Expanded Obligations for Companies to make Tax Deductions

Sweden will implement new rules on tax deduction as of the 1st of January 2021. Under the new rules, the obligation to make tax deductions will be expanded. Swedish companies will be required to withhold tax on invoices from foreign companies not registered for Swedish tax purposes (F-skatt) if the remuneration derives from work performed in Sweden. Additionally, foreign companies without a permanent establishment (PE) in Sweden must in certain cases withhold tax on salary paid to employees who perform work in Sweden.

Current rules

Under current legislation, Swedish companies must make an assessment of whether tax deductions on remuneration paid to foreign companies which performs work in Sweden should be made or not. If the foreign company is registered for Swedish tax purposes, no tax should be deducted. If the foreign company is not registered for Swedish tax purposes, the Swedish company must assess if the foreign company has a PE in Sweden or not. This process can require complex tax law assessments.

New rules as of January 1, 2021

Under the new rules a Swedish company is required to make a tax deduction of 30 percent on payments to foreign companies for work performed in Sweden unless the foreign company is registered for Swedish tax purposes (F-skatt).

If the foreign company is not subject to Swedish taxation, the Swedish Tax Agency will make a reimbursement of the tax withheld at source when the company´s tax liability and final tax is determined. This can take some time and to avoid such situation, the foreign company has three options:

• apply for approval for Swedish F-tax,
• request a decision on exemption from tax deductions or
• apply for a special calculation basis or for early repayment.

The new rules primarily affect foreign companies that does not have a PE in Sweden. Swedish companies with foreign subcontractors should examine whether those companies are registered for Swedish tax purposes or not. If a payment recipient is not, the Swedish company should inform this foreign company about the new rules so that the obligation to make tax deduction can be prevented. For foreign employers without a PE or tax registration in Sweden the new rules will increase the administrative burden and such foreign company must review its internal policies and practices to make sure these comply with the new rules.

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