Risks of using the registration rental services

Registration in the value added tax register and other registers is a prerequisite for operating in the construction sector in Sweden and Finland. This does not come as a surprise to any entrepreneur operating in these countries, because as a rule, registrations are an inseparable prerequisite for starting work and concluding a contract. If a cooperation agreement is even reached without registration, for example, in the absence of VAT registration, the main contractor has the right to withhold up to 30% of the payments as a guarantee to fulfill tax obligations. This type of circumstance does not appeal to most entrepreneurs.

The shift in policy from recommended to required registrations in recent years has resulted in a heavier workload for the organisations handling application processing. Longer timelines for procedures are the result.

When establishing a partnership, entrepreneurs have a strong motivation to complete the deal in order to avoid losing a potential job opportunity. As a result, it is typical for companies migrating from Estonia to international markets to sign a contract quickly and only after that familiarise themselves with its provisions. This results in a situation in which the time between signing the contract and beginning work is insufficient to complete the essential registrations on time. This creates an urgency to very quickly find a solution for the situation.

Wisecounter has observed a variety of strategies and agreements with which entrepreneurs have sought to settle the matter. These include postponing billing until registrations have been received. A partial discount on finished work until registrations are obtained is also offered to clients as a solution. Aside from those stated, numerous additional similar methods are used to assure the contract's preservation.

What are the dangers of using the registration rental service?

Because entrepreneurs in a difficult circumstance are far more inclined than usual to take various risks, so-called "registration rental" businesses have emerged on the market. This is not the official or exact name of the supplied service, but it expresses the intent. The service offered includes the following.

The company has signed an agreement with the principal contractor to execute the work, but it lacks the required registrations. As a result, he authorises another, so-called "registration rental" company, which has all of the necessary papers, to sign the contract instead of him. The “registration rental” company invoices the main contractor instead of the company that actually performed the work. The “registration rental” company then deducts taxes from the received amount and transfers the remaining amount to the company that actually performed the work.

Although everything appears to be in order, different concerns arise. The company that carried out the work is legally obligated to pay taxes, but it is unable to do so due to a lack of registrations, such as employment registration. In the above-mentioned scenario, the company that submitted the invoice to the general contractor and deducted the tax amount has agreed to pay the taxes. But legally “registration rental” company has no direct responsibility to do so, and this is being exploited. In the worst-case scenario, the company that used the "registration rental" service loses income but does not avoid tax responsibility. The frosting on the cake may involve the payment to the "registration rental" company for the "service" they gave, which is usually at least 5% of the total cost of the project.

The consequences might be irreversible

In a nutshell, being late with the necessary registrations and acting rapidly and recklessly can result in thousands of euros in tax penalties rather than savings. This is in addition to the cost for the "registration rental" service. A company that you have entrusted to sign the agreement on your behalf can take over the contract and provide the service to your client in the future by themselves. In other words, in the worst case, you also lose a long-term customer relationship.

In certain cases, competent advisors can assist businesses in overcoming such challenges. Unfortunately, this is no longer an option if you address it too late. Unfortunately, there are many cases when the amount of labour and potential reward cannot compensate for the damage done. In this instance, the corporation must shut down operations.

The most essential consideration is whether it is worthwhile to choose suspicious service provider under the circumstances indicated above. Such exploitation of the trust of other people is, of course, extremely regrettable. It is typically a plainly dishonest scam that has been intended as such. Fortunately, the best way to avoid falling for such con games is to spot them early on and refuse to fall for them.

To avoid such problems, Wisecounter provides a free hour-long consultation to all new clients. This allows us to assist you in determining the best and safest method to manage your registrations and work in Finland and Sweden.