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Permanently established in Sweden or not

If a foreign enterprise is liable to pay income tax in Sweden is determined by whether the company has a permanent establishment in Sweden or not. If the enterprise has a permanent establishment in Sweden it is to be taxed for business income. An "enterprise" can be a sole trader or a legal person.

Permanent establishment is defined in the Swedish Income Tax Act [cit: ITA]. There is a general definition, and also rules for when a permanent establishment may be created by a person acting on behalf of the enterprise. The definition mainly conforms with the permanent establishment definition found in the OECD Model Tax Convention on Income and Capital.

If Sweden has an agreement for the avoidance of double taxation (a tax treaty) with the country from which the enterprise originates, a permanent establishment must be present both in accordance with the ITA and the tax treaty for the enterprise to have a liability to pay income tax. In accordance with the ITA, foreign enterprises have a permanent establishment in Sweden if they carry on business wholly or partly from a fixed place of business in Sweden. A business operation is usually considered to be "fixed" as in having a certain degree of permanence when it is carried on for a time period of six months. In most tax treaties that Sweden has entered into with other states, building sites, construction or installation projects are considered to be fixed (have such a degree of permanence) when they are carried on for more than twelve months.

A foreign enterprise may have a permanent establishment in Sweden even when there is no fixed place here that the business operations are carried on from. This may be the case when the business operations in Sweden are carried on through a dependent agent.

A foreign enterprise is required to submit a tax application (form SKV 4632) to the Swedish Tax Agency if it has a permanent establishment in Sweden , is an employer in Sweden or conducts business for which it is liable for Swedish VAT. The Swedish tax Agency may then approve the enterprise for Swedish F-tax and decide if the enterprise is to pay preliminary income tax, special salary tax on pension costs (in Swedish: särskild löneskatt på pensionskostnader), pension yield tax (in Swedish: avkastningsskatt på pensioner) or real property fees (in Swedish: fastighetsavgift).

A foreign enterprise´s business operations in Sweden may be carried on through a branch. The enterprise is then to register the branch with the Swedish Companies Registration Office (in Swedish: Bolagsverket).

More information on:

Permanent establishment in accordance with the general definition

A permanent establishment is defined in accordance with the general definition as a fixed place of business through which the business of an enterprise is wholly or partly carried on. Three conditions must be met for the creation of a permanent establishment:

  1. a distinct "place of business",
  2. which must be "fixed" as in having a certain degree of permanence, and
  3. the business of the enterprise must be carried out through that fixed place of business.

The general definition contains a list of examples of what a permanent establishment may be constituted by:

  • a place of management
  • a branch
  • an office
  • a factory
  • a workshop
  • a mine
  • an oil- or gas well,
  • a quarry or any other place of extraction of natural resources
  • a building site or construction or installation project
  • real property which is a current asset in a business operation.

More on ‘place´

The place must be established at a distinct geographical location or be commercially cohesive, and be used by the enterprise. It does not matter if the enterprise owns, rents or otherwise disposes the place. It is the factual circumstances — if business operations are carried on from the place — that determines if there is a permanent establishment. It may be premises, machines or other spaces or equipment. An example of a place is a computer server for internet based trade. An employees home may in certain circumstances constitute a place of business. Other examples are a work-place in another enterprises´ premises or an allotted part of a market square. An enterprise may have several geographic locations each one constituting a permanent establishment.

A home office may constitute a permanent establishment if an employee regularly and continuously carries out work for the enterprise there. The Swedish Tax Agency will make an assessment of all relevant circumstances in every case. Circumstances that are of importance are, among others, if the enterprise has made another place available to the employee and if such a place is needed. How the home office is furnished is of no importance.

An example is an employed consultant that regularly and continuously conducts consulting operations (the core business of the enterprise) from his or her home. Another example is if a seller uses the home in the selling operations, for example to find customers. Generally, the work conducted in the home is to be regular and continuous.

A certain degree of permanence

A business operation is normally deemed to have a certain degree of permanence if it is carried on for six months.

Foreign enterprises only active in Sweden

A foreign enterprise active only in Sweden may have a permanent establishment here even if the foreign enterprise conducts business in Sweden for a shorter period than six months, for example during work of a seasonal nature.

Yearly recurring business operations for shorter time periods

Business operations that are yearly recurring at the same place may have the requisite degree of permanence even if it is conducted for a shorter period of six months per year. The business operations are to be conducted for more than two to three months per year to be considered to have the necessary degree of permanence. If the business operations are conducted for three months per year during a period of three years it normally means that a permanent establishment is in place.

A seller that moves between different districts in Sweden is for example conducting business if the seller often returns to the same place. Market square sales that are conducted often enough from one and the same place may mean that a permanent establishment is in place.

Business operations

The core business operations of the enterprise

It is the foreign enterprises core business operations that must be wholly or partly carried on from the fixed place for the enterprise to be deemed to have a permanent establishment. A "core business operation" is to be understood as an essential and substantial part of an enterprises business operations. Examples of functions that typically comprises core business operations are management, sales, research and development and production. Even if only a part of the foreign enterprises core business operations are carried on in Sweden, a permanent establishment may be in place.

Preparatory or auxiliary activities

If the business operations conducted are solely preparatory or auxiliary, no permanent establishment is in place. Business operations that only indirectly contribute to the enterprises incomes are considered preparatory or auxiliary. If the operations contribute to the foreign enterprises planning or decision making, it may be viewed as a core business operation.

A foreign enterprise is considered to be conducting business operations of an auxiliary nature and lack a permanent establishment if it for example has its accounting function in Sweden and:

  • these functions are not a part of the enterprises core business operations, and
  • only these functions are carried out in Sweden.

An example of activities of a preparatory nature are if a person is employed in Sweden by a foreign enterprise only to assess the possibilities of a future establishment of the foreign enterprises core business operations here, for example by a market survey or market analysis. When the foreign enterprise contacts customers to conduct sales, the business is no longer of a preparatory nature.

Place of management

If the enterprises management is at a fixed place in Sweden, a permanent establishment is in place if the management carries on any part of the enterprises business operations there. It does not have to be the enterprises top (highest ranking) management. Examples of a leading person may be a CEO, a member of the board of directors or a staff manager.

Foreign staffing agencies

A staffing agency´s core business operations consists of acquiring staffing assignments, recruiting personnel and manning the assignments. A foreign enterprise conducting staffing operations from a fixed place of business in Sweden has a permanent establishment here.

Dependent agent

A foreign enterprise may have a permanent establishment in Sweden even if there is no fixed place that the business operations are wholly or partly conducted from. For example, a permanent establishment is in place if a person is active on behalf of a foreign enterprise in Sweden and has an authorization that he or she habitually uses to conclude contracts in the name of the enterprise. Such a person is called a ‘dependent agent´ and may be an employee, a contractor or the CEO of the enterprise.

The agent must be dependent on the principal, the foreign enterprise. Indicators of dependence could be that the agent has a low entrepreneurial risk or few principals, i.e. that he or she receives the main part of his/hers incomes from the same foreign enterprise.

Factual authorisation and acting on behalf of

The authorisation to act on behalf of the foreign enterprise does not need to be formalised for the foreign enterprise to be bound by the contracts that the agent enters into. The contracts do have to pertain to the foreign enterprises core business activities.

A foreign enterprise that conducts sales in Sweden has a permanent establishment if a dependent agent, in the name of the enterprise or in its own name, concludes binding contracts on behalf of the foreign enterprise. A permanent establishment is not in place if the agent only receives customer orders, conveys prices and discounts and rates credits, if the other terms of the contract are decided from abroad.

But: there may be a permanent establishment in place if:

  • customer orders are received by the agent and the foreign enterprise regularly approves this
  • customer orders are conveyed to a warehouse abroad for dispatch of goods .

These are indications that contracts have been concluded even though a formal authorisation may be missing.


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