It is not uncommon for a Swedish company to have foreign individuals on its board. Contrary, it is more of a standard practice for international companies to have board members residing outside Sweden. It is, therefore, crucial, both for the Swedish company and the board member, to be aware of the rules governing the taxation of board remuneration, as these differ on several points from the general Swedish tax regulations on employment income.
Board Members Residing Abroad in a Swedish Company – What Are the Regulations?
According to the Swedish Companies Act, a Swedish company must have a board consisting of at least one member. There are no legal obstacles to having individuals residing abroad as board members in a Swedish company, but at least half of the board members must reside within the EEA area. In certain cases, exceptions from this requirement can be granted.
Can Board Remuneration be Invoiced by Board Members Residing Abroad?
An essential factor governing Swedish taxation of board remuneration is that the Swedish Supreme Administrative Court's practice has resulted in board remuneration typically can not be invoiced by the member, for instance, from their own company. If this is done, the individual board member will himself be taxed regardless if a company is receving the Board Remuneration.
The remuneration a board member receives, should therefore be taxed as employment income. In many other countries, this limitation does not exist, and it is relatively common for board members to invoice their board remuneration through their own company. This is not possible for board members in Swedish companies, regardless of whether the member resides in Sweden or abroad.
Taxation of Foreign Board Members in Swedish Companies
An individual residing abroad is usually considered non tax resident in Sweden, meaning that the person is generally only liable for tax in Sweden for work performed in Sweden. There is an exception to this general rule that applies specifically to board remuneration. The exception entails that individuals who are Swedish non tax residents are subject to Swedish tax on board remuneration from a Swedish company, even if the board work has been carried out abroad.
It does not matter whether the board work was performed in Sweden or abroad; Sweden aims to tax the board remuneration as long as it comes from a Swedish company. This rule can be surprising for foreign individuals and often results in the individual being liable to pay tax in both Sweden and their country of residence—double taxation. More on this below.
A non tax resident board member in Sweden is subject to tax according to the Swedish SINK Act ("Special Income Tax for Non-residents"). The tax is a flat tax of 25%, without the possibility of deductions. Some exceptions exist regarding travel and accommodation at board meetings. To correctly withhold tax by the Swedish company, an application for SINK for the board member residing abroad should be submitted. Often, a tax lawyer prepares the application for board members residing abroad.
What Are The Requirements for Swedish Companies with Foreign Board Members?
Since board remuneration for foreign board members is subject to Swedish tax, the Swedish company is obligated to withhold preliminary tax upon payment of the remuneration—just like on salary payments.
As a general rule, employer social security contributions should be paid on board remuneration, but exceptions may exist under EU law. The country where the board work was performed also matters. This must be investigated in each individual case.
An important aspect many Swedish companies overlook is that the company may be obliged to pay social security contributions in the country where a board member resides, which can be administratively demanding. Because the regulations for social security contributions in international contexts are highly complex, it is recommended to investigate the correct handling of each board member residing abroad.
Can Tax Treaties Affect Board Remuneration for Foreign Board Members of a Swedish company?
Sweden has entered into several bilateral tax treaties with countries worldwide. The provisions of tax treaties can sometimes prevent Sweden from taxing board remuneration for board members residing abroad. This is the case, for example, with the tax treaty between Sweden and the USA. According to the treaty, Sweden is not allowed to tax board remuneration received by a person resident in the USA, provided that the work was performed in the USA.
For the treaty's rules to apply, this must be claimed in the application for SINK-tax for the board member. Such a claim is prepared by a tax lawyer. Often, certain documentation needs to be provided for the claim to be approved.
As mentioned earlier, there is a high risk that board remuneration is taxed both by Sweden and by the member's country of residence. In such a case, double taxation should be alleviated by applying the method article of the tax treaty, which can differ from treaty to treaty.
What Should Foreign Board Members in Swedish Companies Consider?
We summarize here the most important things for board members residing abroad in Swedish companies to consider:
Sweden have a tax claim on Board Remuneration, regardless of where the work was performed, and regardless of whether the Board Member is a tax resident or a non tax resident.
Tax treaties can prevent Sweden from taxing remuneration for board work performed outside Sweden.
There is a risk that Swedish companies have registration and reporting obligations in the country outside Sweden where a board member of a Swedish company is residing.
Swedish companies are obligated to make tax withholdings and report board remuneration to the Swedish Tax Agency. An application for SINK (Swedish non resident tax) should be made every year.
Do you represent a Swedish company with board members residing abroad? Do you need help ensuring compliance with legal requirements, ensuring that board members are taxed correctly and not subjected to double taxation? Contact us at NomadTax for assistance.
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