What is a permanent establishment?

A non-Swedish company with a permanent establishment in Sweden must pay corporate income tax here.

This guide will help you decide whether or not your company has a permanent establishment in Sweden:

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, the provisions with regard to permanent establishments 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.

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 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 part of the home can count as a permanent establishment if an employee runs the company's operations from there on a continuous basis. The Swedish Tax Agency will assess the situation on a case-to-case basis. One factor that is taken into consideration is whether or not the company has access to any other workplace.


A place of business is normally considered permanent if it has been in operation for six months or more.

Annually recurring activities

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.

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.

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. If the activities carried out in Sweden are purely preparatory or auxiliary, the place of business is not regarded as a permanent establishment. For example, this is the case: 

  • the company's 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,

Another example of preparatory or auxiliary 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.

A permanent establishment may still exist, even if a non-Swedish enterprise does not have a permanent place of business in Sweden from which the business is wholly or partly carried out. This is the case if the enterprise has a representative in Sweden who has a power of attorney and uses it on a regular basis to conclude agreements on the company’s behalf. This representative is known as a dependent agent. Such a representative could be an employee, a contractor, or the company’s Chief Executive Officer, for example.

There are no specific rules for how a power of attorney should be formulated. However, it must cover agreements concluded in connection with the client’s business operations. In other words, these agreements must relate to the non-Swedish enterprise’s core business. For a permanent establishment to exist, the dependent agent must be present in Sweden for at least six months. The power of attorney must be used on a regular basis. To determine whether a power of attorney has been used on a regular basis, both the types of agreements concluded and the nature of the enterprise’s business must be taken into consideration.

A power of attorney does not need to be formalised for a 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 agent concludes binding agreements on the company’s behalf.

A permanent establishment does not exist if an 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 a dependent agent receives customer orders which are regularly approved and delivered to customers by a non-Swedish company.

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

Sole traders

In Sweden, a sole trader cannot be a dependent agent of his or her own sole trader business. The Swedish Tax Agency considers that a two-party agreement is required for a power of attorney to be issued. However, a sole trader can be a dependent agent of another company.

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, charges 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 for employees who are covered by Swedish social security
  • deducts tax from employees’ compensation for work
  • employees living outside Sweden are taxed on their compensation for work 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 full employer contributions – including general payroll tax – for employees who are covered by Swedish social security.

The company must deduct tax from its employees’ compensation for work and pay it to the Swedish Tax Agency – just as Swedish employers/payers have to do.

The tax deduction that has to be made from an employee’s compensation for work is determined by whether the recipient has unlimited or limited tax liability in Sweden, and whether or not this compensation constitutes their main income. If the Swedish Tax Agency has reached a decision regarding SINK or a special calculation basis (tax adjustment), for example, the company must deduct tax from its employees’ compensation for work accordingly.

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

When a company has a permanent establishment in Sweden, compensation for work in Sweden is subject to taxation when paid to employees living outside Sweden – regardless of whether they work here for an extended period or temporarily.

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.

Not having a permanent establishment in Sweden will affect a company’s taxation, employees and bookkeeping obligations.

A company without 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
  • may be obliged to provide the Swedish Tax Agency with specific information
  • pays employer contributions at the lower rate (i.e. the company does not pay general payroll tax)
  • deducts tax from employees’ compensation for work in Sweden
  • 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)
  • may have some employees who live abroad and are exempted from paying income tax in Sweden for the work they do here
  • has bookkeeping obligations for its activities in Sweden if the company meets the criteria to be regarded as a branch
  • has a general duty to document if the company does not meet the criteria to be regarded as a branch

A company without a permanent establishment in Sweden does not have to file an income tax return with the Swedish Tax Agency or pay tax to the Swedish Tax Agency on its income. However, the company may have to file an income tax return with the Swedish Tax Agency if, for example, 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.

If a company does not have to file an income tax return with the Swedish Tax Agency, yet it fulfils any of the following conditions:

  • it is F-tax certified
  • it is liable to deduct preliminary tax from compensation for work
  • it is obliged to provide the equipment necessary to keep an electronic staff register on a building or construction site

the company must provide the Swedish Tax Agency with specific information regarding:

  • its activities in Sweden
  • the time period over which the activities have been carried out
  • any other information that the Swedish Tax Agency requires to assess tax liability under the Swedish Income Tax Act

The Swedish Tax Agency may grant an exemption from the obligation to provide specific information if these details are not required to assess tax liability. The exemption applies for a limited period of time and may be revoked.

A non-Swedish company that does not have a permanent establishment in Sweden must pay employer contributions at a reduced rate. This is because the company does not pay general payroll tax, which is included in the higher rate.

Tax must be deducted from compensation paid for work in Sweden. The work should be considered as work in Sweden even if the employee works abroad within the framework of the payer’s operations in Sweden. If all of the work is carried out abroad, this is not usually regarded as work in Sweden, and there is therefore no obligation to deduct tax.

There is one exception to the rule that tax must be deducted from compensation for work in Sweden. If salaries and other compensation are exempt from Swedish tax, in accordance with the 183-day rule included in the regulations on special income tax for non-residents (“särskild inkomstskatt” or “SINK”), the company concerned should not deduct tax from them. Please note that outsourced (hired-out) workers are no longer tax exempt under the 183-day rule.

Preliminary tax must be deducted from compensation paid for work in Sweden at the rate of 30%. If the Swedish Tax Agency has reached a decision regarding SINK or a special calculation basis (tax adjustment), for example, the company must deduct tax from its employees’ compensation for work accordingly. 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. However, an employer can never be exempted by agreement from its obligation to declare and pay the deducted tax to the Swedish Tax Agency.

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

A company’s employees who live abroad and are covered by special income tax for non-residents (“särskild inkomstskatt” or “SINK”) are taxed on their income for work in Sweden. Some of these employees may be exempted from taxation in Sweden – provided that all of the following three criteria are fulfilled:

  • the employees in question live in Sweden for less than 183 days during a 12-month period
  • the employer is not based in Sweden
  • the employer does not have a permanent establishment in Sweden

This is known as the 183-day rule. Outsourced workers are no longer tax exempt under the 183-day rule.


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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