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Over the past year, a dramatic shift has taken place and become everyday reality for many people—from working at an office every weekday to instead working from home, full- or part-time. This hybrid way of work has also made it practicable to continue to work for one’s Swedish employer, but beyond Swedish borders, perhaps in a warmer country.
When an employee wishes to work from another country, there are however certain taxation risks where you as employer must take into account different tax regulations and double taxation agreements between Sweden and the other country which your employee is to work from.
The employer’s tax liability
If the employee, of her own accord, wishes to work from abroad, you as the employer may become liable to taxation according to the rules of the other country. For example, this may apply if the employer is viewed as having a fixed location of operations in the other country, and therefore should be registered for income taxation there. According to the so-called main rule, there are three preconditions for a location of operations to be regarded as fixed: there should be a specific place for activities conducted, the place should be permanent, and activities should be pursued entirely or partly at that place. Combined working hours can also be judged as constituting a fixed location of operations. Taxation risks may also arise for the employer as a consequence of different taxation agreements between Sweden and the other country. Here one must specifically investigate taxation regulations and agreements between the two countries.
The 183-day rule
When you as the employer allow an employee to work from abroad, the employee’s income is not normally subject to tax in the country where the employee is located if the employee resides there for less than six months (183 days). This eventuality must, however, be investigated in relation to the other country’s taxation regulations.
Unlimited tax liability
Your employees working abroad can either be subject to unlimited or limited taxation in Sweden.
Unlimited tax liability means that the employee is obliged to pay tax in Sweden for all income which that person has, regardless of where the income comes from. In order for a person to have unlimited tax liability, she must fulfill one of these conditions:
- The employee must reside in Sweden. It is sufficient that the employee has a physical domicile in Sweden.
- The employee must permanently be present in Sweden during a period of at least six months per year. According to praxis, permanence of residence in Sweden is defined to mean that the person would have 1-2 overnight stays per week in Sweden.
- The employee must have a substantial connection to Sweden. A person is seen as having a substantial connection to Sweden if she has family in Sweden, for example a husband, wife or children. A domicile, property or company in Sweden can also be seen as constituting a substantial connection to Sweden.
If the employee does not fulfill any of the criteria for unlimited tax liability, the person is counted as being subject to limited tax liability. A person with limited tax liability is only liable to pay tax in Sweden for certain incomes which have a connection to Sweden—for example, wages which are paid for activity in Sweden, or capital income derived from a property located in Sweden.
The person moving abroad must, in the course of the first five years in the new country, show that she has no substantial connection to Sweden in order not to be viewed as subject to unlimited tax liability in Sweden. This rule applies only to Swedish citizens, or to those who have been domiciled or permanently resided in Sweden for at least ten years. It should here be emphasized that these are Swedish taxation regulations. An employee choosing to work abroad, regardless of how long she intends to work in the new country, can need to investigate the taxation regulations applying in that country. This may even be the case if, for example, one working day is in question, or an employment period of five months in total.
An employee who works at a distance abroad may be subject to double taxation of the resulting income. However, through double taxation agreements between Sweden and the other country, the tax due in one country may be deducted from the tax due in the other country, or it may be decided that the income should only be taxed in one of the countries. There are also Swedish regulations about the deduction of foreign taxes.
The social insurance benefits of the employee and the employers’ social security contributions should be taken into account when the employee works abroad. Here, the extent of the work conducted abroad should be considered when judging in which country the employee should be socially insured.
There are rather many judgements which you as an employer need to make before you approve whether an employee may work from abroad. Tax issues should be elucidated by the Swedish Tax Agency, in Sweden and in the country where the employee is to work. Issues regarding social insurance and employers’ social security contributions are elucidated by the Swedish Social Insurance Agency in Sweden, and by the corresponding foreign authority.
Besides taxes and social security contributions, you as the employer must also assess the work environment, labor laws and security issues before you approve that an employee can work abroad. You should also note that there can be exceptions to the points taken up in this article, and that there are constant changes in the outside world. You should see the points raised here as guidelines for what you need to keep in mind.
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