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Sweden - Independent contractor or employee
In Sweden, a self-employed contractor may enter into an agreement with a principal, establishing what is often described as a consultancy services agreement.
When a party wishes to engage the services of a self-employed contractor, it is crucial for the parties to ensure that the self-employed contractor maintains its independence in the relations with the principal, when performing the services. Unless so, the relationship may be considered an employment relationship, which will entail unexpected, and most commonly undesired, consequences.
Under Swedish employment law, the definition of a self-employed independent contractor is an individual performing services for another party where no employment relation exists. The basic criteria for the definition of an employee are that the parties have concluded an agreement stipulating that the individual shall personally perform work for the principal.
Furthermore, the following factors indicate that an individual is an employee, and not an independent contractor (regardless of what the parties call it).
- The services must be performed by a specific individual.
- The individual must perform such work as the principal requires.
- The principal decides when and how the individual shall perform the work, i.e. the individual is subject to instructions from the principal and the principal’s control.
- The work duties may vary from time to time subject to instructions.
- Facilities, tools and equipment are provided by the principal.
- The relationship between the parties is continuous.
- The individual has limited or no business risk.
- The individual is a former employee of the principal.
- The individual is not entitled to perform work for others.
- The remuneration is connected to the time used for performance of the work.
- The individual receives remuneration for expenses.
- The individual receives a guaranteed level of compensation.
- The individual is equal to an employee as regards economic and social matters.
The below mentioned factors indicate that the individual is an independent contractor:
- The services may be performed by other individuals.
- The individual has a registered business.
- The individual is registered for purposes of social security and personnel withholding taxes and holds a tax clearance certificate category F.
- The individual has a possibility to assign the work to others.
- The work is limited to certain assignments or the relationship between the parties is temporary.
- The individual is not prevented from working for others.
- The individual decides when and how to perform the work.
- The individual uses his/her own tools and equipment.
- The remuneration is depending on the result of the work performed.
- The individual is responsible for expenses incurred in the performance of the work.
- The individual is equal to a principal as regards economic and social matters.
Furthermore, circumstances which are special for a certain business or the trade unions’ view of a certain question, may also be of importance for the judgement.
When determining whether an individual is an employee or an independent contractor Swedish courts have considered all circumstances in each case. One may assume though, judging by the rulings from the Swedish courts, that the most important factor in creating a consultancy relationship is the fact that the consultant performs work for multiple principals, and holds a tax certificate category F.
Swedish courts do not accept that the parties have defined the individual as an independent contractor/a consultant in a written agreement, if the circumstances in the case indicate that the individual is in fact an employee. Consequently, the parties have to consider the above mentioned factors and enter into an agreement which, by an objective assessor, would be deemed a consultancy agreement, not only on paper but also in practise.
In the event a service provider is considered an employee, he/she will fall within the Swedish Employment Protection Act, as well as various other mandatory legislations regulating the relationship with the principal, i.e. the employee.
Payment for the provided services may be made either as a lump-sum, based on the specific provided services, or on a time-spent basis. Invoices are issued by the service provider.
Business in Sweden may be conducted either as a natural person, or through a corporation, i.e. a legal person. Either way, if business has a permanent establishment in Sweden it needs to register with the Swedish Tax Agency, and in certain cases also with the Companies Registration Office. As regards foreign businesses with smaller operations in Sweden, it is sometimes possible to avoid creating a permanent establishment and thereby avoid registration and taxation.
Tax and social security
The service provider’s position from a tax point of view has to be examined in each individual case, in order to assess whether the provider shall be regarded as a business and thus taxed for business income, or as an employee, and whether (a foreign) business has a permanent establishment and shall be subject to taxation in Sweden.
Whether or not the independent contractor would have to be registered for VAT in Sweden or charge VAT will depend on the type of service, the place where the service is rendered and where the contractor is based.
The independent contractor should normally be registered with the social security or national insurance authorities in an EU Member State. Whether or not the contractor needs to be registered in Sweden will depend on the permanent nature of not of the service provision in Sweden.
The principal will normally require the service provider to maintain customary professional liability insurance.
Torbjorn Lindmark, partner at MAQS Law Firm Sweden. T + 46 8 407 09 23. M + 46 734 03 94 41 email@example.com
Olof Cronvall, Associate at MAQS Law Firm Sweden. T + 46 8 407 09 73. M + 46 735 09 39 10 firstname.lastname@example.org