One step closer to a statutory definition of "permanent stay"

A few months ago, we were finally able to report that a legislative proposal had been submitted, proposing that the concept of "permanent stay" be given an explicit definition in the Swedish Income Tax Act. The Government has now advanced this proposal further by presenting a bill to the Swedish Parliament. The proposal remains essentially unchanged, but with certain linguistic adjustments following the opinion of the Council on Legislation.

Background

An individual who is permanently staying in Sweden is generally deemed to be subject to unlimited tax liability here, meaning that the individual is taxable in Sweden on their worldwide income. Currently, however, there is no statutory definition of "permanent stay" in the Swedish Income Tax Act. Instead, whether permanent stay applies has had to be determined on a case-by-case basis, which has long made it difficult to predict in advance the tax consequences of staying in Sweden.

The new definition

The bill introduces a new provision, Chapter 3, Section 3 a, into the Income Tax Act. The definition is based on the number of days of physical presence per calendar year and includes two rules:
 

• Main rule: Permanent stay is deemed to exist if an individual is present in Sweden for more than 160 days during a calendar year.
• Supplementary rule: Permanent stay also exists if the individual spends more than 120 days in Sweden during a calendar year, provided that the number of days in Sweden also exceeded 120 days in the immediately preceding calendar year.

Only days that include an overnight stay are counted as days of presence. This means that both the day of arrival and the day of departure are counted as days of presence, provided the individual does not arrive and depart on the same day. Cross-border commuters who do not stay overnight in Sweden are therefore not affected by the new definition.

Regarding the time period covered, if the conditions for permanent stay are met during a calendar year, the stay is generally considered permanent from the first day of presence until the last day of presence in that year. If the conditions are met over two or more consecutive years, the stay is instead considered permanent from the first day of presence in the first year until the last day of presence in the final year.

The new definition applies to all provisions in the Income Tax Act where the term appears, including when assessing substantial connection, entitlement to the expert tax regime, and tax liability for certain capital gains.

Entry into force

The legislative amendments would enter into force on 1 January 2027. Older provisions will continue to apply when assessing whether a stay constituted a permanent stay during a period prior to the entry into force, which means that 2027 is the first calendar year to which the new definition can be applied.

It should also be noted that the SINK tax rate will be reduced from 22.5 to 20 percent on the same date, and it is therefore advisable that these changes be considered in conjunction when planning for staff resident abroad.

Comments

Although there has been extensive case law in this area, it is often difficult to determine whether permanent stay applies, even in situations where the factual circumstances are clear. The new system resolves this problem by making it sufficient to count the actual days of presence, regardless of how they are distributed over the calculation period. It is no longer necessary to assess whether an interruption is temporary or not. Overall, this is a welcome and well-balanced proposal that prioritizes clarity and predictability.

Please contact us if you have any questions about how the new rules might affect your situation or your employees.

Authors:

• Andreas Bråthe – Partner – People Advisory Services – +46 73-397 24 33
• Eva Ahlin – Director – People Advisory Services – +46 73-055 87 11
• Lina Persson – Knowledge Manager – Tax & Law – +46 73-204 74 01