Compliance Guide for Foreign Contractors Working on Data Center Projects in Sweden

Foreign contractors working on Swedish data center projects are often exposed to a complex mix of tax, labour law, and social security rules. While many projects can be structured in a tax-efficient and compliant manner, this usually requires careful planning in advance. This article outlines the main compliance issues that foreign installation and construction companies should consider before starting work in Sweden.

Introduction

Sweden has become a major hub for data center construction and technical infrastructure projects. These projects frequently involve foreign contractors performing installation, assembly, or construction work using their own employees.

Although the Swedish market is open to foreign service providers, such projects trigger obligations across several areas of law, including corporate taxation, employer payroll obligations, social security rules, labour law under the Posted Workers Directive, and site access systems such as ID06.

Failure to address these matters in advance may lead to tax exposure, penalties, or practical obstacles to accessing the construction site.

This article outlines the key compliance issues typically faced by foreign companies performing installation or construction services on Swedish data center projects.

Corporate Income Tax: Permanent Establishment Considerations

General permanent establishment principles

Foreign companies are generally subject to Swedish corporate income tax only if they are considered to have a permanent establishment in Sweden. The Swedish definition is largely aligned with the OECD Model Tax Convention.

A permanent establishment normally exists where a company has a fixed place of business in Sweden through which its activities are carried out with a certain degree of permanence. This may include premises, installations, workshops, or construction sites.

In practice, the decisive issue for installation and construction projects is often the duration of the activities at the site.

Construction and installation projects: the 12-month rule

Most tax treaties apply a special rule to construction and installation projects. Instead of the general permanent establishment test, a permanent establishment usually arises only if the project lasts more than twelve months.

This rule typically applies to data center construction, equipment installation, technical assembly projects, and on-site engineering and supervision, but an independent review must be made in each case.

The project duration normally includes preparatory and testing phases, and temporary interruptions do not stop the time calculation, which can cause foreign companies to tip over the 12-month threshold.

If the twelve-month threshold is not exceeded, the foreign company will usually not be considered to have a permanent establishment, and Sweden will not tax its business profits. However, the company must be Approved for Swedish F-tax in any case, to avoid Swedish preliminary tax withholding being done when paying the company's invoices.

Taxation of Employees Working in Sweden

Swedish tax residency

Swedish tax residents are taxed on their worldwide income. Residency may arise after approximately six consecutive months of presence in Sweden, or even earlier in certain commuting situations.

However, employees on short-term project assignments typically remain non-residents.

The 183-day rule

Non-resident employees working in Sweden may be exempt from Swedish taxation under the 183-day rule, provided that:

• The employee stays in Sweden for less than 183 days during any twelve-month period.

• The employer does not have a permanent establishment in Sweden.

• The employee is not considered hired out to a Swedish entity.
  

If these conditions are met, the employment income is normally not taxable in Sweden, and no Swedish tax return is required.

The hired-out assessment depends on factors such as who bears the economic risk of the work and who controls the employee’s daily tasks.

If the employee does not meet the 183-day rule's conditions, they would be taxed with the 22,5 % flat SINK tax, as a main rule, on their employment income from working in Sweden.

Employer Tax Obligations in Sweden

When registration is required

A foreign employer must register with the Swedish Tax Agency if the employee’s salary is taxable in Sweden or if Swedish social security contributions apply.

Registration typically involves monthly payroll reporting, withholding of taxes, and payment of employer contributions. The payroll reporting is done on a monthly basis. Penalties apply in cases of non-compliance.

Situations without employer payroll obligations

If employees qualify under the 183-day rule and remain covered by their home country’s social security system, the foreign employer will generally have no Swedish payroll obligations.

However, a foreign company registered for Swedish F-tax may still be required to submit annual informational filings so that the Swedish Tax Agency can assess whether a permanent establishment exists. Penalties apply if the company is not fulfilling this filing obligation. In some cases, a company's F-tax status can be revoked.

Social Security Contributions

General principle

Social security contributions are normally due in the country where the work is performed. This would ordinarily give Sweden a claim to contributions for work carried out on Swedish territory. Sweden applies a 31,42% rate of Employer Paid Social Security Contributions, as a main rule. For foreign companies without a Permanent Establishment in Sweden, the applicable rate amounts to 19,8%.

A1 certificates and EU coordination

Within the EU, social security coverage is coordinated under EU regulations. Employees who are temporarily posted to Sweden may remain insured in their home country if they hold valid A1 certificates, meaning that Swedish Social Security Contributions must not be paid.

Where an A1 certificate exists, the employee remains covered by the home country system and Swedish social security contributions do not apply.

Swedish Labour Law Requirements for Posted Workers

Application of Swedish core employment conditions

Even where employment contracts remain governed by foreign law, certain Swedish labour law provisions apply under the EU Posted Workers Directive.

This means that foreign employers must comply with key Swedish rules on e.g. working time, vacation, working environment, and anti-discrimination protections.

The Swedish labour market model

Sweden does not have a statutory minimum wage. Instead, wages are determined primarily through collective bargaining agreements between unions and employer organizations.

Foreign companies are not automatically bound by such agreements unless they enter into one or become subject to union action. In the absence of a collective agreement, there is generally no statutory minimum salary requirement.

Working Time Rules

Posted workers must comply with Swedish working time legislation. The general framework includes standard working time of 40 hours per week, strict limits on overtime including an annual cap, a daily rest period of at least 11 consecutive hours, and a weekly rest period of at least 36 consecutive hours. Exeptions apply.

Employers must monitor overtime carefully to avoid exceeding annual limits.

Vacation and Parental Leave Rights

Posted workers are generally entitled to certain Swedish vacation rights, for their work they perform in Sweden as posted under the EU Posted Workers Directive.

More specifically, employees are entitled to a minimum of 25 vacation days per year, and vacation pay is typically calculated as 12 percent of annual earnings, under Swedish law.

If the home country system provides lower vacation compensation, the employer may need to increase the vacation pay for the period spent working in Sweden.

Working Environment and Safety Obligations

Swedish working environment legislation applies fully to posted workers. Foreign companies must ensure proper risk assessments before work begins, provide adequate safety equipment, train employees in site-specific risks, and maintain documentation of safety procedures and incidents.

These obligations are particularly important on data center construction and installation sites.

Posted Worker Notifications

Before employees begin working in Sweden, the employer must notify the Swedish Work Environment Authority. This must be done prior to the start of the work, and failure to comply may result in administrative penalties.

If the posting exceeds twelve months, additional Swedish labour law rights may apply, effectively placing the workers on similar terms as local employees.

ID06 Site Access System

Most construction and installation sites in Sweden require workers to carry an ID06 identification card. The system is used to control access, verify identity, and prevent undeclared labour.

To obtain ID06 cards, foreign companies must typically:

• Be registered for Swedish F-tax

• Provide social security documentation (A1 certificates)

• Arrange identity verification for each worker

Read more in our comprehensive article about ID06.

Final Remarks: Complexity and the Importance of Proper Structuring

Foreign contractors working on Swedish data center projects are subject to a combination of tax, labour law, and administrative rules. While each individual rule may appear manageable, the interaction between permanent establishment thresholds, employee taxation, social security coordination, and posted worker obligations creates a complex compliance landscape.

With proper planning, many foreign contractors can operate in Sweden in a way that is both compliant and administratively efficient. This typically requires a coordinated assessment of corporate tax exposure, employee tax treatment, social security coverage, labour law requirements, and site access obligations.

Our firm regularly assists foreign contractors, installation companies, and engineering businesses working on Swedish data center and infrastructure projects. We provide coordinated advice across tax, labour law, and compliance matters, with the aim of creating a structure that is as simple as possible while still fully compliant with Swedish regulations.

Disclaimer

This article, drafted by Swedish Lawyer (LL.M.) Felix Schöttle, is intended for general informational purposes only and does not constitute legal or tax advice. The application of Swedish tax and labour law depends on the specific facts and circumstances of each project, company, and employee.

Foreign companies planning to carry out work in Sweden should obtain professional advice tailored to their particular situation before taking any action.