15th December 2023
You may find that your Swedish clients require you, as a UK agency, to register for F-tax (Sw. F-skatt or företagsskatt) or face a withholding of 30% of the invoices they pay you outside of Sweden, but why and is it necessary?
Overview
From 2021 onwards, Swedish clients that engage with foreign workers directly or through a (foreign) agency may be considered the economic-employer of the worker. In this scenario, the worker may potentially carry a Swedish tax liability. To ensure taxes are being paid, a Swedish client is required to withhold tax at source (30%) on invoices from foreign companies or individuals for work performed in Sweden, unless the recipient is registered for F-tax in Sweden.
As discussed with Mikael Nelson – Partner – Osborne Clarke Sweden, this legislation – dating from 2021 – has for some clients and suppliers “flown somewhat under the radar”. 6CATSPRO however has firsthand experience of the complexities this legislation has created; whereby Swedish clients are often unsure how to interpret or enforce the rules. This can create misunderstandings which can be financially crippling for an agency supplier. An example of this was where a UK recruitment agency had placed workers with a Swedish end client on 6 month contracts and, with only a month left to run, the client announced that due to an audit it would have to withhold 30% retrospectively of the invoice value paid to date from the remaining invoices.
“The Swedish end client is required to withhold 30% tax on a payment to a company that is not registered for F-tax, regardless of whether the company is based in Sweden or not. The Swedish end client is thereafter required to declare the withheld taxes to the Swedish Tax Agency on a monthly basis. The foreign entity will be credited with the tax deduction when the final tax is calculated the year after the income year. If the foreign entity is not required to pay any tax in Sweden, the entire tax deducted will be paid out to the foreign entities tax account” – Mikael Nelson – Partner – Osborne Clarke Sweden.
If the foreign entity is registered for F-tax the Swedish end client can pay out the full amount, there is no requirement for the Swedish end client to withhold 30% tax.
What is F-tax?
Being approved for F-tax means that you as a company, or subcontractor, are responsible for paying your own taxes and fees in Sweden. It is also proof for your clients that they do not have to deduct tax or pay employer’s contributions on the remuneration.
Entrepreneurs who conduct business are responsible for paying their preliminary tax and social security contributions on work performed monthly.
It is important to realize that registering for F-tax is voluntary. You do not have to register. However, registering could be beneficial if you have multiple clients in Sweden. The downside of F-tax approval is that it brings along some presumably unwanted administrative obligations. When you are approved for F-tax you will be required to file “specific information” with the Swedish Tax Agency allowing them to assess whether or not you have a taxable presence in Sweden.
On the other hand, there is no obligation to file “specific information” if you apply for a withholding exemption decision.
Options to mitigate risk:
- Register for F-tax
Q: What would an agency need to register for F-tax? How long would it take?
“OC can support agencies in the F-tax registration process. Foreign companies can register for F-tax in Sweden by completing and filing a form with the Swedish Tax Agency. There is no administrative fee when applying for F-tax, and the Swedish Tax Agency usually takes between three to six weeks to complete the registration. OC can also support agencies who wish to register for the F-tax exemption decision described below”.
Q: Would a foreign agency need to register for F-tax if the worker is a (Swedish) freelancer who is already registered for F-tax?
“The Swedish end client is required to withhold 30% for taxes and fees, unless the foreign agency is registered for F-tax also in this situation. The 30% withheld amount is intended to cover preliminary income tax. The situation for the Swedish end client is therefore not affected by whether the foreign entity chooses to use a contractor or an employee. In order for the foreign entity to reclaim the funds, the foreign entity has to send a form to the Swedish Tax Agency stating that they are not required to pay taxes in Sweden for the specific period, after which the Swedish Tax Agency will reimburse the foreign entity the funds. To avoid extra administrative work, we would recommend the foreign entity to apply for the F-tax exemption described below”.
OR
- Apply for an exemption decision
Q: Is a F-tax exemption decision individual (per placement) or does it cover the agency as the supplier (recruitment services) to the Swedish client?
“If the foreign entity is not liable for tax in Sweden, it is possible for the foreign entity to apply for a special calculation basis (Sw. jämkning) in order to avoid the 30% withholding tax with the Swedish Tax Agency. If approved, the foreign entity will receive a decision to show to the Swedish end client, stating that the Swedish end client shall pay out the full amount and not withhold 30% tax”.
It is also possible for a Swedish end client to apply for an exemption from the tax deduction. If the Swedish Tax Agency approves the application, the foreign entity will receive the full amount.
Q: Does F-tax apply when the worker is employed by a Swedish Umbrella company and the worker pays taxes at source but where the agency still invoices the Client? Or would the Umbrella have the relationship with the Client and the Agency move to Margin Only?
“Provided that the Swedish umbrella company is registered for F-tax, the Swedish umbrella company would, as the employer, be responsible for paying the taxes and fees related to the employment in Sweden. The foreign entity would not have to register for F-tax nor, when paying the invoice from the Swedish umbrella company, be required to withhold 30% for taxes and fees”.
Conclusion
It’s better to be safe than sorry and as such we recommend recruitment businesses challenge any new Swedish clients to provide a definitive position relating to the need for withholding tax and as such the need to consider an application for F-tax registration or an F-tax exemption decision. Finding out about withholding taxes when the 1st invoice cycle is in process or worse still later in the contractual lifecycle can be a significant distraction and be commercially complex to resolve and is likely avoidable with the right knowledge and support of expert partners like 6CATSPRO and Osbourne Clarke.
If you require further information please contact:
Jon Clarke – jon@6catspro.com
Mikael Nelson – mikael.nelson@osborneclarke.com
