The European Commission brings Sweden before the European Court of Justice – Swedish tax regulations are considered a breach of EU-Law.

The European Commission has previously criticized Sweden for the state’s statutory obligation within domestic tax legislation to withhold Swedish preliminary income tax at a rate of 30% on payments made to non-Swedish contractors which are not F-tax registered in Sweden, insinuating that this requirement contravenes the fundamental principle of the free movement of services. On May 7, 2025, the Commission announced its decision to bring Sweden before the European Court of Justice. The Commission asserts that Sweden had failed to adjust the preliminary income tax rules to comply with EU legislation, despite previous critique.

Background – the Disputed Preliminary Tax Regulations within Swedish law

Following legislative changes within Swedish domestic law made in 2021, Swedish clients paying for work carried out by contractors established in other EU or EEA countries, without Swedish permanent establishments, are obliged to withhold preliminary income tax of 30% on the remunerations, unless the foreign contractors have been approved of so-called “F-tax” by the Swedish Tax Authority. Though the obligation to withhold preliminary income tax only concerns payments for work carried out in Sweden, this also encompasses work that takes place abroad if it is considered to be carried out “within the framework of the client’s activity in Sweden”. Furthermore, issues arise in the latter situation as F-tax approval is not legally possible for these types of companies, i.e. in the situation where no work is performed within the borders of Sweden.

According to Swedish tax legislation, a company based outside of Sweden is generally not tax liable in Sweden, as such entities are considered Swedish non-tax residents. Swedish non-tax residents are only taxable for certain type of income, e.g. income derived from a Swedish permanent establishment or a Swedish property; dividend income from certain Swedish companies; and certain standardized incomes. The tax liability of the non-Swedish companies does, however, not affect the obligation for the payor of the invoice to withhold Swedish preliminary tax; this obligation remains.

The Argumentation of the European Commission’s – the Swedish Tax Regulations Violate the Free Movement of Services

In July 2023, the Commission issued a letter of formal notice and a reasoned opinion to Sweden regarding the Swedish regulations on the withholding of preliminary tax. In May 2024, the Commission urged the Swedish authorities to clarify how they intend to remedy the current incompatibility of the Swedish rules with EU law. The Commission has now, on 7 May 2025, referred Sweden to the European Court of Justice, as it considers Sweden’s efforts to comply with the previous calls for action, to have been insufficient.

Article 56 of the Treaty of the Functioning of the European Union stipulates one of the four most fundamental principles within EU-law; the free movement of services. This principle lays the foundation for businesses and professionals to offer and provide services across EU Member States without being imposed with unjustified restrictions. One practical example of such an unjustified restriction is regulations within national legislation which prevents or hinders non-resident companies from providing their services on the domestic market. The Commission argues that the Swedish regulations on the obligation to withhold 30% preliminary tax on all invoices paid to non-Swedish companies, constitutes an unjustified restriction of the free movement of services. The Commission asserts that the result of the Swedish tax regulations on the withholding of preliminary income tax is that contractors which are not tax liable according to Swedish tax legislation are being levied Swedish withholding tax from their issued invoices, which then must be refunded at the end of the tax year. The repayment of the tax must be applied for through a separate process; a process which often is lengthy. Moreover, the exception to the obligation to withhold preliminary tax is dependent on the circumstance that the invoicing company has been approved F-tax in Sweden; a process which also can be lengthy for the contractor; and, in some situations, impossible – as mentioned above.

Summary and Comments

As mentioned, the Swedish government has maintained that its regulations are consistent with EU law and has been unwilling to amend the alleged incompatibility, despite the Commission having urged for adjustments to be made; a decision which has brought Sweden before the European Court of Justice. The faith of Sweden and its current tax regulations now lay in the hands of the Court, which ought to decide whether to rule in favour of the Commission and, thus, force Sweden to revise the regulations to comply with the free movement of services. Should this be the case, Swedish clients will likely be forced to make their own assessment of the invoicing contractor’s Swedish tax liability. It could be argued that the practical circumstance of this could potentially also constitute a de facto restriction to the free movement of services, as it may create incentives to hire Swedish contractors rather than non-Swedish contractors due to the difficulties with making such an assessment.

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