Legislative proposal regarding economic employer concept

A new legislation is proposed to come into force from 1 January 2021. The implications of the change are that non-resident employees hired to a company in Sweden can become tax liable in Sweden. The employers’ reporting obligation will increase together with risks for further corporate tax liabilities.

Background and information

The present legislation implies that employees of a foreign company without a Swedish permanent establishment can work in Sweden for a period not exceeding 183 days during a 1-year period without Swedish tax liability.

The new proposal targets hired non-resident employees who are proposed to be tax liable in Sweden. The hire is defined as an employee that is at the disposal of a Swedish company or a foreign company with a permanent establishment in Sweden for work in Sweden, and the employee will work with this company´s management and control working as an integrated part of that company. The suggested changes have the following implications for the foreign company.

Foreign entities will have an obligation to register in Sweden for PAYE-purposes when their employees can be regarded as hired out to a Swedish entity or a Swedish permanent establishment.
Swedish entities will be obligated to withhold a preliminary tax of 30 % upon payment of invoices from foreign entities who have business activities in Sweden by hired foreign workforce who are not registered for corporate tax purposes in Sweden.
Foreign entities who have business activities in Sweden will have to provide information to the Swedish Tax Agency due to the question of whether the business constitutes a permanent establishment in Sweden.

Exeptions to the rule of economic employer has been proposed to exclude employees that work for a shorter period than 15 workdays consecutive or a maximum of 45 workdays in a calendar year in Sweden. Non-workdays are not to be included in the periods in Sweden.

BDO comment

The new proposal has been discussed in Sweden for some years. The implementation of the economic employer concept is more in line with the rules in several European countries. The implications would see limited possibilities for foreign employers to second their workforce to Sweden for short-term temporary work without tax implications in Sweden. It will also follow that there will be an obligation for foreign employers to register as employer in Sweden

There is still time to map the foreign workforce in Sweden and who amongst them that will be affected by a change in legislation. Furthermore, this is a good time to review the frequent business travellers and implement routines for short-term visits to Sweden.

Foreign companies seconding employees to Sweden may have an increased risk of reporting obligations in Sweden as a result of the new rules if they are passed. Foreign companies conducting business in Sweden should review their present and future tax position.

Lena Gewers
lena.gewers@bdo.se

Jonatan Dahmén
jonatan.dahmen@bdo.se