2017-07-05 11:34 Individbeskattning

Proposed changes in the tax law introducing the economic employer concept

The Swedish Tax Authority have recently released a memorandum in which they are suggesting that the economic employer concept should be introduced in Swedish tax law. The proposed changes will lead to that an increased number of individuals hired by non-Swedish companies performing work in Sweden will be liable to pay Swedish tax. The memorandum also covers changes for non-Swedish companies when it comes to tax withholding and registration requirements for employees working in Sweden. The Swedish Finance Department has remitted the memorandum for consultation. The changes in the memorandum are suggested to be effective from 1 January 2019.

Sweden is currently one of the few countries that do not apply the economic employer concept and instead apply a legal employer concept. The suggested introduction of the economic employer concept will lead to changes when it comes to the interpretation of the so called “183 days rule”. The rule is implemented in the non-tax resident act as well as in the international tax treaties. The current interpretation of the rule is that employment income can be exempt from Swedish tax if the employer remunerating the employee is a non-Swedish company without a permanent establishment in Sweden, the employee is not present in Sweden for more than 183 days per 12 months period (can also be calendar year depending on country combination) and no costs are recharged to a permanent establishment that the employer has in Sweden (a separate legal entity within a group of companies is not regarded as a permanent establishment). Provided that all conditions have been met employees have been able to be present in Sweden for up to 183 days per 12 months period (or calendar year depending on country combination) without being liable to tax on their employment income. The non-recognition of the economic employer concept has made this possible regardless if the cost for the employment has been recharged to a separate legal entity in Sweden and regardless who actually benefits from the work carried out.

The Swedish Tax Authority are in their memorandum stating that they would like to introduce the economic employer concept in Sweden. The proposed changes will lead to that an employee performing work in Sweden will be liable to tax in Sweden if the work is carried out for a company or organization in Sweden, regardless of who is actually paying the employee’s salary. The Swedish Tax Authority are also stating that they would like to change the 183 days rule so that it is not possible to apply the rule when employees are hired out to a Swedish company, i.e. an employee who temporarily works for a client of the employer as an integrated part of their business. In addition to this, the Swedish Tax Authority propose that an employee performing work in Sweden should be registered at the Swedish Tax Authority if the employee has no Swedish identity number or coordination number.
 
Further, the memorandum includes suggested changes when it comes to tax withholding obligations for non-Swedish companies. Currently, a non-Swedish company without a permanent establishment has no obligation to withhold tax on salary payments made to employees performing work in Sweden. The Swedish Tax Authority suggest that the companies without a permanent establishment now should be liable to withhold tax to the extent they have employees performing work in Sweden. This means that non-Swedish companies will have to register as an employer in Sweden and file monthly tax withholding returns.

The Swedish Tax Authority are also suggesting that Swedish companies that subcontract non-Swedish companies that are not registered for business tax (Sw “F-skatt”) should be liable to withhold tax on the remuneration if the remuneration is assignable to work performed in Sweden. Lastly, the memorandum suggest that non-Swedish companies carrying out business in Sweden should submit information to the Swedish Tax Authority so that they can review the non-Swedish companies tax liability in Sweden.

EY’s comments
Given that the economic employer concept is common from an international perspective it is not a surprise that the concept is suggested to be implemented in Sweden as well. The proposed changes will have a significant impact on non-Swedish companies carrying out business in Sweden, not only from a cost perspective, but also from an administrative perspective when it comes to withholding and reporting obligations.

EY will monitor the progress and provide further updates as soon as more information is available. Please do not hesitate to contact us should you wish to discuss how this may impact your business in Sweden.

Katrin Norell och Alexander Holm