Since the Covid-19 pandemic, remote work has become immensely popular worldwide. While some individuals work remotely a few days a week from their homes, others engage in fully remote work from a different country than where their employer is based.
Offering this flexibility often stems from the employer's desire to retain and attract talented employees. However, employing staff who work from another country can entail administrative obligations and tax implications for the employer. In this article, we will explore the Swedish tax aspects of working remotely from Sweden for a foreign employer.
What obligations do foreign employers with staff working from Sweden have?
Under Swedish tax law, an employer's obligations are determined by the taxation status of the employee. This can be complex in remote work situations, as foreign employers may have limited knowledge of Swedish taxation laws.
Generally, if an individual receives compensation subject to employment income tax in Sweden, the employer is responsible for withholding preliminary wage tax and submitting it, along with a monthly PAYE report, to the Swedish Tax Agency. An individual residing permanently in Sweden would undoubtedly be subject to a Swedish tax claim, necessitating the employer to register as an employer in Sweden and fulfill its legal duties. Given the significant burden this entails, we often recommend alternative setups to alleviate the employer's responsibilities.
Do foreign employers have to pay Swedish Social Security Fees if they have staff working from Sweden?
The answer to this question depends on various legal sources. While the Swedish Social Security Fee law stipulates that work physically performed in Sweden is subject to Swedish Social Security Fees, there are exceptions.
The EU's 883/2004 regulation allows individuals to work from Sweden while still being covered by another state's social security system, exempting them from paying Social Security Fees in Sweden. Additionally, Sweden is party to several "Social Security Conventions," which may also affect where Social Security Fees are paid.
A case-by-case analysis is necessary to determine in what state to pay Social Security Fees.
Can an employee's remote work from Sweden trigger a Permanent Establishment?
This question is frequently raised by foreign employers with staff in Sweden, as the existence of a Permanent Establishment can lead to increased tax costs and administrative obligations. Essentially, the Permanent Establishment concept establishes a minimum threshold below which Sweden does not tax a foreign enterprise's profits. Slightly simplified, a Permanent Establishment requires the following:
a fixed place of business
the place of business must have a certain degree of permanence
the business must be entirely or partly run from this location
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Any physical presence in Sweden, such as a market stall, construction site, office, or home office, can constitute a fixed place of business for the purpose of a Permanent Establishment. However, it must be established that the employer exercises sufficient control over the fixed place, and there is a requirement for the activities to be permanent.
In general, activities exceeding six months would trigger a Permanent Establishment, provided other criteria are met. Remote work from Sweden for a foreign employer, such as from a home office or rented office space, can indeed give rise to a Permanent Establishment. The Swedish Tax Agency has issued guidance on what may constitute a Permanent Establishment in such situations, that opens up for remote work not triggering a Permanent Establishment. However, it is essential to analyze the specific circumstances in relation to the Swedish Tax Agency's legal opinion and implement measures to mitigate risks.
Do you plan to hire a person that will work remotely from Sweden? We have assisted multiple clients in navigating these complexities. If you require assistance, please feel free to reach out to us!