In the contractor sector we are used to legislation changes, however, tracking those that impact an overseas market can be particularly difficult. Most of my clients receive information about upcoming changes from me or their end clients.
This is only natural, tracking changes in the fast-paced world of recruitment is next to impossible. One such change happened in Jan 2021 and today many still don’t understand what changed.
In this short blog (I promise) I will give you an overview of the changes and why it’s important. Before 2021, Sweden was one of the few countries where you could work for up to 183 days a year without owing tax in Sweden. While the 183-day rule is often misinterpreted in Sweden the common understanding was correct.
While this was great for contractors who travelled to Sweden to work, it did however mean that the collection of taxes for temporary and contract workers was not easy to track. Most workers declared income back in their home country leaving Sweden empty-handed in the tax and social security department.
As with most governments, these tax gaps need to be filled and the Economic Employer Legislation was introduced to do exactly this. However, smart people understood that asking people to just declare taxes in Sweden wouldn’t work. But…. making the Swedish client responsible for managing this, will get a much better return for your efforts. And that is what they did, every Swedish client receiving services from foreign companies which are performed in Sweden, needed to ensure that the party paying the worker deducted tax and social security and paid this into the Swedish system. As a further measure, if the client couldn’t prove the paying entity was F-Tax registered (business) and the worker was paying A-Tax (personal) then they had to withhold 30% of the invoice total and pay this to the tax authority instead.
Now on paper, this is a very simple solution to a complex problem, they became a ‘tax from day one’ country status, and all contributions would be accounted for, or the client would be liable.
The real problem came into play when a non-Swedish recruitment business was supplying the workers, the law didn’t differentiate between contractor pay and margin, which meant that if the agency didn’t follow the rules, the 30% withholding by the client actually took their margin away.
Setting up a business in Sweden not only isn’t easy but it’s time-consuming. Add in associated costs for managing payments, tax returns, and payroll (if needed) meant that non-Swedish agencies needed to find another solution. One that satisfies the law but also works with their internal processes.
The solution in the end was to find a partner business that was registered in Sweden for F-Tax, could process payroll and understood the contractor market. Basically, a Swedish version of an umbrella company. This allowed the client to provide proof that the worker’s taxes had been deducted by providing payslip proofs (on request) and the contractual chain including the umbrella binding the service under Swedish Law.
Now this wouldn’t be a Kris blog without pointing out that we have a solution for Sweden which employs the contractors and ensures all taxes and social security is deducted correctly. Additionally, we support foreign workers with registering locally to ensure they are compliant from the day they start their assignment.
With lots of interesting projects starting or already in process, Sweden is crying out for skills that the rest of Europe can fill. If you’re working in the Swedish market or just starting, get in touch and explore how Sapphire can remove risks and take care of your contractors on assignment.
