It is rather well known, that Sweden is a high tax country. But does that also apply to individuals coming to Sweden to work for a limited time? Sweden has a special tax regime for its non tax residents, that can be rather beneficial for some, if planned correctly.
Can I Get the Swedish Non Resident (SINK) Tax?
Sweden divides all individuals into two categories for tax purposes. Either you are a tax resident, or a non tax resident. Tax residents are tax liable to their global income, with high tax rates applying to employment income (30 – 55 %).
On the other hand, non tax residents with employment income from working in Sweden, is subject to the Swedish non tax resident regime tax. This tax is known as the “SINK” tax.
In order to determine whether you qualify for the SINK tax, it must be established whether you are a tax resident or a non tax resident. As a main rule, persons staying in Sweden for less than six consecutive months, are seen as non tax residents. However, the exceptions are many. If you commute to Sweden on a regular basis, it could be enough with just a couple of nights spent in Sweden per week, to become tax resident.
As an example however, a person coming to work in Sweden for two months, and subsequently returns to its home country, would in most instances be seen as non tax resident in Sweden, and thus, eligible for the Swedish non resident (SINK) tax.
How is income taxed under the Swedish non resident (SINK) tax?
In contrast to the taxation for Swedish tax residents, the SINK tax is a flat tax. The applicable rate is set at 25 % tax. This implies that the person, in our example above, that comes to Sweden to work temporarily for two consecutive months, would be subject to a 25 % tax on their income.
So what about deductions? As a main rule, no deductions are allowed under the SINK tax. However, there are some exceptions. One could receive tax free housing, and tax free trips to/from Sweden, if certain conditions are met. Also, following legislative changes of 2023, there are possibilities to receive tax free per diems, if conditions are fulfilled.
Besides tax on employment income, pension payments from Swedish sources are also subject to the SINK tax. Sometimes, a tax treaty’s provision could be applied to make Sweden not allowed to apply the SINK tax. This would have to be claimed in a special SINK application, drafted by a lawyer.
Will I Be Subject to Double Taxation, i.e. SINK Tax in Sweden and Tax in My Home Country?
In rather many occasions, a person taxed with SINK would also be liable to pay taxes in their home country. This implies that the person is subject to tax on the same income, in both Sweden and the other state. In order to solve this, a tax treaty’s provisions should be applied, or a domestic tax credit rule should be applied. Generally speaking, the result would be that the person’s home country credits the Swedish SINK tax when computing the person’s taxes in the home country.
There are also tax treaties which prescribes that the home country should exempt the income earned in Sweden from taxes in the home country. However, every tax treaty is unique, and must therefore be properly assessed by a professional in order to determine how double taxation is avoided.
How Do I Get the Non Resident (SINK) Tax?
In order to benefit from the tax regime, one needs to apply for the SINK tax. This is normally done by a Swedish tax lawyer, like us at nomadtax. In the application, the lawyer argues for the applicability of the regime, meaning that the lawyer argues that the individual is in fact a non tax resident. Right now, the Swedish Tax Agency (Skatteverket) have rather long processing times for SINK applications. Accordingly, try to initiate the SINK application process as soon as possible.
If the SINK tax is granted to the applicant, a decision will be issued that implies that the employer of the applicant will be obligated to withhold the 25 % tax, from the individual’s part of his salary that is attributable to work in Sweden.
It should be noted that the employer of a individual with SINK tax, is obligated to be registered as employer with the Swedish Tax Agency, and to file monthly PAYE reports.
Does Sweden Apply the 183 Day Tax Rule?
For a non tax resident, there is a possibility that income from working in Sweden is entirely exempt from taxes in Sweden. This possibility stems from the so-called 183 day rule, which is a exception to the SINK tax, contained in the Swedish SINK tax law.
In order to qualify for the 183 day rule, a number of conditions must be fulfilled:
The applicant must be regarded as non tax resident in Sweden
The applicant must stay less than 183 days per every possible 12 month period in Sweden
The applicant’s employer must not a have a permanent establishment in Sweden
The applicant must not be hired out to another business by his employer
In order to determine whether the grounds are fulfilled, a lawyer would examine the pattern of stay of the individual, in relation to the first two grounds. For the two latter grounds, the lawyer makes an assessment of the employer’s tax status in Sweden, which can be complicated in some cases.
Especially, the fourth criteria, whether the individual is hired out, is a recently added requirement which was added as a part of introducing the so-called economic employer concept into Swedish tax legislation. A thorough analysis of the circumstances must be made by the lawyer, in relation to Swedish legal preparatory works, and case law.
In some cases, a lawyer can help you set up a project in Sweden in a tax optimal manner, which means that the 183 day rule is applicable for the employees coming here. This offers great relief for both employees and the employer, since the employees would only pay taxes in their home country, and the employer would not be obligated to comply with registrations, filing obligations and similar, in Sweden.
Are you in need of tax advice for upcoming work in Sweden? We have long experience of advising non Swedish individuals and businesses on Swedish tax law, including optimization strategies for lower taxes, less compliance obligations, and smoother operations. Contact us to get to know more.
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