Sweden is renowned for having one of the highest tax rates in the world. Despite this, the country boasts a high standard of living, with free healthcare and education among its many benefits. As a result, Swedish residents and businesses are accustomed to paying high taxes.
But what about non-Swedish entrepreneurs who are coming to work temporarily in Sweden? Will they also be subject to the country's steep taxes? In this article, we will explore the tax implications for individual (sole trader) and corporate perspectives, and how to avoid them.
Does Sweden want to tax me as self employed consultant?
As a sole trader, you're a person who operates a business without forming a company. According to Swedish tax law, sole traders are liable for Swedish business tax if they:
Are considered tax residents of Sweden, and/or
Have a permanent establishment in Sweden.
As a general rule, a sole trader can stay in Sweden for up to six months without becoming a tax resident. However, the Swedish tax residency rules are not straightforward. Unlike most other countries, Sweden does not have an explicit day-count requirement. In fact, time spent outside Sweden can also be considered as time spent in Sweden, depending on individual circumstances. Seeking professional advice is, therefore, essential if you want to stay below the tax liability threshold. Also, even if one becomes tax resident according to Swedish domestic law, the provisions of an applicable tax treaty can hinder Sweden from taxing a person. Whether this is the case requires an analysis of the tax treaty residency, and the case in point in relation to whether a permanent establishment is at hand. Please reach out to us if you are in need of such advice.
Does Sweden want to tax my non-Swedish company?
For non-Swedish corporations, Swedish tax liability is triggered if they are considered to have a permanent establishment in Sweden. A permanent establishment generally arises after a minimum of six months of activity at a permanent location in Sweden. The Swedish rule on permanent establishment generally corresponds with the corresponding rule of the OECD model treaty. However, there are some interesting tax optimization strategies for consultants working from home, as a result of a legal opinion issued by the Swedish Tax Agency that differs to some extent from the OECD's opinion.
Also, tax treaties do often offer advantages, compared to Swedish domestic law, since extended time periods usually apply for construction projects of a foreign company, under the so-called "construction rule". An analysis of each planned construction project in Sweden should be made in advance. Non-compliance can result in painful tax penalties, which can amount to 40 % of the taxes levied.
It's worth noting that Sweden has introduced new legislation as of 2021 to increase the Swedish Tax Agency's ability to discover foreign businesses operating in Sweden. Therefore, foreign companies must register for F-tax or a withholding exemption decision to avoid withholding tax on their invoices for services performed in Sweden. At taxhelpsweden, we prefer the withholding tax exemption decision as it avoids some major administrative obligations compared to F-tax. However, there is no form available for the withholding exemption, and seeking professional advice is therefore necessary. Let us know if you need assistance with F-tax or a Withholding Exemption.
Summarizing remarks
To summarize, there are ways for foreign businesses with limited activity in Sweden to only be taxed in their home jurisdiction. However, this requires careful planning and professional advice. In most cases, seeking such advice is worth the extra expense, both financially and to avoid heavy administrative burdens, and to avoid tax penalties.
Do you run a foreign company that intends to conduct business in Sweden, or are you planning to work from Sweden as a foreign sole trader? Reach out to us with your queries, and make sure that no tax surprises will arise.
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