Working with clients in Sweden is changing!

On 23 June 2020, the Swedish government put forward a proposal for new tax rules when engaging temporary employees in Sweden. The proposal aims to create a competition-neutral labour market and is due to come into force on 1 January 2021. The new tax rules will introduce major changes for both foreign companies and employees that operate in Sweden.

The government’s new proposal includes the introduction of what is known as an economic employer concept, which introduces an increased responsibility and complexity for  Swedish employers. This change is likely to lead to the growth of other forms of employment models and flexible tools to help manage the regulations.

What are the current taxation regulations? 

Under current rules, if someone is employed by a company in Sweden and performs work in Sweden they are liable to pay tax in Sweden. However, if someone is hired to work in Sweden by a foreign company, the worker is not liable for tax in Sweden provided that the three conditions of the 183-day rule are met:

• The person doing the work must not stay in Sweden for more than 183 days in 12 months
• The employer that pays the person is not a registered business in Sweden
• The employee is not classed as a permanent resident of Sweden 

Who is considered to be an employer differs from country to country. In Sweden, an employer is the party that pays someone for the work they do. In other words, Sweden currently has a formal approach to the question of what an employer is.

What does the new proposal look like?

The new proposal presented by the government in summer introduces stricter rules for people performing work in Sweden for a foreign employer. In cases where work carried out in Sweden can be viewed as the hiring out of labour to a Swedish company, the 183-day rule can no longer be applied and that the employee must be taxed from day one. This also applies if people perform work for a foreign employer without a permanent place of business in Sweden. The focus here is on whether the work performed can be seen as being delivered to the Swedish company or not. Accordingly, the economic impact of the relationship between employer and employee comes into play. The current formal approach to who the employer is has been expanded to include the economic element.

The government’s new approach has already been integrated into the legislation of several other countries and is now being put forward in Sweden with the aim of creating a labour market that is more competition-neutral and where both Swedish and foreign employers are subject to the same conditions. The changed regulations will, among other things, have a major impact on foreign employers by way of increased administration and increased costs. This is because the new proposal will require foreign employers to register with the Swedish Tax Agency for reporting. The employer must file monthly employer declarations for the employees covered by the new regulations, as well as report relevant company information to the Swedish Tax Agency for the assessment of any tax liability. When registering with the Swedish Tax Agency, the company will receive an identification number and a corporate tax certificate.

Swedish companies will be affected by this proposal, as an obligation will be introduced requiring Swedish companies to make tax deductions on the remuneration they pay for work performed in Sweden by a foreign legal entity or persons. 

What are the next steps? 

The rules are then expected to enter into force in January 2021. Any foreign employers who support Swedish clients so look for a solution to manage this change and meet the new obligations.

Get help from us at Cool Company

At Cool Company, we know this change poses several challenges, which is why we’re on hand to help your organisation or company to overcome them. Our tailored solution enables you to easily and cost-effectively pay those affected by the proposed tax changes, streamline your processes, and ensure that everything goes as it should.