In previous articles we have written about the proposal to introduce a so-called economic employer concept when taxing foreign resident workers who work temporarily in Sweden. In a recently published press release, the Government has announced that it will proceed with the proposal and intends to come back later with a more detailed formulation of the proposal. The provisions are proposed to come into force on January 1, 2021. The original proposal was submitted by the Swedish Tax Agency and a draft law texts were submitted, but then it became silent until the new permanent Government has came into the office
In June 2017, the Swedish Tax Agency (Skatteverket) presented a memorandum with law proposals to introduce the concept of economic employer in Swedish tax legislation. The proposal meant that in general all the people employed by foreign companies would become taxable in Sweden. The memorandum also contained other proposals concerning foreign companies. In June 2018, a draft council referral was submitted, but no legislation ever came.
The internal Swedish law has no minimal time for an individual to become taxable in Sweden, but the tax treaties that Sweden has entered into are using the so-called 183-day rule. This rule means that a worker can be exempted from taxation in Sweden even if work has been performed here if three conditions are met. The employee may stay in Sweden for periods not exceeding a total of 183 days during a twelve-month period, the compensation shall be paid by an employer who is not domiciled in Sweden or on his behalf, and the compensation may not be charged to the permanent establishment that the employer has in Sweden. Because Sweden currently applies a formal employer concept, the 183-day rule will be applied when the employee is employed and paid by a foreign company that does not have a permanent establishment, even though it is a Swedish company that benefits from the work and who bears the cost of the work. In many other countries, an economic employer concept is applied, that is, the company that benefits from the work and bears the cost of the work is considered an employer. This means that the 183-day rule cannot be applied if it is a company in the country where the work is performed that benefits from the work and is responsible for the cost.
The Swedish Tax Agency’s proposal meant that an economic employer concept would also be introduced in Sweden by applying the 183-day rule. An employee who is employed by a foreign company that does not have a permanent establishment in Sweden should thus be taxed here when the employee performs the work for a Swedish business, company or other organization. What determines whether the employee should be taxed is who he does the work for, and not who pays the salary.
The Government press release does not specify any details or how previous proposals may be amended or adjusted. However, the Government continues to believe that it is crucial for whether the employee is to be taxed in Sweden for whom it does work and not who pays the salary. Furthermore, it is stated that exceptions should be made for certain intra-group situations. The Government intends to return with a more detailed draft of the proposal.
It seems to us that one has to wait and see what possible law changes will be proposed. The Government proposes that the regulations shall come into force on 1 st January 2021. Thus, the authorities, companies and employers have plenty of time to prepare for the introduction of the new rules.