F-tax: Proposal for new rules for foreign companies

The Swedish government has issued a memorandum containing a proposal to change the rules regarding the approval and revocation of F-tax. The proposal, prompted by a request from the Swedish Tax Agency, aims to reduce tax evasion and avoidance while promoting fair competition. The government proposes that an application for F-tax should not be approved, or an approved application should be revocable, due to the insufficient submission of specific information. The new rules will affect foreign companies applying for F-tax due to temporary activities in Sweden and are proposed to come into force on July 1, 2025.

Current Regulation of F-Tax 

Anyone conducting or intending to conduct business activities in Sweden can be approved for F-tax. Being approved for F-tax means that you are responsible for paying your preliminary tax and social security contributions on your work-related income through debited preliminary tax. 

Obligation to Make Tax Deductions 

In January 2021, Sweden introduced a requirement for tax deductions on payments for work performed in the country, applicable even to foreign companies without a permanent establishment in Sweden. If the payment recipient is not registered for F-tax, the payer, whether Swedish or foreign, must make tax deductions on compensation for work performed in Sweden. This obligation remains unchanged if the foreign company is approved for F-tax when the compensation is determined or paid. 

Obligation to Submit Income Tax Returns or Specific Information 

An obligation was also introduced for foreign companies without a permanent establishment in Sweden to submit specific information so that the Swedish Tax Agency can assess whether the company has a permanent establishment or not, and whether the foreign company is instead required to submit an income tax return in Sweden. Foreign companies conducting activities from a permanent establishment in Sweden must submit an income tax return and not specific information. This requires companies to assess whether they should file an income tax return or provide specific information. Legal entities must submit this specific information to the Swedish Tax Agency no later than the deadline for filing an income tax return. 

Provisions on Denied Approval and Revocation of F-Tax 

There are currently certain provisions on denied approval and revocation of F-tax. However, there is no basis for revocation when foreign companies without a permanent establishment fail to submit specific information for the assessment of tax liability according to the Income Tax Act, despite the obligation. This inconsistency has been problematic, allowing foreign companies to retain F-tax approval until they choose to revoke it, even in cases of non-compliance. 

The Proposal in Brief 

The proposal means that an application for F-tax should not be approved and an already granted decision on F-tax should be revocable if the applicant or the one approved for F-tax has not fulfilled the obligation to submit specific information or if the information submitted is so deficient that it cannot be used as a basis for assessing tax liability according to the Income Tax Act. 

Consequences 

The proposal in the memorandum regarding revocation and obstacles to F-tax registration means that foreign companies without a permanent establishment will be treated in the same way as Swedish companies or foreign companies with a permanent establishment in Sweden. The introduction of the new grounds will simplify and equalize the rules, making the legislation competition neutral. The companies directly affected are those that do not fulfill the obligations that apply to all companies. The proposal will not affect companies that fulfill their obligation to submit specific information. 

Comments 

In May 2024, the European Commission issued an opinion stating that the current regulations on tax deductions for payments to foreign companies are incompatible with EU law. It urged Sweden to align its legislation on preliminary income taxation with EU requirements. The government’s proposal reflects an adjustment and development of these rules rather than their dismantlement, and we do not find it likely that the government has further ambitions to propose changes to meet the European Commission’s demands in this regard.  

We will monitor the ongoing dialogue between the European Commission and Sweden regarding F-tax requirements for foreign companies without a permanent establishment in Sweden, as well as developments in Swedish F-tax regulations.