Sweden adopts the Economic Employer Concept as of January 2021
On June 23rd, the Swedish Government published a legislative proposal for introducing the economic employer concept for tax purposes in Sweden. Under the proposal, the threshold for becoming tax liable will be lowered for foreign employees temporarily working in Sweden. It is also proposed that employers´ reporting obligation will increase as well as their exposure towards corporate tax liability. The government intends to implement the proposed changes on the 1st of January 2021.
Today, Sweden applies a formal employer concept. Limited tax liable employees that are employed by a company in Sweden, and are temporarily preforming work in Sweden, may under certain circumstances be taxed with a flat rate of 25 % under internal law (Special Income Tax Act for non-residents). If the same employees however are hired by a foreign company, without a Swedish PE, the employees will not be taxed in Sweden, provided that the stay does not exceed 183 days during a twelve-month period, the 183-days rule.
The proposed introduction of the economic employer concept would significantly reduce the impact of the 183-days. Under the proposal, non-resident employees, hired by a company in Sweden, would be taxed in Sweden if the work benefits a Swedish company or a foreign company with a PE in Sweden. This applies regardless if the criteria of the 183-day rule are fulfilled. “Hired by” in this context is when an employee is made available to perform work in Sweden and is under the management and control of a Swedish company or a PE in Sweden. Foreign short-time workers in Sweden may however be excepted from Swedish tax liability if the work is executed for a maximum of 15 consecutive days and the total workdays in Sweden does not exceed 45 days in a calendar year. The intention of the exception is to allow shorter stays for the purpose of meetings and similar.
The proposed rules will cover arrangement where the cost for an employee is paid from the foreign formal employer to a company in the same group that conducts business in Sweden. When determining the economic employer, the economic terms between such group companies are one of the many factors that should be considered. Often, the company which in the end is bears the majority of the employer’s costs is considered to be the economic employer. Thus, group-internal relations, as group-internal services, should be reviewed since these relations may affect the assessment of the economic employer.
If a foreign company is considered as the economic employer, the company will be responsible to withhold and report Swedish tax on salary for work performed in Sweden. Thus, such company must be registered as an employer in Sweden. There will be no possibility to transfer the responsibility to a Swedish company. Moreover, such foreign company must provide specific information to the Swedish Tax Agency ( STA ) in order for the STA to determine the company’s tax liability in Sweden.
If you have any questions about the proposal, or question whether if and how the proposal will affect your company, you are welcome to contact us at Svalner.