On 17 May, the Swedish Government presented an exposure draft to the Council on Legislation with a proposal to introduce the concept, ”economic employer”, into Swedish tax legislation. The exposure draft is based on the memorandum presented by the Swedish Tax Agency last June. The proposal implies that a larger number of individuals employed by foreign companies will incur tax liability in Sweden. Foreign companies paying out salaries for work in Sweden will be liable to withhold tax on salaries even if they have no permanent establishment in Sweden.
Previously, in Tax matters, we have written about the Tax Agency’s proposal presented in a memorandum in June 2017. The Government has now proceeded with the Tax Agency’s proposal and presented an exposure draft to the Council on Legislation on 17 May 2018. The Government’s proposal agrees, in all major respects, with the Tax Agency’s proposal.
The changes in question mean that employees incurring limited tax liability, who are contracted by a foreign company without a permanent establishment in Sweden, are to be taxed in Sweden regardless of whether the employee is present in Sweden during more, or fewer, than 183 days during a given twelve month period. In both domestic Swedish law, and in the tax agreements Sweden has entered into, there is a so-called 183 day rule. This rule stipulates that an employee can be exempted from taxation in Sweden if he or she is present in Sweden during no more than 183 days within a twelve month period, if the compensation is not paid by, or on behalf of, an employer resident in Sweden and the compensation is not borne by a permanent establishment or fixed base which the employer has in Sweden. As Sweden currently applies a very formal approach when it comes to defining who is to be seen as employer in Sweden, the 183 day rule comes into effect when an employee is employed and paid for by a foreign company without a permanent establishment in Sweden, even if it is a Swedish company which benefits from the work involved and which assumes the costs for the work provided.
The Government’s proposal implies that the 183 day rule cannot be applied in Sweden when it is a question of hiring out of labour. By hiring out of labour is meant that an employee is directly or indirectly contracted out or is placed at the disposal of an employer to perform work in the principal’s (client’s) operations in Sweden and the work is executed as an integrated part of the principal’s operations under the principal’s control and management. An employee who is employed by a foreign company without a permanent establishment in Sweden shall, therefore, be taxed here when the employee performs the work for a business operation, company, state, municipality, county council or other type of organization in Sweden. The decisive factor as to whether the employee is to be taxed in Sweden is the entity for whom the work is being performed, and not the entity paying the salary in question.
The Government also proceeds with the Tax Agency’s proposal that a foreign company without a permanent establishment in Sweden is to be liable to deduct tax on salaries referring to work in Sweden. As a result, a foreign company would incur the liability to register with the Tax Agency par and report withholding taxes and file payroll returns. The Government does not introduce the possibility of the Swedish principal to run a shadow payroll and h, but, instead, makes note of the foreign company’s possibility to register a representative (e.g the Swedish company) who can, on their behalf, prepare and file the payroll return on behalf of the foreign company.
In its memorandum, the Tax Agency had also proposed that an individual performing work in Sweden during a given number of days, is to apply for registration with the Tax Agency if he or she is not, or has not been, registered in the Swedish national register (“folkbokförd”) or if they do not have a co-ordination number (“samordningsnummer”), which is a tax file number for individuals residing only temporarily in Sweden. The Government does not go forward with this proposal at this time, but will address the issue again if this proves to be necessary.
The proposals imply that foreign companies without permanent establishments in Sweden wanting to contract or send out personnel to work for a Swedish principal after 31 December 2018 should identify those employees that will incur tax liability already from the first day of work in Sweden. The same applies to the foreign companies having employees who are on business trips to Sweden and who perform work which is of benefit to a Swedish company. This is, for example, common within multinational company groups. You are most welcome to contact us to discuss which employees and which situations can be impacted by these proposed new rules.
The changes are proposed to come into effect on 1 January 2019.
Johanna Glimmerbeck och Hanna Ekelund arbetar på PwCs: kontor i Örebro respektive Stockholm med individbeskattning och frågor i internationell kontext och är särskilt specialiserade kring arbetsgivarfrågor vid gränsöverskridande personal.
Johanna: 072-353 02 92, email@example.com
Hanna: 070-929 44 45, firstname.lastname@example.org