Sweden: The economic employer concept – how is it going?
Anna Valdemarsson of KPMG Sweden looks at how the economic employer concept in Sweden is working out.
“Drrrr, drrrr, drrrr, there are 223 persons waiting, we will answer your call as soon as possible”.
Sweden introduced new rules and the economic employer concept from January 1 2021 along with an obligation for the foreign legal employer to withhold Swedish tax paying salary and providing benefits.
The new rules also contain an obligation to withhold 30% preliminary tax on invoices from foreign companies for work/services performed in Sweden, unless the foreign entity has registered and obtained a Swedish F-tax bill.
The purpose behind the new rules is to create neutrality between Swedish and foreign suppliers of services.
Acting in a digital world, the Swedish Tax Agency developed and introduced an online portal to be used for the F-tax and employer registration and a portal for non-resident income tax applications (the tax which staff working temporary in Sweden pays).
These have been frequently used and the first sentence refers to the experience calling the Tax Agency asking why you have not yet heard anything on the case submitted in May 2021. Our current understanding (September) is that the Tax Agency at the moment is dealing with cases submitted in March/April 2021.
This is probably only an initial bump in the road due to many companies having to make the registrations at the same time. In the long run, there is not likely to be a long processing time and we are grateful for the online portal, especially given that most people around the globe have been working from home during the pandemic.
Working from home has made printing and signing documents difficult, especially if you require several original signatures on the same document. The way the portal is designed, it has been possible to avoid having the registration applications signed with blue ink and submitted with original signatures. Companies have had the possibility to receive the F-tax bill, and as a result, receive full payment of their invoices, i.e. avoid a 30% tax withholding and wait until next year for the possible refund.
In the south of Sweden, there are about 15,000 to 18,000 people commuting on a daily basis to jobs in Denmark and the Copenhagen area. There are special provisions making the day-to-day life being an employer easy. As long as the employee works at least 50% in Denmark during each three- month period, all work is deemed performed in Denmark and the Danish employer can withhold Danish tax and pay Danish social security contributions. This means that the Danish employer does not have to deal with Swedish employer payroll obligations in addition to the Danish ones each month.
Then the pandemic happened, and people were asked to work from home. There were travel restrictions between the countries and lots of people worked more than 50% from home in Sweden, hence the special provision was no longer met by everyone. Luckily for employees, there is an agreement to transfer tax between Sweden and Denmark, but while it takes some time for the authorities to make the transfer, it is a quite convenient feature for occasions like this. The challenge lies probably with the Tax Agency to estimate the number of staff they need to dedicate to these job tasks this and next year.
For Danish employers having staff working from their home in Sweden, the new rules in Sweden means that they may need to deal with Swedish tax withholds alongside the Danish tax withholding. At the moment, there are lobby groups working hard to develop a new simplified solution suitable for this topic and this region. Well, crisis is the mother of invention so we rest assured there will be a suitable solution in place shortly!
The new normal is now around the corner – where will staff be working in the next couple of years? From home, inside or outside the country? From summer houses in another country? And when recruiting globally, will people avoid moving to another country signing a new employment contract because we all learnt to work digitally? This is the time to assess and develop guidelines on the preferred place of work so that line managers know when to accept and decline questions from staff on this subject and have records of guideline compliance created.
“Hello, tax officer here, how can I help you?”
Senior manager, KPMG