Contributed by Leonie Selting, Tax Partner at Stensvik & Partners AB, Sweden

Starting the 1st of January 2021, Sweden introduces the Economic Employer approach and abandons the today applied concept Formal Employer. The term Economic Employer defines the employer to be the entity benefiting from the work performed. The concept Formal Employer defines the employer to be the one pointed out in an employment contract. The employer instead being the one benefiting from work performed, implies that several more individuals will be taxed in Sweden on their income from work performed in Sweden. Many countries already apply the Economic Employer approach. The Swedish shift to this approach aims to eliminate conditions of competition. There are also other obligations introduced simultaneously with this approach shift, in relation to work performed in Sweden.

There is today a situation where employment income is free from Swedish income tax, it is established in the Swedish “183-day Rule”. The tax rule means that if a natural person visits and works in Sweden for a period not exceeding 183 days during a 12-monthperiod, the natural person’s income will not be taxed in Sweden, when the Employer is not tax resident in Sweden. This rule will be amended from the 1st of January 2021.

The change as of 1st of January 2021 implies:

1.     The above mentioned “183-day Rule” is complemented with an exception meaning that; in the situation of Leasing of Personnel, the exemption from tax will not be applicable. A Leasing of Personnel situation typically occurs when the work is led by a Swedish Company, the same Swedish Company benefiting from the services performed. Any existing formal employment contract will then be disregarded when it comes to the taxation question.  

2.     Foreign Companies without a permanent establishment in Sweden will from the 1st of January 2021 be obliged to withhold preliminary tax from salary payments to employees when work has been performed in Sweden.

3.     Foreign Companies, which operate in Sweden, will annually be obliged to file certain information with the Swedish tax authority, so that the Swedish tax authority can determine the foreign company’s possible obligations in Sweden.

4.     Preliminary tax withholding obligations will also be introduced on payments for work, made by Swedish entities to foreign Companies with no permanent establishment in Sweden, when work has been performed in Sweden.

Welcome to contact us, should you have any questions regarding the new tax rules and requirements in Sweden and how they may affect your operations in Sweden.

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