All questions

Tax residence and fiscal domicile

i Corporate residence

Swedish limited companies have unlimited tax liability in Sweden unless otherwise stated in special rules.

ii Branch or permanent establishment

A foreign enterprise is liable to pay income tax in Sweden if it is determined that it has a permanent establishment in Sweden. If the enterprise has a permanent establishment in Sweden, it will be taxed for business income (21.4 per cent). An 'enterprise' can be a sole trader or a legal person.

A general definition of permanent establishment is found in the Swedish Income Tax Act, which also contains rules regarding when a permanent establishment can be created by a person acting on behalf of an enterprise (e.g., an agent).

A permanent establishment is defined in accordance with the general definition as a fixed place of business through which the business of an enterprise is wholly or partly carried on. Three conditions must be met for the creation of a permanent establishment: a distinct 'place of business', which must be 'fixed', as in having a certain degree of permanence, and the business of the enterprise must be carried out through that fixed place of business.

The general definition also contains a list of examples of what a permanent establishment may be constituted by: a place of management, a branch, an office, a factory, a workshop, a mine, an oil or gas well, a quarry or any other place of extraction of natural resources, a building site or construction or installation project, or real property that is a current asset in a business operation.

The definition mainly conforms to the permanent establishment definition found in the OECD Model Tax Convention on Income and Capital.

If Sweden has an agreement for the avoidance of double taxation (a tax treaty) with the jurisdiction from which an enterprise originates, a permanent establishment must be present both in accordance with the Income Tax Act and the tax treaty for the enterprise to be liable to pay income tax. In accordance with the Income Tax Act, foreign enterprises have a permanent establishment in Sweden if they carry on business wholly or partly from a fixed place of business in Sweden. A business operation is usually considered to be 'fixed' through having a certain degree of permanence when it is carried on for a six-month time period. In most tax treaties that Sweden has entered into with other states, building sites, construction or installation projects are considered to be fixed (have such a degree of permanence) when they are carried on for more than 12 months.

A foreign enterprise may have a permanent establishment in Sweden even when there is no fixed place in Sweden that the business operations are carried on from. This may be the case when the business operations in Sweden are carried on through a dependent agent.

A foreign enterprise is required to submit a tax application to the Tax Agency if it has a permanent establishment in Sweden, is an employer in Sweden or conducts business for which it is liable for Swedish VAT. The Tax Agency may then approve the enterprise as a tax subject conducting business, and decide whether the enterprise must pay, inter alia, preliminary income tax, special salary tax on pension costs, pension yield tax or real estate tax.

A foreign enterprise's business operations in Sweden may be carried on through a branch. The enterprise must register the branch with the Swedish Companies Registration Office.