Sweden has a special tax regime applying to persons who hold status as non tax residents in Sweden. The tax regime’s name is SINK. Often, persons who work temporary in Sweden will be required to apply for the SINK tax regime. Otherwise, the person risk tax surcharges or penalties. In this article, we will learn more about the SINK tax.
What is Swedish SINK tax?
The Swedish non residency tax regime, SINK, applies to all individuals that are not Swedish tax residents. Since all persons that permanently live in Sweden are tax residents, the SINK tax regime will mainly cover persons that work temporarily in Sweden (non tax residents).
Just like many other countries, Sweden also wants to tax its non tax residents, in relation to certain sources of income. Under the Swedish SINK tax act, a non tax resident will be subject to Swedish SINK tax on the person’s income from working in Sweden.
This means that only the part of income from an individual that is attributable to actual work performed in Sweden, should be subject to the SINK tax regime. In some cases, however, a non tax resident can benefit from the 183-day-rule, which makes the income from work in Sweden tax exempt (tax free) in Sweden. Since legislative changes in 2021, this has become harder though. Contact us if you need advice on the applicability of the Swedish 183-day-rule for yourself or your employees.
Who should get Swedish SINK tax?
Firstly, the tax residency status (tax resident or non tax resident) of an individual coming to Sweden must be established. This is usually done by a Swedish tax lawyer, by examining the pattern of stay in Sweden in relation to case law from Swedish courts. If the conclusion of this assessment is that the person is a non tax resident, and that he will not qualify for the 183-day-rule, the person is obligated to file an application for SINK tax. Contact us if you need help with this.
How will I become taxed under the Swedish SINK tax regime?
The Swedish SINK tax, is a flat 25 % tax. All income for work in Sweden is taxed with 25 % tax. Also benefits such as free housing, company car, are subject to SINK tax. As a main rule, no deductions are possible, but there are some exceptions to this. By Swedish law, the employer (foreign or Swedish) of a person with SINK tax is obligated to withhold preliminary tax and pay this to the Swedish Tax Agency. There is no need for a person with SINK tax to file a Swedish tax return. Once the employer has paid the 25 % tax, everything is done.
What should employers of employees taxed with Swedish SINK be aware of?
As just mentioned, an employer (foreign or Swedish) is required to do the following if they have a person working in Sweden that is subject to the SINK tax:
Register as employer with the Swedish Tax Agency
Withhold and report preliminary tax on a monthly basis
File "Specific Information" once per year, with the Swedish Tax Agency.
In some cases, the employer will also be required to pay Swedish Social Security Contributions based on the employee’s gross pay. This would have to be analysed separately, however.
It is important for a employer of a person that is taxed with SINK to comply with the Swedish legal requirements. Non-compliance can lead to tax surcharges, legal penalties, and in severe cases with criminal law proceedings. If you run a business outside of Sweden and plan to go to Sweden for a project - please contact us to have your situation properly assessed and to receive advice on how to optimize the setup so that taxes and obligations are minimized. Usually, obligations and taxes can be minimized if the project is properly set up, with regard to Swedish law.
Swedish SINK tax and double taxation
In most cases, a person that comes temporarily to Sweden and receives income that is subject to SINK tax, the person’s home state will also want to tax the income. This creates an unwanted situation of double taxation, i.e. taxation of same income by two states.
In order to avoid double taxation, the provision of a tax treaty can be applied. Also, a foreign person can benefit from other states’ foreign tax credit rules, in order to credit the Swedish SINK tax from the tax in the person’s home state.
Double taxation, and international tax law in general, are complicated things. Make sure to get proper tax advice on your situation as employer, and your employees’ situation, before coming to Sweden for temporary work. Reach out to us if you want to learn more.
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