New regulations on tax withholding came into force on January 1, 2021. Swedish companies will be obliged to withhold tax at source on invoices from foreign companies if services are performed in Sweden and the company does not provide a Swedish F-tax certificate. The new rules will apply regardless if the foreign company has a permanent establishment (PE) in Sweden or not.
Rules prior to January 1, 2021
When conducting business in Sweden you need to apply for an F tax certificate. When an F tax certificate is presented the payer of an invoice is not obliged to pay employer social security fees or withhold preliminary tax. The assessment was more complex when compensation was paid to a foreign company. If a foreign company did send an invoice for services in Sweden the receiver of the invoice should ensure that the foreign company did not have a PE in Sweden. To determine if a company has a PE or not in Sweden can be a complex matter. If an incorrect determination was made the payer of the invoice could become liable for Swedish social security fees, withholding tax and penalties.
According to the new rules the payer of an invoice must ensure that an F tax certificate is in place when services are performed in Sweden regardless if a foreign company has a PE or not in Sweden. If an F tax certificate is not presented the receiver of the invoice must withhold preliminary tax of 30 percent of the invoiced amount. Foreign companies will be able to apply for an F tax certificate regardless of whether they will become tax liable or not in Sweden. This also means that the question of whether a foreign company has a PE or not in Sweden will in many cases be addressed when the foreign company applies for an F tax certificate.
As a result of the new regulations, in some cases, Swedish tax will be withheld on invoices even though the foreign company is not tax liable in Sweden. In such a situation the foreign company must apply for a refund from the Swedish Tax Agency. In order to avoid a time consuming refund process foreign companies have three different alternatives. The foreign company can:
- Apply for Swedish F-tax
- Request a decision on exemption from tax withholding
- Apply for a special calculation basis or early payment of refunds
In order for the Swedish Tax Agency to be able to assess if the withheld tax should be paid back to the foreign companies, a new obligation to provide information is introduced. All companies that carry out activities in Sweden but aren’t liable to pay taxes in Sweden will instead have to provide certain information about the activities.
The foreign companies that are primarily affected by the new regulations are those who don't have, or will have, a permanent establishment in Sweden.
We recommend companies to review their internal routines regarding payments to foreign suppliers to the extent the compensation is paid for work carried out is Sweden. You will have to ensure that all suppliers are approved for Swedish F-tax.
We also suggest that Swedish companies enter into a dialogue with their foreign suppliers that have employees carrying out work in Sweden to inform them of the new regulations and the importance of Swedish F-tax.