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30.07.2019

The Economic Employer Concept to be implemented in Sweden

Brief overview of the current, and proposed, Swedish legislation followed by a short comment regarding some of the consequences of the proposed legislation

Key Facts
  • The economic employer will be considered to be the company for which the work is actually performed, rather than the company which is legally and formally responsible for the employee and which pays out the salary.
  • An exception for certain inter company transfers of employees states that shorter periods of work for employees in Sweden would not be covered by the proposed changes.
  • As a consequence the 183-day rule will no longer be applicable when employees are “hired out” to perform work for a Swedish company. 
  • Foreign employers sending out or contracting personnel to Sweden will be obliged to register themselves with the Swedish Tax Agency as a foreign employer
  • The new rules is expected to enter into force on 1 January 2020 at the earliest
Author
Michel Weimer
Senior Manager
Sweden
> View Profile

The Swedish Government has proposed that the economic employer concept should replace the currently applied formal employer concept. The proposed rules were supposed to enter into force on 1 January 2019. However, due to the uncertain parliamentary situation in Sweden during the fall of 2018, the Swedish Parliament’s vote on the proposal has been postponed (we expect the new rules to enter into force on 1 January 2020 at the earliest).

The proposed rules will affect foreign employers contracting or sending out employees to Sweden with regard to inter alia obligations to register themselves with the Swedish Tax Agency as a foreign employer, file a monthly payroll return on an individual level (PAYE-returns), and manage employee withholding (preliminary) tax.

This article aims to present a brief overview of the current, and proposed, Swedish legislation followed by a short comment regarding some of the consequences of the proposed legislation.

Current rules – the formal employer concept

Today, Sweden applies a formal employer concept. Employment income from a foreign employer to a limited Swedish tax-liable employee for work carried out in Sweden may be exempted from Swedish employment income tax, should the “183-day rule” be applicable. The rule is applicable when an employee is (1) employed and paid for by a foreign employer without a permanent establishment in Sweden and (2) the employee’s stay in Sweden does not exceed 183 days during a twelve-month period.

Proposed rules – the economic employer concept

Under the proposed rules, the Swedish Parliament will introduce a Swedish version of the economic employer concept. The economic employer will be considered to be the company for which the work is actually performed, rather than the company which is legally and formally responsible for the employee and which pays out the salary.

An example of a situation previously covered by the 183-day rule, but that now will be covered by the proposed economic employer concept, is when construction staff (from a foreign staffing company) are hired by a Swedish construction company to do construction work at a Swedish manufacturing company’s factory in Sweden.

However, a complementary proposal has been filed including an exception from the proposed changes, applicable for certain inter company transfers of employees. The exception states that shorter periods of work (not exceeding five consecutive days, and no more than 30 days in total during a calendar year) for employees in Sweden would not be covered by the proposed changes.

Comments – consequences of the proposed legislation

First and foremost, the 183-day rule will no longer be applicable when employees are “hired out” to perform work for a Swedish company. 

Foreign employers sending out or contracting personnel to Sweden will be obliged to register themselves with the Swedish Tax Agency as a foreign employer, withhold preliminary taxes on salaries and file monthly payroll returns on an individual level (PAYE-returns). Employees working in Sweden will not be required to register themselves with the civil registry of the Swedish Tax Agency. 

Article published in Global Mobility Newsletter#1/2019
Brief overview of recent or expected changes in the area of Global Mobility in 9 selected countries
View publication
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