The big storm of regulation change

New way of determining which company that is the actual Employer

There is a legislative suggestion to change the interpretation of the employer concept in Sweden. This will result in that the company that benefits from the work should generally be considered as the employer rather than the company that pays the salary. The changed interpretation of the employer concept will have a major impact on tax and reporting liabilities in Sweden.

The consequence of the proposed legislation is that individuals performing work for a (determined) Swedish employer would 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 also a proposed requirement for foreign individuals, performing work in Sweden for more than 5 days, to register in Sweden to receive a tax registration number.

Extended reporting requirements

In the same legislative suggestion, there is a 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, regardless if the income is taxable in Sweden for the employee.

In addition to the above, there is a proposed information requirement for foreign companies doing business in Sweden, where they will be obligated to provide certain information to the Swedish Tax Agency in order for the Agency to determine whether a PE in Sweden is at hand.

Monthly employer reporting on an individual employee level

From January 1st 2019, all companies with reporting obligations related to employees in Sweden will need to comply with reporting all provided remunerations monthly on an individual employee level to the Swedish Tax Agency.

Every month will be a “closed period”, making it more difficult to make retroactive adjustments compared to current legislation. Given that the information will be provided to the Swedish Tax Agency on an individual level, it will be even more important than before that the reporting is correct from the start considering working permits, possible expert tax relief etcetera.

Registrations of posted employees in Sweden (and Europe)

In addition to the above described need for employers to better track their employees travel pattern (business travellers etc., since cross boarder working situations will be largely impacted by the change to the economical employer concept), there are also requirements to consider in relation to EU law and the Posted Workers Directive (PWD).

PWD stipulates that companies with employees posted to other countries (than their home country) will need to take in consideration host country labour law requirements. There is also a need to register the employees posted to the applicable authority in the host country. The requirement to register is sanctioned in different ways in various countries within the EU and there are different approaches as to when registrations are needed.