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Shift from a formal to an economic view of the employer – proposal submitted to the Parliament

Tax Alert

Published: 2020-06-24

The proposal implies an extended tax liability for workers temporarily present in Sweden. The proposal also includes an exception for work that does not exceed 15 consecutive working days, and 45 working days in total during a calendar year.


Since June 2017, when the Swedish Tax Agency handed over a memorandum to the government, it has been announced that Sweden will switch to an economic employer approach when determining who is to be regarded as an employer in relation to the so-called 183-day rule. In addition, various legislative changes regarding reporting obligations for foreign companies with operations in Sweden have been announced. The Swedish Tax Agency's original proposal has subsequently been revised in the referral submitted by the Government to the Swedish Legislative Council and in a supplementary proposal.

New draft legislation

On June 23, 2020, the Swedish Government has presented the bill ”Ekonomiskt arbetsgivarbegrepp – förändrade skatteregler vid tillfälligt arbete i Sverige” to the Swedish Parlament. The new draft legislation that has now been submitted is broadly in line with the previous proposals but contains some changes. For example, an exception for work that does not exceed 15 consecutive working days, and 45 working days in total during a calendar year is introduced. The new rules will apply from 1st of January 2021. Briefly, it is suggested that:

Transition to economic employer concept

What applies today?

At present, a person who is regarded as a non-resident in Sweden is taxable on employment income in Sweden if the person performs the work in Sweden and has a Swedish employer. If the person has a foreign employer, no tax liability arises in Sweden, provided that the following three conditions are met:

  • The person's stay in Sweden does not exceed 183 days during a twelve month period
  • The remuneration is paid by, or on behalf of, an employer who is not a resident of Sweden
  • The remuneration is not borne by a permanent establishment which the employer has in Sweden.

The assessment of who should be considered the employer varies between countries. In Sweden, the employer is considered to be the one who pays the remuneration for the work performed. This is usually referred to as a formal approach to who is the employer.

As the 183-day rule is found in both Swedish domestic law and in tax treaties, this means that the rule can apply to a resident in Sweden, provided that the person is considered to be a tax treaty resident abroad according to the treaty.

What's changing?

With the transition to a so-called economic employer concept, an exception is introduced to the main rule that states that the employer is the one who pays the remuneration for the work performed. An overall assessment of various factors should instead be made to assess who the economic employer is. If it turns out that the economic employer is different from the formal employer and that this employer is a resident in Sweden, then the 183-day rule will no longer apply, despite the fact that the employee gets his salary paid by a foreign employer.

In order to assess whether there is an economic employer in Sweden, account must be taken of who is in control of the work performed by the employee. Thus, if the work is not performed for the formal employer under his or her control and direction, the 183-day rule is not applicable.

To make it easier for employees staying in Sweden for very short periods, the new proposal also contains an exception rule. Accordingly, it is proposed that the economic employer concept should be set aside for shorter working periods of no more than 15 consecutive working days, and a total of no more than 45 working days during a calendar year. In the proposals that were previously submitted, requirements were also made that the work performed had to within the same company group. This requirement has been eliminated in the proposal now presented.

Obligation for foreign employers to make tax deductions

What applies today?

An obligation to withhold Swedish preliminary taxes on employee salary currently only exists for Swedish employers and foreign employers with a permanent establishment in Sweden. This means that foreign employers have no obligation to register in Sweden for employer purposes in order to be able to deduct and report monthly taxes to the Swedish Tax Agency.

What's changing?

The new proposal introduces a requirement for foreign employers to withhold Swedish taxes on the employee’s salary. The obligation occurs in cases where the employee is tax liable in Sweden for the salary received from their foreign employer. The fact that an obligation arises to withhold Swedish preliminary tax means that the foreign company must first register as an employer in Sweden and will then also have an obligation to submit monthly employer returns.

Other changes

The Government also proposes that the requirement to hold a so called “F-tax certificate” should apply to foreign companies that receive payment for work performed in Sweden. If the F-tax certificate cannot be presented by the payee, the payer shall make a tax deduction of 30 percent on the payment. This means that the same rules that apply today to Swedish payees are also extended to foreign payees who receive payment for work performed in Sweden.

Deloitte's comment

The Government's proposed legislation represents a significant change for foreign companies and employees operating in Sweden. The extended exemption for short working periods is welcomed and means that employees who stay in Sweden for short periods of time remain unaffected by the new rules.

The transition to an economic employer concept places demands on both the employee and the employer to analyze whether the employee's work in Sweden is performed for an economic employer in Sweden. It is the employee who is responsible for correctly reporting their income in Sweden either by submitting a non-resident tax application or tax return. However, the proposed requirement that foreign employers have an obligation to withhold taxes from remuneration that is taxable in Sweden means that the employer also has an obligation to review whether an economic employer exists in Sweden.

This change will result in a large increase in people who are currently employed for temporary work in Sweden becoming liable to tax in Sweden. This will also lead to a significant increase in the number of foreign companies that need to register in Sweden in order to fulfill their duty to make tax deductions. Since reporting and tax withholdings are to be made in relation to the percentage of work that the employee performs in Sweden, this also means increased administration in the form of tracking employees' working patterns in Sweden.

To help organizations manage their mobile workers and business travelers, Deloitte has developed an approach to deal with the increased complexity of the new proposal.

Read more about Deloitte 4-phase business traveler concept >

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