The European Commission has decided to take legal action against Sweden at the EU Court of Justice. The reason? Since 2021, Swedish tax legislation has required clients to withhold 30% preliminary tax when paying foreign contractors for work performed in Sweden – if the entrepreneur (whether an individual or a company) is not approved for F-tax by the Swedish Tax Agency.
According to the Commission, the requirement for F-tax approval violates the EU’s fundamental principle of freedom to provide services (see here). The criticism concerns the fact that generally, foreign contractors without a permanent establishment in Sweden are not liable to pay tax in Sweden, but still have parts of their compensation frozen while awaiting the Tax Agency’s assessment of the foreign contractors’ tax liability. A refund can potentially take up to two years.
The relatively new legislation creates liquidity issues as well as high administrative barriers for contractors from other EU or EEA countries to operate in the Swedish market, according to the Commission. One consequence of being approved for F-tax is that the foreign contractor must annually provide specific information to the Tax Agency. This information forms the basis for the Tax Agency’s assessment of whether the company has a permanent establishment – and therefore whether it is liable to pay tax in Sweden.
Just weeks before the European Commission referred Sweden to the EU Court of Justice, the Swedish government introduced a bill proposing stricter rules for the approval and revocation of F-tax status. Under the proposal, an application for F-tax would be denied – and an existing approval could be revoked – if the applicant or holder fails to comply with an order to provide specific information, or submits or endorses information so deficient that it is clearly inadequate for assessing tax liability under the Income Tax Act. The proposed bill aims to enhance compliance and improve the integrity of tax assessments.
In light of the Commission’s position, we anticipate that the rules may ultimately revert to their previous form. Should that happen, Swedish businesses would once again bear the responsibility of independently determining the tax liability of the payee. Forvis Mazars in Sweden is closely monitoring developments and will provide updates when the EU Court of Justice has reviewed the matter. In the meantime, companies that hire foreign contractors for work performed on site in Sweden, should remain vigilant about whether F-tax approval is missing. If no withholding has been made in such cases, and tax liability in Sweden is later established, the payer may be jointly liable for the unpaid tax.
Feel free to contact us at Forvis Mazars Sweden with any questions. We can assist with both F-tax registrations for foreign companies and applications for exemption from the obligation to make tax withholdings. You can also consult us regarding the presence of a permanent establishment or the obligation to provide Specific information for F-tax approved foreign entrepreneurs or following an order from the Swedish Tax Agency.
