New rules on tax withholding for work performed in Sweden and obligation to file specific information
Sweden: New rules on tax withholding for performed work
From 1 January 2021 the rules on tax withholding for work performed in Sweden will change, resulting in more foreign companies needing to register at the Swedish Tax Agency. Additionally, foreign companies that are registered for F-tax but do not file a tax return must provide specific information (särskilda uppgifter) each year.
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From 1 January 2021 the rules on tax withholding for work performed in Sweden will change, resulting in more foreign companies needing to register at the Swedish Tax Agency. Swedish companies will, among other changes, be obligated to withhold taxes when paying remuneration to foreign companies for work performed in Sweden (and in some cases even work in foreign countries) provided that the foreign company does not have an F-tax registration. Additionally, foreign companies that are registered for F-tax but do not file a tax return must provide specific information (särskilda uppgifter) each year.
Under current law, where the foreign entity has a permanent establishment in Sweden, the Swedish payor has an obligation to withhold taxes on remuneration for work paid out to a foreign legal person which is not tax resident and is not registered for F-Tax. In practice this means that under the current legislation, the Swedish payor, when paying to foreign companies without F-tax registration, has to assess whether a permanent establishment exists in Sweden or not for the recipient. The assessment of whether a permanent establishment exists or not, is a complex tax technical question. If the payor makes an incorrect assessment, they risk receiving an injunction to fulfil their obligation to withhold tax.
Under the new law that comes into effect after the year end, the requirement for the Swedish company to assess the permanent establishment position will be removed. Instead, the Swedish company must withhold tax if the foreign company is not registered for F-tax and part of the remuneration is connected to work performed in Sweden. It is important to know that work performed outside of Sweden can also be considered as performed in Sweden, where the work is within the payors business operations in Sweden.
If an F-tax registration cannot be provided and the Swedish payor withholds tax on remuneration to a foreign company that is not liable to tax in Sweden, the foreign company will need to take action to have the tax withheld paid out to them. In these cases, it may take a significant amount of time before the company receives the refund from the time it was withheld.
There are a few options to mitigate a delay in the repayment of withheld taxes alternatively that no taxes need to be withheld. For example, the foreign company can:
- Apply for F-tax registration,
- Apply for an exemption from tax withholding,
- Apply for a special basis for calculation of withholding or,
- Apply for early repayment.
Specific information (särskilda uppgifter)
As a measure to be able to control what business operations a foreign company has in Sweden (in the cases where the company does not file a tax return), there will be a change in the law after the year end, which will obligate foreign companies that are registered for F-tax to provide specific information (särskilda uppgifter) on an annual basis. The information that needs to be provided includes details such as the kind of business activities that have been performed in Sweden, the time period the operation has been active in Sweden and some other information that is necessary to determine the tax liability. The purpose of this information is for the Swedish Tax Agency to assess whether the foreign company has a permanent establishment in Sweden. The obligation to provide this information will be applied to information relating to the relevant tax year beginning after 31 December 2020, being the first tax year after this date for the foreign company. The specific information must be provided annually or for the part of the year that the foreign company is registered for F-tax and should be filed at the time of the tax return filing (1 July, 1 November, 15 December or 1 March).
It should be noted that the obligation to file specific information includes foreign companies that will be registered due to the new laws on economic employer which will also be introduced at the turn of the year. For more information on the economic employer concept, we refer to our previous TaxNews for the changes that will be implemented.
It is likely that, as a consequence of the new rules, that more foreign companies than before will register themselves for F-tax to avoid withheld tax on remunerations from a Swedish payor.
An increase in number of registrations combined with the obligation to provide specific information, will probably lead to more foreign companies being deemed to have a permanent establishment in Sweden and therefore be liable to tax .
Based on the above it is our recommendation that Swedish companies that receive invoices from foreign companies that perform work in Sweden (or outside of Sweden if work is performed within the Swedish business operations of the payor) and foreign companies who perform work in Sweden, should both prepare and create a process to manage the upcoming regulatory changes.
If you wish to discuss the impact for your organization, you are welcome to contact us.
The article in Swedish
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