The consequences of the registration requirement for foreign employers

On 1 January 2021, new rules came into force requiring foreign employers to deduct tax for employees working in Sweden. Under the new rules, foreign employers that pay salaries to employees working in Sweden must report preliminary tax each month for each individual employee for work carried out in Sweden.

The foreign employer must therefore register as an employer with the Swedish Tax Agency, Skatteverket. Foreign employers were not previously required to register and report preliminary tax in this way.

The new legislation creates an obstacle for Swedish and Danish employees and cross-border commuters. It has been reported that employers may choose not to recruit people who live in Sweden because of the new rules. This would allow them to avoid registering in two countries, reporting preliminary tax monthly in both countries and keeping track of whether an employee works in Sweden, Denmark or another Nordic country each month.

This applies even if employees would normally be covered by the Øresund Agreement, Öresundsavtalet, which allows employees to work from home for less than 50% of their total working days during a three-month period.

The new legislation makes the situation more difficult for both employees working in Sweden and their employers. It has been reported that employers may choose not to recruit people who live in Sweden in the future because of the additional administration involved. This includes registering in two countries, reporting preliminary tax monthly in both countries and keeping track of the days an employee works in Sweden, Denmark or another Nordic country.

The Øresund Agreement between Denmark and Sweden adds to the administrative complexity for employers. They must first keep track of where the employee has carried out more than 50% of their work and then report preliminary tax monthly in the relevant country.