Swedish tax withholding obligations for foregin companies

Non-Swedish companies which have employees or board members resident in Sweden and who performs part of the work time in Sweden will have a liability to withhold Swedish tax with 30 % on the salary or board fee referable to work days in Sweden.

New rules from 1 January 2021

Before 1 January 2021 only Swedish companies and foreign companies with a permanent establishment in Sweden were liable to perform Swedish tax withholding. Sweden introduced new rules on 1 January 2021 regarding Swedish tax withholding. According to the new rules also foreign companies without a permanent establishment in Sweden have to register in Sweden as an employer and withhold and report Swedish tax. This applies if they have an employee or board member who is resident in Sweden and who performs part of the work in Sweden. The tax rate to be withheld is 30 percent.

Are there any exemptions?

The foreign company can only be exempted from registering as an employer in Sweden and to perform Swedish tax withholding in case the employee or board member has applied for and received a decision from the Tax Agency that no tax withholding has to be made. Such a decision can e.g. be issued if the salary is not taxable in Sweden according to the applicable tax treaty.This is normally not the case for salary that refers to work days in Sweden, but each case needs to be looked into.

In case no part of the work is performed in Sweden there will be no liability to withhold Swedish  tax and register as an employer in Sweden.

What apply for commuters in the Öresund region?

Regarding Swedish residents employed in Denmark, i.e. so called Öresund commuters, they are under certain circumstances only taxed in Denmark even if part of the work is performed in Sweden. This applies if the employee fulfills the conditions in the Öresund tax agreement, i.e. works at least 50 percent of the work time in Denmark during each three months and the remaining part from home or on business trips of occasional character. 

Even if the conditions in the Öresund tax agreement are expected to be fulfilled the employee must apply for a decision that no Swedish tax has to be withheld by the Danish employer in case the employee performs part of the work in Sweden. If no decision is issued the Danish employer needs to register in Sweden as an employer. 

Please note that in case the conditions in the Öresund tax agreement are not expected to be met a decision that no tax withholding is needed will not be issued. 

There are no exemptions due to covid19-restrictions.

Is tax withholding needed for board members resident in Sweden?

Foreign companies that have board members resident in Sweden need to register in Sweden as employer and withhold Swedish tax on the part of the board fee that relates to work days in Sweden. In Sweden a board fee is considered as employment income. The foreign company can only be exempted from registering as an employer in Sweden and to perform Swedish tax withholding in case the board member has applied for and received a decision from the Tax Agency that no tax withholding has to be made. Since the foreign company normally has to withhold tax at source and a tax credit can be claimed in Sweden it is likely that such a decision will be issued even if the whole board fee is taxable in Sweden.

Foreign companies with Swedish board members should normally already be registered in Sweden as an employer if the board member is covered by the Swedish social security system. In some cases it is however agreed that the board member pays and reports the social security charges to the Tax Agency on behalf of the foreign company. If this is the case the foreign company as of January 2021 has to register as an employer and make tax withholding.

There are no exemptions due to covid19-restrictions.

What happens if no Swedish tax is withheld?

Although no Swedish tax has been withheld, the foreign company must register as an employer in Sweden and report the salary that relates to work days in Sweden. This applies if the company is liable to withhold Swedish tax and there is no decision from the Tax Agency saying that no Swedish tax withholding has to be made.

The Tax Agency can also levy penalty charges of 5% of the tax that should have been withheld, but the Tax Agency will most likely not levy such penalty charges during an initial period.