The 183-day rule is widely known in the tax world as the threshold at which employees become liable for paying taxes on their income from working in a foreign country. However, what are the requirements for applying this rule, and how can you ensure that it is properly applied to your or your employees' income? In this article, we'll answer these questions and give you the tools to minimize your tax liability in Sweden.
What is the 183-day rule?
In Sweden, the 183-day rule applies to employees who come to Sweden for temporary work. If the rule's conditions are met, an employee will not be subject to Swedish tax on their employment income earned in Sweden. The employer of such an employee will also not have to run a payroll in Sweden. However, there is a possibility that the employer is obligated to pay Swedish Social Security Contributions, which are considerably high and without cap.
What are the requirements for the 183-day rule?
So, what are the requirements? The 183-day rule requires the following conditions to be fulfilled:
The employee stays in Sweden for less than 183 days during any 12-month period.
The employer is foreign (non-Swedish) and has no permanent establishment in Sweden.
The employee is not a tax resident of Sweden.
The employee has no economic employer in Sweden.
The first requirement is straightforward: an employee cannot stay in Sweden for more than 183 days during any 12-month period. Therefore, employees must keep track of their time spent in Sweden.
The second requirement is a bit more complex. The employee must have a foreign (non-Swedish) employer that does not have a permanent establishment in Sweden. A permanent establishment usually arises when a non-Swedish employer has a place of business in Sweden for more than six months, such as an office, store, or any other physical location.
However, since 2021, the economic employer concept has been introduced into the Swedish 183-day rule. This means that another requirement has been added to the rule: the employee cannot have an economic employer in Sweden, which basically means that the employee is not hired out to a Swedish business.
However, if the employee does have an economic employer in Sweden, they can still avoid tax if they meet the 15/45-day rule. In short, the rule states that the employee can receive tax-free income from working in Sweden if they only stay in Sweden for 15 consecutive workdays or a total of 45 workdays per year (calendar year).
Lastly, the employee must not be a tax resident in Sweden. In general, an employee would avoid becoming a tax resident in Sweden if they stay in Sweden for less than six months. However, some exceptions apply to people who commute to Sweden on a weekly basis, by reason of Swedish case law. Also, even if a person becomes tax resident in Sweden, it is possible to utilize the 183-day rule in one of Sweden's tax treaties.
Do I need to register for taxes in Sweden, if using the 183-day rule?
According to Swedish tax law, an employee is not formally required to register for taxes in Sweden, if they fulfill the 183 day rule. However, since the economic employer concept was introduced in Sweden, it can be rather tricky to evaluate whether the 183-day rule actually will apply. In such cases, one can make an application to the Swedish Tax Agency, and request them to valuate whether the 183-day rule is applicable. This is recommended to mitigate the risk if one assumes the 183-day rule is applicable, but then the Tax Agency is of another opinion.
Should an employee wrongly claim that he or she can apply the 183-day rule, the employee will be subject to tax penalties of up to 40 % additional tax. This is of course something everyone wants to avoid. Therefore, our recommendation is that you, as an employer, make sure to properly evaluate if your employees can fulfill the 183-day rule.
If an employee needs a ID06 identification card, while applying the 183-day rule, a special exemption must be sought with the ID06 registry board. Please let us know if you would need help with this.
Does all of this sound complicated? Well, it can be. If you need advice on how to structure your business in Sweden to ensure that your employees meet the 183-day rule, please contact us at TaxHelpSweden. This will also benefit you as an employer because you won't have any employer reporting obligations in Sweden. You can simply run your payroll in your home country without worrying about the Swedish Tax Agency and compliance obligations in Sweden.
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