Thinking beyond borders
Extended business travelers are likely to be taxed on employment income derived from work days in Sweden, provided the stay in Sweden exceeds 183 days in a 12-month period.
A person’s tax liability is determined by residence status for tax purposes. A person can be a resident or a non-resident for Swedish tax purposes.
An individual is generally resident if he/she spends more than six consecutive months in Sweden. A non-resident is generally someone who’s stay is less than six consecutive months or, alternatively, longer than six months but not considered as consecutive. Two days per week or more (including overnight stay) on a regular basis is likely to be sufficient for the stay in Sweden to be considered consecutive.
A person who is a resident of Sweden is taxed on his/her worldwide income. Non-residents are taxed on income derived from sources in Sweden. Extended business travelers are likely to be considered non-residents of Sweden for tax purposes if their stay in Sweden does not exceed six months.
Technically, there is no threshold/minimum number of days that exempts the employee from the requirements to pay tax in Sweden. If the individual qualifies for relief in terms of the dependent personal services article of the applicable tax treaty, there will be no tax liability.
Also, under the 183-day rule in the Swedish domestic Special Income Tax Act for Non-residents (SINK), a non-resident individual will not be subject to Swedish income tax, provided the individual’s remuneration is paid by a non-Swedish employer with no permanent establishment (PE) in Sweden and that the stay in Sweden does not exceed 183 days in a 12-month period.
Please note that Sweden currently does not apply the economic employer concept. A proposal to introduce the economic employer concept from January 2019 is under discussion, but has not yet been presented in its final form.
For extended business travelers, the types of income that are normally taxed are employment income, Swedish-sourced income, and gains from the sale of taxable Swedish assets (such as real estate). Fringe benefits are generally taxable.
Tax residents are taxed on employment income in three tax bands: 1) basic municipal rate (the rate varies between 29-35 depending on municipality), 2) municipal rate plus 20 percent, and 3) municipal rate plus 25 percent.
Non-residents taxed under SINK are taxed at a flat rate of 25 percent.
The Swedish social security scheme is divided into a residence-based insurance that covers minimum basic distributions and allowances and a work-related insurance covering loss of income.
Anyone residing in Sweden is covered by the residence-based insurance. Individuals coming to Sweden are deemed to be resident if it can the stay be assumed to exceed 12 months. Residents leaving Sweden are still regarded as residents if it can be assumed their stay abroad will not exceed 12 months.
The work-based scheme covers employees, contractors, and self-employed.
All people working in Sweden are covered by the work-based scheme. Work performed outside of Sweden for an employer resident in Sweden is also deemed as work in Sweden if the assignment period is assumed to be 12 months or less. Equally, work is not deemed as work in Sweden when an individual is assigned to Sweden by a foreign employer and the assignment period is assumed to be 12 months or less. In this respect, a foreign employer is an entity without a PE in Sweden.
The Swedish social security system is financed by social security contributions. The employer social security contributions is 31.42 percent. The base for the contributions is the employees’ salary and taxable benefits. The contribution includes pension contributions to the public pension system, healthcare, etc. In addition, the employee pays seven percent in pension contributions to the public system, with a cap at an annual income of 504,375 Swedish krona (SEK). Thus, the maximum employee contribution is SEK 35,300. The employee’s contributions are fully credited against income tax, and therefore commonly perceived as being zero.
Extended business travelers employed by an employer located in a European Economic Area (EEA) member state or Switzerland, can, in most cases, remain subject to their home countries’ social security schemes. The exemption from paying Swedish social security contributions is due to the EU regulation 883/2004 about posting and/or simultaneous employment. Extended business travelers with employers outside the EEA area or Switzerland, may obtain exemptions from paying Swedish social security contributions and stay in their home countries’ social security systems due to the totalization agreements signed between their home countries and Sweden. If it is not possible to stay in the home country social security coverage and no subsequent exemption from social security contributions is available under EU regulation 883/2004, totalization agreements or Swedish domestic rules, an extended business traveler would be subject to Swedish social security.
Individual income tax returns are due by 2 May following the tax year-end, which is 31 December. Extension to file the tax return on 31 May is normally allowed.
A non-resident individual who is taxed under SINK (i.e. with a valid SINK decision from the Tax Agency) should not file a tax return.
If an individual is taxable on employment income, the employer has a withholding requirement. No withholding applies, however, where the employer is a non-resident with no permanent establishment in Sweden.
Depending on nationality, a visa must be applied for before the individual enters Sweden. The type of visa required will depend on the purpose of the individual’s entry. Visas are not required for European Union (EU) nationals and several other nationals. A work permit is required for non-EU nationals.
Foreign employers are required to report employees stationed in Sweden to the Swedish Work Environment Authority when the posting is longer than five days. The foreign employer should report information about the company, the employees and designate and register a contact person in Sweden to the Swedish Work Environment Authority.
In addition to Swedish domestic arrangements that provide relief from international double taxation, Sweden has entered into double taxation treaties with more than 60 countries to prevent double taxation and allow cooperation between Sweden and other tax authorities in enforcing their respective tax laws.
There is a risk that a PE is created as a result of extended business travel.This can depend on the type of services performed and the level of authority the employee has.
Sweden applies value-added tax (VAT). The general rate is 25 percent. Lower rates apply on certain goods and services.
Sweden has a transfer pricing regime. A transfer pricing implication could arise to the extent that the employee is being paid by an entity in one jurisdiction but performing services for the benefit of an entity in another jurisdiction, in other words, a cross-border benefit being provided. This would also depend on the nature and complexity of the services performed.
Sweden has data privacy laws.
Sweden does not restrict the flow of Swedish or foreign currency into or out of the country. Certain reporting obligations, however, are imposed to control tax evasion and money laundering. A currency transfer made by any person into or out of Sweden of SEK 150,000 or more in value must be reported by the transferring bank to the Swedish Tax Agency.
Generally, private living expenses are not deductible. For employment income, the tax allowable items include expenses for travel between home and office to the extent that such expenses exceed SEK 11,000 and certain criteria are fulfilled. Increased cost of living during business trips and temporary assignments can be tax deductible, subject to certain restrictions. Mandatory foreign employee social security contributions within the EU are also deductible.