The Swedish Government has published a new tax legislation that introduces the economic employer concept. It concerns foreign
employers, their employees, and the Swedish companies who purchase services from the foreign companies that don’t have an F-tax
registration. The new legislation will be in effect from 1 January 2021.
Until now, foreign companies who are not domiciled in Sweden, don’t have a permanent establishment in Sweden, or whose employees do not work in Sweden for more than 183 days during a 12-month period, were considered formal employers who do not pay salaries in Sweden. Therefore, they did not have an obligation to register as employers in the Swedish Tax Agency.
What Will Change if I Have a Foreign Company With Employees?
With the changes in the legislation, the concept of a formal employer will be replaced by the economic employer in some cases. This means that foreign employers have to consider several factors to decide whether they have to declare and pay income tax in Sweden on employees’ salaries or not.
Many foreign companies have to register for an F-tax and as employer in Sweden and are obligated to submit monthly declarations and pay income tax to the Swedish tax agency. 30% of the income is withheld as an income tax (25% according to the decision from the SINK).
These changes also affect the Swedish companies who order services from the foreign companies who don’t have an F-tax registration In this situation, multiple factors have to be considered to determine who becomes tax liable in Sweden. For example, who the work is carried out for, who is responsible for the work done, and who benefits from it. Also, who carries the risk of the cost and gives instructions to the employees. All this plays a role in whether a Swedish company is a so-called economic employer and has the right to withhold 30% income tax from the foreign companies’ invoices.
Exceptions to These Changes
Some exceptions will apply if the employees work in Sweden for limited days. According to the new law, the employees will not become tax liable in Sweden if they do not work there for more than 15 consecutive workdays and more than 45 workdays per calendar year. Also, if an employee works in Sweden more than 45 workdays per calendar year, then only the days exceeding the threshold should be reported to determine if it will raise the tax liability in Sweden.
How Should I Proceed?
All foreign employers should review their employees’ travel patterns and working times in Sweden to see if they meet the new requirements or will have to register for F-tax and as an employer in Sweden.
Once the employers’ obligations are confirmed, the following actions should be taken:
- Registration for an F-tax and as an employer with the Swedish Tax Agency
- Establishment of the monthly tax withholding system in Sweden
- Tax filing for the employees in Sweden
- Setting up an internal process to monitor the travel and stay of the employees in Sweden to identify who will create a liability under this rule
If you will have an obligation to register with the Swedish Tax Agency, then we can help you with the tax registration process. We will fill in the application, submit it to the Swedish Tax Agency, and answer all additional queries to make the procedure fast and easy for you. We can also take care of the company’s accounting and tax filings in Sweden. Contact us and ask for a personal accounting offer.