SWEDEN Law and Practice Contributed by: Christoffer Dahl, Niclas Söderlund, Michel Weimer and Björn Mårtensson, XR Legal
1.4 Multilateral Instrument Sweden ratified the Multilateral Instrument (MLI) in 2018. The parts of the MLI that Sweden has chosen to apply are: • Article 6 – Purpose of a Covered Tax Agreement; • Article 7 – Prevention of Treaty Abuse; • Article 16 – Mutual Agreement Procedure; • Article 17 – Corresponding Adjustments; • Articles 18–26 on Arbitration (Part VI); and • the choice regarding the timing of application set out in Article 35 (3) – Entry into Effect, as explained below. Although the MLI was approved, it did not automati - cally modify Swedish tax treaties upon its entry into force internationally on 1 July 2018. Under Sweden’s dualist legal system, international agreements must be specifically incorporated into domestic law to be enforceable. This process requires legislative amend - ments to the individual acts that originally incorpo - rated each bilateral tax treaty. Sweden has specifically reserved the right regard - ing the “entry into effect” of the MLI (Article 35). As a result, modifications to a specific treaty only occur once Sweden’s domestic implementation act for that treaty has been updated. While Sweden has designated 64 “Covered Tax Agreements” (see Prop. 2017/18:61), modifications remain contingent on reciprocity; that is to say, the treaty partner must also designate Sweden as a cov - ered jurisdiction. Consequently, the MLI provisions selected by Sweden will only take effect on a treaty- by-treaty basis following both mutual notification to the OECD and the completion of Sweden’s internal legislative process.
Swedish-sourced income, eg, income from immov - able property, withholding tax on dividends or busi - ness income related to a permanent establishment in Sweden. 2.2 Tax Residence of Individuals An individual may be considered a Swedish tax resi - dent based on (i) residence, (ii) permanent/habitual residence or (iii) significant connection to Sweden. • Residence: Residence is primarily determined by registration in the Swedish population register but also includes individuals who normally spend their nightly rest in Sweden. In practice, people who are not registered are usually assessed under the rules on habitual stay, although exceptions may apply. • Habitual residence: Under case law, a continuous stay of six months or more generally constitutes habitual stay in Sweden. The assessment consid - ers the extent, regularity and duration of the stay, and recurring or regular visits may also qualify depending on the circumstances. For example, a stay for four months combined with additional shorter visits has been considered habitual resi - dence, whereas a continuous stay of three months combined with up to 30 days or irregular visits has not. • Significant connection: Significant connection is assessed based on the overall circumstances, including, for example, citizenship, previous resi - dence in Sweden, housing, family, business activi - ties, or ownership of or influence on Swedish com - panies. After leaving Sweden, substantial ties are presumed for five years, and the burden of proof to demonstrate otherwise lies with the individual. An individual who does not qualify for Swedish tax residence is considered to be a limited taxable person. 2.3 Taxation of Resident Individuals Swedish individual tax residents are taxed based on worldwide income unless exceptions may be found in, for example, domestic legislation or an applicable tax treaty. An individual who is tax resident in Sweden may in some cases be relieved from employment taxation if the individual is employed abroad and:
2. Territoriality, Residence and Permanent Establishment
2.1 General Principle of Territorial Taxation The Swedish general principles for territorial taxation are residence and source taxation. Tax residents are subject to unlimited tax liability on worldwide income. Non-residents are subject to Swedish taxation on
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