A Swedish storm of regulatory changes

The increased reporting obligations will impose a heavy burden on companies doing business and having employees in Sweden. These obligations include:

• Registration of posted workers in Sweden and elsewhere in the EU (Posted Workers’ Directive)
• Monthly employer reporting on an individual employee level
• New approach to the determination of which company is the actual employer for taxation treaty purposes (Economic Employer)
• Expanded and enhanced reporting and registration requirements for foreign companies

Following the Posted Workers Directive (PWD) companies with employees posted to countries in the EU but outside their home country must to take into consideration the applicability of host country labor law requirements. For example in Sweden foreign employers must report postings of all non-Sweden employees to Sweden and provide an appropriate contact person to the Swedish Work Environment Authority.

Depending on the country concerned there are sanctions and penalties that may apply if the appropriate reporting and reviews are not undertaken. There is no current consistency in approach across the EU countries involved as to reporting or penalties.  It is therefore important for employers to ensure that they carefully track and monitor the travel pattern of their employees (business travelers, commuters, etc.) to be able to ensure compliance with the registration and reporting requirements in each country.

From January 2019 all employers with reporting obligations related to employees in Sweden will have to report the payments and tax deductions that they have made for every employee each month, and file an employer tax return per employee.

The cash basis principle applies, which means that a remuneration or benefit should be reported in the accounting period it was disbursed. Each month will be a closed period and therefore reporting must be timely and accurate.  All decisions and processes relating to work permits, adjusted tax withholding or expert tax relief must be in place from the start of work in Sweden.

There are proposed changes to the interpretation of who is considered to be the employer of an employee working in Sweden – this is a change to the Economic Employer approach. Under the proposed changes the assumption would be that the company benefitting from the work should generally be considered as the employer rather than the company that pays the salary. This amended interpretation of the employer concept will have a major impact on tax liabilities and associated reporting requirements in Sweden for both foreign employers and employees.

The consequences of the proposed legislation will be that individuals performing work for a foreign employer will generally be tax liable for income related to work physically performed in Sweden from the first day of work in Sweden. This tax liability also triggers reporting and tax withholding obligations for the employer.

There is a proposed requirement for foreign companies that have employees performing work in Sweden to register as an employer in Sweden. The foreign company will also be required to withhold Swedish tax on salary paid to employees for work performed in Sweden and proceed with monthly reporting and tax payments in Sweden (employer tax returns), regardless whether the income is ultimately taxable in Sweden for the employee or not.

In addition to the above, there is a proposed requirement for foreign companies doing business in Sweden to provide certain information to the Swedish Tax Agency in order for the Tax Agency to determine whether a permanent establishment (PE) (a taxable place of business) in Sweden has been established.