Employer issues for foreign entrepreneurs
When you pay your employee(s) for the first time you must check if you need to operate PAYE (Pay As You Earn) and register as an employer with the Swedish Tax Agency. There are two parts to the Swedish PAYE:
- tax deductions on salaries/benefits, and
- employers contributions for social insurance.
You should in many cases register as an employer with the Swedish tax agency before:
- you hire someone for the first time in Sweden (or hire someone abroad if the person adheres to the Swedish social insurance scheme), or
- send someone to Sweden to conduct work.
As an employer, you may have the following obligations in Sweden:
- Operate PAYE and deduct taxes on remunerations for work.
- Pay employers contributions.
- Submit PAYE tax declarations.
- Submit income statements.
- When you are no longer an employer, to deregister.
Please find more information on the taxation of foreign entrepreneurs in Sweden here.
You can find further information on registering as a foreign entrepreneur by submitting the Tax application for foreign entrepreneurs (SKV 4632) form,.
You can find information on how to fill out your PAYE forms here, in the “VAT and PAYE return brochure" (SKV 409B).
Salaries and benefits
Salaries
Salaries, or wages, are any payments to the employee made for work performed.
Benefits
Benefits are all other kinds of non-monetary compensations. In principle a benefit is issued as soon as the employer funds a private expense for the employee.
The general rule is that a benefit is taxable in Sweden if there are no regulation specifically exempting it from taxation, i.e. that the benefit is a tax free benefit under Swedish law.
A benefit is normally valued to the market value. In some cases, the taxation of the benefit is made at a standardised value. If an employee pays the employer for a benefit, the value used for taxation is to be reduced with the amount paid.
You can find more information on issuing benefits and perks here.
Social insurance schemes and employer contributions
If the employee is part of the Swedish social insurance scheme or not determines the employers obligation to pay employer contributions (social insurance contributions) in Sweden based on salaries paid out and issued benefits.
Foreign employers with a permanent establishment in Sweden
Swedish companies make tax deductions (withhold preliminary tax) and pay employers contributions at the full rate. A foreign company makes tax deductions and pay contributions at the full rate if it has a permanent establishment in Sweden. Their employees use the same A-tax certificate as employees with Swedish companies.
Foreign employers lacking a permanent establishment in Sweden
PAYE not applicable on tax deductions
An employer lacking a permanent establishment in Sweden may not withhold preliminary tax on paid salaries or issued benefits.
See Wages paid by a foreign employer without a permanent establishment in Sweden.
Employee tax registration
Natural persons who are to be taxed in Sweden for their income and who are employed by companies lacking a permanent establishment are to register for special A-tax (SA-tax), and make monthly payments themselves, instead of employer tax deductions.
Employer/employee agreements on the payment of employer contributions (social insurance contributions)
An employer lacking a permanent establishment inSwedenmay enter into a binding agreement with an employee in Sweden that the employee is to assume the obligation to pay his/her own social security contributions.
It is important that the parties agree specifically regarding social insurance contributions. It is not sufficient to state (for example) that the agreement is applicable to all taxes. Please specify that the agreement pertains to social insurance contributions (employer contributions). We recommend that such agreements are put in writing.
When an agreement is in place, the employee must contact his Swedish tax office and apply for a special A-tax (SA-tax) certificate and state that he/she is to pay his/her own social insurance contributions.
The obligation for the employer to submit an income statement remains, most often on a KU10 income statement form. On the KU10 form, the sum should be put in box 25 , with a supplementary note in box 67 that the sum refers to "an agreement on social insurance contributions".
Please note that the employee is required to notify the Swedish Tax Agency of the existence of the agreement in his income tax declaration.
Reduced employers contributions
Employers lacking a permanent establishment pay employers contributions at a reduced rate, since the employer is not taxable in Sweden, and since a certain part of the contributions are (legally considered to be) a tax rather than a contribution.
The prescribed accounting period
The prescribed accounting periods for PAYE is per calendar month.
the Swedish Tax Agency may (at our discretion) permit the employer to file per annum instead of per month, primarily when:
- the employer is a natural person resident abroad, or
- a foreign legal person lacking a permanent establishment inSwedenand with no business activities in Sweden, and
- there are compelling reasons therefore.
Also, businesses that have activities limited to certain parts of the calendar year often seek and receive permission to file only during the months of activity.
An employer may request to be prescribed a per annum accounting period by contacting the Swedish Tax Agency. This does not affect the prescribed accounting period for VAT, nor any other taxes.
Tax deductions
If you have a permanent establishment in Sweden, you are required to withhold tax on employees salaries and benefits and report them in the PAYE. Otherwise, you may not make tax deductions.
See Wages paid by a foreign employer without a permanent establishment in Sweden.
Swedish tax approvals - check the recipients status
If you have a permanent establishment, it is the payment recipients Swedish tax approval status and Swedish tax status in conjunction that decides if you are to make tax deductions or not.
Approval for F-tax?
In Sweden , an approval for Swedish F-tax is required for a recipient taxable in Sweden to be allowed to manage his own taxes on remunerations received. You can only make payments without withholding tax if the recipient:
- shows a valid F-tax approval or makes reference to an approval for F-tax on an invoice or similar document, or
- the invoice is only for goods, rent or similar (not for services performed), or
- is a company that does not have a permanent establishment in Sweden, or
- is a natural person not liable for, or who is otherwise exempt from, income tax in Sweden.
Withold tax on SEK 1000 and above
A legal or natural person that is taxable in Sweden who does not have an approval for F-tax has an A-tax certificate. You must withhold tax on remunerations paid to such a person as per above if the total sum paid per year is at least SEK 1000, both in regards to legal persons and to natural persons.
Approval for F-tax and foreign entrepreneurs
Most Swedish companies have approval for F-tax. Most natural persons have A-tax. It is possible for a foreign entrepreneur to get an approval for F-tax. Many foreign entrepreneurs apply for an approval for F-tax to ensure that their Swedish business counterparts can be sure that they can make payments to them without making tax deductions.
If the foreign company has a approval for Swedish F-tax, their payees need not investigate if they have a permanent establishment or not. It can be very hard for the payee to know if the recipient has a permanent establishment (or will have one during the fiscal year).
Calculation of tax deductions
Please calculate any tax deductions to be made as follows:
- In accordance with any decision on tax deductions from the Swedish Tax Agency.
- At 30 % if the remunerations are made to a legal person, or if they are not the recipients main source of income.
- In accordance with the applicable Swedish Tax Agency´s tax table, if the remunerations are the recipients primary source of income, and the recipient is not a legal person.
Please notify the recipient of the tax deducted in writing, at each payment made, for example on the slip.
Please also notify the Swedish Tax Agency if a recipient fraudulently shows or makes reference to an approval for F-tax even though the recipient is obviously directly employed by you rather than contracted as an independent entrepreneur. Otherwise, you may later become liable to pay the tax not deducted.
The Swedish social insurance scheme: information for employers
As an employer you may need to pay employers contributions on the remunerations you give to your employees. Remunerations include not only cash amounts but benefits, such as providing your employees with company cars, free housing or free commuter cards.
Many of these contributions go towards building up the employees entitlements to social insurance benefits.
Swedish social insurance - responsible Swedish authorities
The Swedish social insurance authority the Swedish Social Insurance Agency, Försäkringskassan, handles matters of adherence to the Swedish social insurance scheme. Matters of social insurance benefits are handled by Försäkringskassan and the Swedish Pensions Agency.
The Swedish Tax Agency decides on what remunerations are to be a part of the basis for payments of social insurance contributions and annually determines the employees Swedish pension rights.
More information is available at Försäkringskassans web site.
Employee adherence to a social insurance scheme
The obligation to pay employers contributions directly follows the employees adherence to a national social insurance scheme. If an employee is socially insured inSweden , the employer is liable to pay contributions in Sweden on remunerations to that employee.
It is therefore essential to know which states´ scheme your employee(s) belongs to, Swedish or foreign.
General rule - insured in the work state
Regarding people living and working within the EU/EEA, the general rule is that the person belongs to the social insurance scheme of the state in which the person conducts work.
A person working in Sweden may belong to a foreign insurance scheme if the person:
- is posted to Sweden by its foreign employer,
- has posted itself to Sweden as a sole trader (self-employed), or
- has several employments in parallel in different EU/EEA member states.
Employer registration for foreign companies not active in Sweden
A person working abroad may in accordance with the rules on posting or parallel employments belong to the Swedish social insurance scheme. Consequently, a foreign employer with no establishment and no business activities inSwedenmay still be required to register as an employer in Sweden and pay employer contributions.
This is often the case for foreign companies employing Swedish personnel for short term work abroad during the employees vacation time or other leave from their ordinary place of work in Sweden, due to the rules on parallel employment. If one is employed by several employers in several EU/EEA countries in parallel, one adheres to the social insurance system of the state in which one is resident, in accordance with EC rules on residency for social insurance purposes.
Posting employees
Posting is when an employee is sent by his employer (or a sole trader posting him/her self) for a limited period of time to a another country to conduct work there on the employers behalf, and who (by being posted) selects not to enter into the work country´s social insurance scheme. For a posting to be possible, the posted person must, at the time of the posting, belong to the social insurance scheme of the country he or she is posted from.
Social insurance certificates A1 (and E101, E102, E103) and convention certificates
If a person is to detract from the general rule of belonging to the insurance scheme of, and having contributions paid to, the state in which work is performed, that persons employer is required to submit a certificate of social insurance. This shows the Swedish Tax Agency that no contributions need to be paid in Sweden.
Certificate types
Within the EU/EEA, since May 2010, they are called A1 certificates. Certificates prior to May 2010 are called E101, E102 and E103. The certificate states:
what social insurance scheme the person belongs to and why, and
how long the person belongs to that scheme.
Getting social insurance certificates for your personnel
These certificates can be requested from the social security authority in the state whose scheme the person is to adhere to. In Sweden, for example, that authority is Försäkringskassan. Försäkringskassan issues A1 certificates for persons who are to belong to the Swedish social insurance scheme while working abroad.
Outside of the EU, other certificates are available for the countries with which Sweden has entered into conventions on social insurance. For other countries, outside of the EU, no certificates exist, although postings to Sweden in accordance with Swedish internal law are still possible.
Please note that there is generally a time limit of two years for postings, although exceptions can be made in some cases. Contact your local social insurance authority for more information on postings and on getting certificates.
Income taxation and employer contributions are disparate issues
Please also note that an employee may very well be taxed in one country in accordance with the rules in an applicable convention for the avoidance of double taxation (a tax treaty) and still adhere to another countries social insurance scheme, with an obligation for the employer to pay employers contributions in the second country.
