What is a permanent establishment?

A non-Swedish company with a permanent establishment in Sweden must pay corporate income tax here. The income is classified as income from business activities.

The definition of a permanent establishment is specified in the Swedish Income Tax Act. There are general rules, which also apply to building and construction sites, and rules that apply to non-Swedish companies with a dependent agent in Sweden.

If Sweden has a tax convention with the country in which your company is established, this will normally include:

  • general rules
  • rules regarding dependent agents
  • special rules for building and constructions sites.

If there is a tax convention, a non-Swedish company is only liable to pay corporate income tax in Sweden if it has a permanent establishment in accordance with both Swedish law and the tax convention regulations.

A non-Swedish company has a permanent establishment in Sweden if it carries out business activities entirely or partly from a specific permanent location in Sweden.

A company can also have a permanent establishment in Sweden even if it does not operate from a permanent location. This can be the case, for example, when operations in Sweden are run by a dependent agent.

According to the general rules, a permanent establishment is a permanent location for business activities, from which the business is entirely or partly run. Three criteria denote a permanent establishment:

  • there must be a fixed place of business
  • the place of business must have a certain degree of permanence
  • the business must be entirely or partly run from this location.

A company’s fixed place of business could be a business premises or other location. A company can also have several locations that are all permanent establishments in their own right. A place of business must be a specific geographical location that is commercially coherent and is used by the company. It does not matter whether the company owns, rents or holds the location in some other way. The usage of the location determines whether it is considered a permanent establishment, i.e. that business activities are carried out there.

A fixed place of business could be a:

  • home office
  • management office
  • workplace on another company’s premises
  • factory
  • workshop
  • site for building, construction or installation work

More about home offices

A home office can be counted as a permanent establishment if an employee performs tasks for the company there on a regular and continuous basis. The Swedish Tax Agency will make an assessment based on various factors, such as whether or not the company has made any other workplace available to the employee, and the necessity of such a workplace.

One example of the home as a permanent establishment is when an employed consultant regularly and continuously carries out consulting work (the company's business activities) from home. Another example is a sales representative who carries out sales activities from home, such as contacting potential customers. As a general rule, the employee must work from home on a regular and continuous basis.

A place of business is normally considered permanent if it will operate for at least six months. In certain circumstances, however, a place of business can be considered permanent even if it operates for a shorter period of time.

Annually recurring activities for a shorter period of time

A location can be regarded as fixed place of business if a company’s business activities return there annually, even if the activities are run for less than six months per year. Business activities must be carried out at the location for a minimum of two to three months per year for at least three years.

Example:

If a company carries out business activities at the same location for three months of the year over a period of three years, it will normally be regarded as a permanent establishment.

A trader who moves between several locations in Sweden can be regarded as having a fixed place of business if she or he often returns to the same specific place. Market traders who regularly operate from the same location can therefore be regarded as having a permanent establishment.

The non-Swedish company’s business activities must be carried out from the fixed place of business.To determine whether the company’s business activities are being carried out, it is necessary to define the nature of the business, i.e. the company’s business concept and core activities. These are the activities that must be carried out entirely or in part from the company’s place of business.Functions that typically form the core of a company’s business activities include:

  • business management
  • sales
  • research and development
  • production.

Even if a non-Swedish company conducts only part of its business at the location in Sweden, it can still be regarded as a permanent establishment.

Business management

If the company’s management function is based at a fixed location in Sweden, this is regarded as a permanent establishment if the management function carries out some part of the company’s activities at the location. A management function can encompass various executive levels in addition to the company’s highest leadership. Examples of management roles include the CEO, board of directors and staff managers.

Non-Swedish staffing and recruitment companies

A staffing and recruitment company’s business consists of acquiring assignments, recruiting personnel and providing staff for assignments. A non-Swedish company engaged in staffing activities from a fixed location in Sweden is regarded as having a permanent establishment here.

Preparatory or auxiliary activities

A company’s business activities must be distinct from activities that are preparatory or auxiliary in nature.A non-Swedish company is considered to carry out auxiliary activities and lack a permanent establishment if, for example:

  • its accounting or payroll management function is located in Sweden
  • this function is not the company’s core business
  • only this function is located in Sweden,

An example of preparatory activities is when a non-Swedish company employs someone in Sweden solely to investigate the possibility of establishing the company's business here in the future, through activities such as market research or analysis. However, when the company begins contacting potential customers about sales, its activities will no longer be considered as preparatory in nature.

  • If the activities carried out in Sweden are purely preparatory or auxiliary, the place of business is not regarded as a permanent establishment. Activities that contribute only indirectly to the company’s income are considered to be preparatory or auxiliary activities. However, if the activity is significant for the company’s planning or decision-making, it can be regarded as a business activity.


If the three criteria in the general rules (fixed place of business, permanence and business activities) are not met, the company may still have a permanent establishment in accordance with the rules regarding dependent agents.

A permanent establishment can exist if a non-Swedish company is represented by a dependent agent in Sweden. A dependent agent acts on the company’s behalf and is normally under contract to the company.

A dependent agent could be:

  • an employee
  • the company’s CEO
  • a contractor

The details of the contract between a non-Swedish company and a dependent agent depends on the nature of the business the company conducts through its agent. The agent must, however, be significantly dependent on its employer or client (i.e. the non-Swedish company).

Indications of a dependent relationship may be that the agent has:

  • a low business risk
  • few or no other clients.

A power of attorney does not need to be formalised for the non-Swedish company to be bound by agreements concluded by its dependent agent. However, these agreements must relate to the company’s core business.

A non-Swedish company that conducts sales in Sweden has a permanent establishment if a dependent representative concludes binding agreements on the company’s behalf.

A permanent establishment does not exist if the agent only carries out activities such as:

  • taking customer orders
  • communicating prices and discounts
  • running credit checks, if all other terms of agreement are decided in the company’s country of establishment

However, a permanent establishment may exist if customer orders are:

  • received by the dependent agent and regularly approved by the non-Swedish company
  • passed on to a warehouse abroad for the dispatch of goods

Such cases may indicate the conclusion of agreements on behalf of the non-Swedish company, even if the dependent agent is not formally authorised to conclude such agreements.

 

Building and construction sites

Sweden’s tax conventions include special rules that apply when a non-Swedish company conducts building, construction or installation projects in Sweden (these will subsequently be referred to here as building projects).

The building rules are important when assessing whether a non-Swedish company should pay income tax in Sweden, since this depends on the company having a permanent establishment as defined by both Swedish law and the tax convention.

Please note that in the case of building projects, the presence of a dependent agent does not convey permanent establishment status.

Under a tax convention’s building rules, a non-Swedish company’s building project in Sweden must be in operation for a certain length of time to be considered a permanent establishment.

The time period varies for different tax conventions, but it is commonly either six months or twelve months.

The building rules apply to:

  • construction of buildings, roads, bridges or canals
  • renovation of buildings, roads, bridges or canals
  • laying of pipework, excavation, etc.
  • installation of heavy equipment

The building rules do not apply to property maintenance and facility management in existing buildings.

Renovation is subject to the building rules. However, they does not apply to simpler repairs and maintenance, or painting and wallpapering in connection with these.

The planning and management of a building project can also be subject to the building rules. This is assessed on a case-by-case basis. If planning and management are carried out at the site of the building project, then the building rules normally apply. If these activities are carried out instead by a non-Swedish building company’s separate planning and management office in Sweden, and the office offers services to other building projects, then the building rules do not normally apply.

For activities not covered by the building rules, the general rules determine whether or not the company has a permanent establishment.

Which activities are included in the time period?
  • preparatory work, for example setting up a planning office for construction work
  • building, construction and installation
  • adjustments when the project is close to completion
  • a final inspection and any subsequent measures that need to be taken
  • temporary interruptions due to weather, material shortages, labour problems, etc.

Which activities are not included in the time period?
  • Guarantee work

The time period starts when the building company physically establishes itself on a building site in Sweden. The activities included in the project, and thus in the project period, depend on what has been agreed between the parties.

However, time for preparatory work is also included, for example to establish a planning office for the project. Temporary interruptions due to issues such as weather, material shortages and labour problems are also included in the time period. According to Swedish practice, other interruptions, such as when another contractor performs work at the site, should not be counted in the time period. In such case, only the actual duration of operations is counted. In other words, the periods before and after the interruption (assuming these periods relate to the same building project). Any adjustments close to the time of completion are also included in the project period. The time for a final inspection and post-inspection measures is also included. A project is considered completed when the building company leaves the site.

Guarantee work arising after the company has left the building site is not normally included in the project period.

If a non-Swedish building company carries out several simultaneous building projects in Sweden, these will be assessed separately. This applies if the projects have no economic and geographical connection with each other. Where several construction projects have an economic and geographical connection, they will be viewed as a single project when assessing the time period.

Only those projects that extend beyond the time period stated in the current tax convention (often six or twelve months) are considered to have a permanent establishment. This means that a company may have some project sites that are permanent establishments and others that are not.

The non-Swedish company has only one corporate identity number and files a single corporate income tax return for all projects that have a permanent establishment. The results from these permanent establishments are combined and declared in the corporate income tax return.


Taxes, fees and bookkeeping

Having a permanent establishment in Sweden has implications for a company’s taxation, employees and bookkeeping obligations.

A non-Swedish company with a permanent establishment in Sweden:

  • is taxed in Sweden on income from the permanent establishment
  • pays special payroll tax on pension contributions for employees
  • pays employer contributions for employees at the higher rate
  • deducts and pays in preliminary tax/special income tax for non-residents (“SINK”) on employees’ salaries. The company’s employees pay income tax on earnings for work they do in Sweden
  • has bookkeeping obligations for its activities in Sweden if the permanent establishment meets the criteria to be regarded as a branch
  • has a general duty to document if the permanent establishment does not meet the criteria to be regarded as a branch.

A non-Swedish company with a permanent establishment in Sweden is taxed on income from the permanent establishment and must pay income tax in Sweden.

An assessment of whether or not a company has a permanent establishment is made in accordance with both Swedish law and any tax convention that exists between Sweden and the company’s country of establishment.

 

Employers that have paid premiums for occupational pension schemes for staff must pay special payroll tax on pension contributions.

This means that a non-Swedish company that has a permanent establishment in accordance with Swedish law must pay special payroll tax on pension contributions. This applies even if the income from the permanent establishment is exempted from taxation in accordance with a tax convention with the company’s country of establishment. In such cases, the company must file a corporate income tax return, where the basis for special payroll tax on pension contributions will be declared.

A non-Swedish company with a permanent establishment in Sweden according to Swedish law must pay employer contributions at the higher rate, as would a Swedish company.

The company must also make deductions from employees’ salaries, for example for preliminary tax or special income tax for non-residents (“SINK”), and make payments to the Swedish Tax Agency on behalf of its employees.

Employer contributions and deducted tax must be declared in the company’s PAYE tax return.

All employees must pay income tax on earnings from the work they do in Sweden for a non-Swedish employer with a permanent establishment in Sweden.

The requirement to pay corporate income tax in Sweden is based on whether or not the company has a permanent establishment here. Registration of a branch does not automatically confer permanent establishment status. A company can therefore have branches in Sweden that do not have a permanent establishment. In addition, a company can have a permanent establishment that does not need to be registered as a branch.

The requirement to register a branch, according to the Foreign Branches Act (1992:160), also confers bookkeeping obligations. A non-Swedish company whose operations in Sweden are encompassed by this Act has the same bookkeeping obligations as a Swedish company.

A non-Swedish company whose operations in Sweden are not encompassed by the Foreign Branches Act has a general duty to document if the company is required to file tax returns in Sweden.

If a company does not have a permanent establishment in Sweden, this will affect the company’s taxation, employees and bookkeeping obligations.

A company that does not have a permanent establishment in Sweden:

  • is not taxed on income from a permanent establishment but may be liable to pay tax in Sweden on other grounds, for example if it owns a property here
  • pays employer contributions at the lower rate
  • does not deduct preliminary tax or special income tax for non-residents (“SINK”) from employees’ salaries
  • can enter into an agreement with employees in Sweden whereby its employees declare and pay employer contributions to the Swedish Tax Agency on the employer’s behalf (this is known as a social security agreement)
  • has bookkeeping obligations for its operations in Sweden if it does not have a permanent establishment but fulfils the criteria for being registered as a branch
  • has a general duty to document if it does not have a permanent establishment and does not fulfil the criteria for being registered as a branch
  • may have some employees who are exempted from paying income tax in Sweden for the work they do here, if the employees live abroad.

A non-Swedish company that does not have a permanent establishment in Sweden pays employer contributions at the lower rate. This is because the company does not pay the general payroll fee, which is included in the higher rate. Also, the company does not deduct tax from employees’ salaries. Employees must pay their own preliminary tax or special income tax for non-residents (“SINK”) to the Swedish Tax Agency.

The company can enter into an agreement with employees in Sweden whereby its employees declare and pay employer contributions to the Swedish Tax Agency on the employer’s behalf. This is known as a social security agreement.

Employer contributions and deducted tax must be declared in the company’s PAYE tax return.

A non-Swedish company that does not have a permanent establishment in Sweden is not taxed on income from a permanent establishment but may be liable to pay tax in Sweden on other grounds, for example if it receives royalties from Sweden or owns a property here.

An assessment of whether or not a company has a permanent establishment is made in accordance with both Swedish law and any tax convention that exists between Sweden and the company’s country of establishment.

Employees who live abroad may be exempted from paying income tax in Sweden on their earnings for the work they do here. The exemption applies if all of the following criteria are met:

  • the employee spends less than 183 days in Sweden during a 12-month period
  • the employer is not based in Sweden
  • the employer does not have a permanent establishment in Sweden.

The requirement to pay corporate income tax in Sweden is based on whether or not the company has a permanent establishment here. Registration of a branch does not automatically confer permanent establishment status; it is possible to have a registered branch that does not have a permanent establishment in Sweden.

The requirement to register a branch, according to the Foreign Branches Act (1992:160), also confers bookkeeping obligations. A non-Swedish company whose operations in Sweden are encompassed by this Act has the same bookkeeping obligations as a Swedish company.

A non-Swedish company whose operations in Sweden are not encompassed by the Foreign Branches Act has a general duty to document if the company is required to file tax returns in Sweden.


How to calculate income from a permanent establishment in Sweden

A non-Swedish company with a permanent establishment must determine which income comes from the permanent establishment and should be declared in Sweden. This is called profit attribution.

On this page, you can find out how to attribute profit to a permanent establishment. For more detailed information, please visit our transfer pricing and profit attribution page.


A permanent establishment must report its results as if it were a “distinct and separate” enterprise. Through profit attribution, the company separates the results of the permanent establishment in Sweden from the results of other operations outside Sweden.

The internationally accepted profit attribution method, developed by the Organisation for Economic Co-operation and Development (OECD) is known as the Authorized OECD Approach (AOA). This method is based on a two-step process:

In the first step, the company must identify:

  • the operations carried out in the permanent establishment
  • its most economically significant activities
  • business transactions between the permanent establishment and the rest of the company

A permanent establishment is part of another company. In practice, this means there are no transactions between the permanent establishment and the rest of the company for which the permanent should be paid. Instead, there are other types of interactions that must be priced. An example is when the permanent establishment carries out some part of the company’s operations, such as manufacturing products or providing sales services.

These interactions must be identified and priced as business transactions. The OECD refers to these transactions as “dealings”.

In the second step, the company sets prices for the “dealings” identified in step one. The company must do this in accordance with the “arm’s length principle”, in line with the OECD’s guidelines on transfer pricing. The “arm’s length principle” means that prices and conditions must correspond to those that would have been agreed between unaffiliated companies in comparable circumstances.

The results for the permanent establishment should be calculated based on all the activities carried out there, including:

  • dealings with the other parts of the company to which the permanent establishment belongs
  • transactions with other companies within the same group, where rights and obligations have been attributed to the permanent establishment
  • transactions with independent companies, where rights and obligations have been attributed to the permanent establishment.

 

A permanent establishment’s accounts serve as the basis for calculating its results. However, the permanent establishment may need to make adjustments to the corporate income tax return to ensure that the declared revenue matches the income from business activities and transactions that have been priced in accordance with the arm’s length principle.

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