During the COVID-19 pandemic, it became evident that remote work could be highly effective. Now that the pandemic has subsided, hiring personnel who work remotely from another country than where the company is based, has become increasingly common. But what requirements apply to a company with staff working remotely from Sweden? Read on for an overview of employer obligations and potential pitfalls in Sweden.
Can I Hire Someone Working Remotely from Sweden?
Under Swedish law, there is no barrier to a foreign (non-Swedish) company hiring a person residing and working from Sweden. However, the employer must comply with the tax and employment law requirements set forth in Swedish legislation.
What Are My Obligations as an Employer When Hiring a Remote Worker in Sweden?
According to Swedish tax law, a foreign employer with personnel in Sweden must register as an employer in Sweden. Once registration is complete, the employer is generally obligated to withhold Swedish preliminary tax on wages paid to the employee. Additionally, the employer must submit monthly PAYE (Pay As You Earn) reports to the Swedish Tax Agency (Skatteverket). It is also likely that the employer will be required to pay Swedish employer social security contributions.
Aside from tax obligations, a foreign employer with personnel working remotely from Sweden is also responsible for ensuring that their employees receive the rights guaranteed under Swedish labour law. This includes entitlements such as paid holiday according to the Swedish Annual Leave Act, parental leave, sick pay, and similar rights. An individual assessment of these employment law requirements is necessary, as they depend on the specifics of each case. Penalties apply in cases of non-compliance.
Is There a Risk that the Employer Will Be Liable for Swedish Corporate Tax?
A foreign company with personnel in Sweden may become liable to pay Swedish corporate tax if a so-called “permanent establishment” is created in Sweden. A permanent establishment could arise due to an individual working remotely from Sweden.
An assessment of the risk of establishing a permanent establishment should be conducted to avoid any unpleasant surprises. The Swedish Tax Agency issued a legal opinion in 2022 suggesting that, in certain cases, no permanent establishment arises when an individual works remotely from home in Sweden. Accordingly, it is possible to avoid the creation of a Permanent Establishment, if one executes the setup in a tax optimal manner.
Must the Employer Pay Swedish Social Security Contributions?
As a general rule, Swedish employer social security contributions must be paid on salaries to individuals physically working in Sweden. However, there are certain exceptions. In some cases, EU Regulation 883/2004 may mean that contributions are due in another country. Sweden has also entered into social security conventions with various countries, which may limit Sweden’s right to levy social security contributions.
In Sweden, employer social security contributions are paid exclusively by the employer and typically amount to 31.42 % of the gross pay to the employee. However, for foreign companies without a “permanent establishment” in Sweden, a reduced rate of 19.8% applies. There is no cap on social security contributions in Sweden, making the overall employer contribution rate quite high by international standards.
Are you planning to hire someone that will work remotely from Sweden? Do not hestitate to contact us at nomadtax for advice regarding the setup.
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