Sweden: New rules for permanent establishment determinations, tax withholding when work performed in Sweden

Sweden: New rules for permanent establishment

The rules on tax withholding for work performed in Sweden will change beginning 1 January 2021.

1000

Related content

With these changes, more foreign companies will need to register with the tax agency. In addition, foreign companies that are registered for “F-tax” but do not file a tax return must provide specific information (särskilda uppgifter) annually.

Under current law, when the foreign entity has a permanent establishment in Sweden, the Swedish payor has an obligation to withhold taxes on remuneration for work paid to a foreign legal person that is not a tax resident of Sweden and is not registered for F-tax. In practice this means that under the current rules, the Swedish payor on paying to foreign companies without F-tax registration must 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, it risks receiving an order to withhold tax.

Under the new law, 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. Note that work performed outside of Sweden can also be considered as performed in Sweden when 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 paid 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 refunded to it. In these situations, 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 refund of withheld taxes. 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
  • 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 situations when the company does not file a tax return), there will be a change in the law after the year-end that will require foreign companies that are registered for F-tax to provide specific information (särskilda uppgifter) on an annual basis. The information 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 certain other information that is necessary to determine the tax liability. The purpose of this information is to allow the Swedish tax agency to assess whether the foreign company has a permanent establishment in Sweden. The obligation to provide this information applies beginning after 31 December 2020, and the information must be provided annually or for the part of the year that the foreign company is registered for F-tax and is to be filed at the time of the tax return filing (1 July, 1 November, 15 December or 1 March).

Note that the obligation to file specific information applies for foreign companies that will be registered due to the new laws on economic employer. 


KPMG observation

Tax professionals believe that as a consequence of the new rules, more foreign companies will register for F-tax purposes to avoid withholding tax on remunerations paid to them from a Swedish payor. An increased number of registrations combined with the obligation to provide specific information could probably result in more foreign companies being deemed as having a permanent establishment in Sweden and therefore liable to tax. Accordingly, 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 that perform work in Sweden need to consider preparing and creating a process to manage the upcoming regulatory changes.

Read a December 2020 report prepared by the KPMG member firm in Sweden

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us

 

Want to do business with KPMG?

 

loading image Request for proposal