, is that the payer of the compensation for employees in Sweden will carry most of the employer obligations. A common way to deal with this in many countries is to have a shadow payroll, i.e., another entity responsible for the reporting. In Sweden however, it is the payer of the salary who needs to fulfill the employer reporting obligations in Sweden, which involves making preliminary tax deductions, payment of social security contributions and reporting towards the Swedish Tax Agency.
Employee Aspects
Residence and Work Permits
A non-EU/EEA citizen needs a work and residence permit before entering Sweden. The salary and other employment conditions must be at market levels in Sweden and the relevant labor union in Sweden must be given the opportunity to express its opinion on the terms of the employment. Applications for residence and work permits are made with the Swedish Migration Agency (Sw. Migrationsverket) and the process can take up to 10 months.
Notifications and Postings
Notification of third country nationals
Under Swedish law, employers are required to notify the Swedish Tax Agency when hiring third country nationals to work in Sweden. A third-country national is an individual who is not a citizen of a country within the EU, the European Economic Area (EEA) or Switzerland.
Postings
Under Swedish law, foreign employers must report postings to Sweden and register a contact person in Sweden with the Swedish Work Environment Authority (Sw. Arbetsmiljöverket). A posting to Sweden defined as the sending of an employee by his/her employer to work in Sweden on behalf of the employer for a limited period in conjunction with the employer providing cross-border services to a recipient of those services in Sweden. Failure to comply with such may result in penalties.
Policies and Employment Agreements
It is advisable to establish comprehensive policies and agreements with employees before they begin working in Sweden. These policies should address key aspects such as contractual salary, tax liabilities, and the respective obligations and responsibilities of both the employee and employer. Additionally, it is important to define the level of support you intend to provide to employees during their time in Sweden.
Employees may face specific obligations related to their tax residency status, which can be complicated for foreign nationals to manage. In such cases, employers often agree to offer external assistance with these matters. It is crucial to clearly outline the responsibilities of both parties prior to the start of the project to ensure mutual understanding of individual obligations and expectations.
Employee Taxation
Employees working on long-term projects tend to have a varying amount of time they need to spend on the project, the project managers may stay for the entirety of the project whilst a specialist may only be needed during a short period of time. Each of the individual circumstances for the employees may lead to different taxation and will need to be reviewed to align the reporting with Swedish law.
Tax Registrations and Applications
Employees working in Sweden can either be regarded as non-tax residents or tax residents in Sweden and need to be registered for tax purposes. The tax liability assessment can result in different tax registrations and possible tax applications. The processing time for these types of applications may vary, thus it is recommended to plan and make sure to file the applications in due time for payroll to avoid future corrections.
Social Security
Employees sent to Sweden from an EU/EEA country can remain covered under their home country’s social security system if they obtain an A1 certificate. In such cases, the employer is not required to pay Swedish social security contributions. For employees from outside the EU/EEA, the employer must pay full social security contributions unless a bilateral social security agreement exists between Sweden and the employee's home country. If the employees are affiliated to Swedish social security, the employer need to pay social security contributions in Sweden.
Apart from taxes, there is a need to understand which country’s vacation laws that should apply and understand work environment regulations, pension and insurances for your employees whilst working in Sweden.
Aspia’s Expatriate Payroll, together with Skeppsbron skatt, offer a comprehensive solution to foreign companies with project and employees in Sweden.
Note that this is not an exhaustive guide to managing projects in Sweden but serves as a foundational overview of the complexities involved in operating projects in a foreign country. We strongly recommend seeking professional guidance to ensure full compliance with regulatory requirements.
