Sweden is experiencing an increased influx of foreign companies engaging in business activities within its borders, particularly in industries such as construction or IT. When a foreign company operates in Sweden, it becomes subject to Swedish laws and regulations, which can pose challenges for compliance. This article aims to explore the payroll obligations faced by non-Swedish companies.
What Are the General Payroll Requirements in Sweden?
As is customary in most countries, Sweden operates a system where employers withhold preliminary tax, commonly known as a PAYE (Pay As You Earn) system. In Sweden, salaries are typically paid on a monthly basis. Consequently, employers withhold preliminary tax from employees' salaries and remit these funds to the Swedish Tax Agency.
The withheld amount varies depending on factors such as the individual's income level, age, and municipality. Sweden's progressive Income Tax system means that the percentage of tax withheld increases with higher salaries. Employers are also mandated to submit a monthly PAYE report to the Swedish Tax Agency, detailing information about the salary paid to each employee, the withheld amount, and similar data. To fulfill these obligations, companies must register as employers with the Swedish Tax Agency. This is normally done at the same time as applying for Swedish F-tax.
Does My Company Need to Set Up a Payroll in Sweden?
Under Swedish tax law, employers must withhold preliminary Swedish wage taxes if the employee is subject to Swedish taxes on their salary. Therefore, it is essential to ascertain whether Sweden will tax an employee of a foreign company.
If there is no Swedish tax liability on the individual's income, the employer bears no payroll obligations in Sweden. Conversely, if Sweden does have a tax claim on an individual's salary received from a foreign employer, that employer must register with the Swedish Tax Agency as an employer and submit monthly PAYE reports.
Typically, a foreign employee becomes subject to Swedish tax if they physically perform work in Sweden. However, there is a possibility of income exemption from Swedish tax if the individual meets the 183-day rule. It's worth noting that this possibility has become less likely following the introduction of the economic employer concept in Swedish legislation in 2021.
Each foreign company and its employees require analysis, and in some cases, arrangements can be made to enable employees to utilize the 183-day rule, relieving the foreign employer of Swedish payroll obligations.
Will My Employees Be Taxed in Sweden?
Determining whether employees will be taxed in Sweden necessitates an individual analysis of each employee's situation. In certain instances, it may be possible to utilize the 183-day rule to avoid taxation in Sweden. In some cases, the person will be liable to the Swedish Non Tax Resident Tax Regime ("SINK"), which is a 25 % flat tax regime. An application is needed to benefit from the regime.
Foreign Companies in Sweden and Social Security Contributions/Fees
In general, Swedish Social Security Fees are applicable to salary income earned from working in Sweden for a foreign employer. However, there are exceptions. Holding a valid A1 certificate from an EU/EEA member state exempts individuals from paying Social Security Fees in Sweden.
Are you representing a foreign (non-Swedish) company intending to establish a presence in Sweden? Please contact us to receive advice on your obligations and assistance in optimizing your operations in Sweden. We can assist with both advice and practical assistance, with setting up and running a payroll.
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