Tag: finance consultation in sweden

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.

Contact us

Contact us using the contact form on the website, call or send an e-mail. We will answer you as soon as possible.
  • Write us about your wishes or the problem you are looking for a solution to.
  • In most cases, our consultant will contact you to ask some clarifying questions or invite you to a meeting.
  • After receiving the necessary information, we will prepare a non-binding offer for you, which we will send by e-mail.

Permanent Establishment in Sweden and Income Tax Obligation – Luck or Failure

Estonian companies operating in Sweden are often faced with the situation of whether to admit that they have established a permanent place of business in Sweden or not. Income generated in Sweden must be paid to the Swedish state in the event of a permanent establishment. Therefore, entrepreneurs in Estonia and other countries where corporate income is not taxed try to avoid registering a permanent place of business in Sweden. However, this often leads to certain risks and may raise questions for the Swedish tax authorities.

The following article provides an overview of the grounds on which a permanent place of business is established and what taxes it entails. The article helps to assess how practical it is to avoid the creation of a permanent place of business in Sweden.

What constitutes a permanent establishment in Sweden and how is it determined?

When determining the permanent place of business, it is based on where the permanent business activity takes place. Obligations are defined through the permanent place of business, among which the most important are the declaration of income and expenses and the payment of income tax. A permanent place of business can be created in several ways, but initially three basic criteria must be met:

  1. The main business activity takes place at this location. Example: A software solutions company rents an office and hires a salesperson to sell products to Swedish customers - this is the main business in Sweden. On the other hand, if there are data analysts working in the office and there are no sales in Sweden, it is a supporting business activity and no permanent place of business is created in Sweden.
  2. The action takes place in the same geographical point
  3. The activity is permanent (lasting more than 6 months)

Initially, it is worth checking whether the company fulfills these three criteria. If it fills, it is a permanent place of business. If the criteria are not met, then exceptions should also be considered. For example, a permanent place of business can be created when seasonal work (picking berries) is carried out for less than 6 months a year, but for several years in a row. Another example is from the forestry sector, which concerns the location of the activity. A permanent place of business is created in Sweden also when the company carries out work on several different sites, but the customer is always the same.

Permanent place of business in Sweden and income taxation

When a permanent place of business is established, the income and expenses related to the Swedish activities of the company must be declared once a year. When a profit is made, income tax must be paid, which is 20.6% in Sweden from 2021. There is no corporate income tax in Estonia, and income taxation occurs only when the company decides to distribute dividends. At first, it may seem that you have to pay double tax on income earned in Sweden, but in reality the countries have concluded a double taxation avoidance agreement with each other. This allows an Estonian company, which has paid income tax on the company's profit in Sweden due to its permanent establishment, to offset it with income tax on the dividend (see here). In Estonia, the total cost of dividend income tax for private individuals is ~25%. If the entrepreneur wants to withdraw the profit from the company as dividends, he has to pay income tax in Estonia only to the extent of the given difference.

However, if an Estonian company with a permanent place of business in Sweden wants to invest the profit in the development of the company's activities, the situation is different. There is no flexibility similar to the Estonian business environment, as income tax must be paid in any case.

Doing business in Sweden is related to Swedish business practices, opportunities and also obligations. If the Swedish tax authority decides that the permanent place of business is still in Sweden, it has the right to collect income tax retrospectively. When determining a permanent place of business, it is therefore necessary to proceed from the specifics of a particular company and to carefully consider the risks related to the business plan.

We recommend involving a consultant with whom to discuss the issue of a permanent place of business. Wisecounter specialists will be happy to help you with this matter. The first consultation with us is free, feel free to contact us.

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Contact us using the contact form, call or send an e-mail. We will answer you as soon as possible.
  • Write us about your wishes or the problem you are looking for a solution to.
  • In most cases, our consultant will contact you to ask some clarifying questions or invite you to a meeting.
  • After receiving the necessary information, we will prepare a non-binding offer for you, which we will send by e-mail.

Operating in the Swedish construction sector – tips to avoid failure

Many Estonian entrepreneurs starting operations in Sweden start operating in the Swedish construction sector. For example, the services they offer include carpentry, plumbing, electrical and concrete work, welding, scaffolding, etc., in addition to standard construction work. In this article, we have gathered useful information for Estonian entrepreneurs who want to start construction work in Sweden. We are talking about practices and rules that differ from Estonian rules, but are a necessary prerequisite for success in the Swedish construction sector.

The first prerequisite for success - necessary permits and certificates

The entrepreneur's first step when operating in the Swedish construction sector should be to familiarize himself with the permits and certificates that the company needs to apply for (read more here). In addition, you should find out what type of work falls into the category. Once the choice has been made, it is necessary to find out which type of construction work is regulated by which collective agreements. It is also useful to be familiar with the ID06 card system and the mandatory employee log keeping requirements on the construction site. By taking into account the following tips, you will avoid the frequent stumbling blocks in the smooth delivery of the Swedish construction industry. It is important to realize that the formalization of the necessary documents is often quite time-consuming in Sweden, and in most cases you are not allowed to stay on the construction site until the papers are completely in order. Even if things go smoothly, it usually takes 3 months to complete the documentation. Therefore, if you want to start the work in May, the administration should be started in February at the latest. It may happen that things go faster, but this is more of an exception.

Build for private individuals or general contractors?

As in Estonia, it is possible to do construction work for private individuals or companies in Sweden. When offering a service to private individuals, the prices of individual jobs are higher, but the total turnover is probably lower. You also have to deal more with looking for new customers, and things can get broken because of the language barrier.

When doing work for general contractors, there is more work and higher turnover, but the price per unit of work may be lower. The profitability of subcontracting large projects is also affected by mandatory employee wage rates resulting from collective agreements. Construction sites of general contractors usually have much stricter rules, as well as very strict occupational safety requirements.

When providing construction work to both private individuals and companies not subject to VAT, Swedish VAT must be added to the invoices and declared and paid in Sweden. To do this, the company needs a Swedish VAT number.

According to Swedish law, private individuals in Sweden have the right to receive up to 50,000 kroons (including VAT) compensation from the state for construction work (the so-called ROT compensation). This benefit is used through the company that offers the service. That is, the entrepreneur has to deduct the corresponding amount from the invoice presented to the private client and then ask the Swedish state to refund it. It is in the interest of the trader to check if their customer has an unused ROT, as the customer may not know this correctly. In case of incorrect calculations, the entrepreneur cannot get back the money that he left uncollected from the customer.

Collective agreements in the Swedish construction sector

In Sweden, unlike Estonia, there is no national minimum wage rate. It is indirectly replaced by collective agreements in Sweden. There are a lot of trade unions in Sweden, and their counterparts are trade unions. The purpose of these unions is to represent the interests of their members, i.e. trade unions represent contractors and business unions represent employers. Collective agreements stipulate working conditions that have been mutually agreed upon by trade unions and business associations. Compliance with collective agreements is required in most sectors, especially collective agreements are common in the construction sector.

It should be noted that different collective agreements apply to different jobs. For construction work, the Byggavtalet (construction contract) is valid, which is concluded between the association of builders and the association of construction companies, for electrical work, the Installationsavtalet (installation contract), for welding work, the Metallavtalet (metal contract), etc. Different contracts have different terms and some alliances are stricter than others. In addition, another confusing fact comes into play - for the same works, there may be several contracts with different contents, which depend on some minor nuances. For example, in the case of a welding contract, it is important to know whether the work is carried out on a construction site or in a factory, as the content of the contracts is different for them. Often, your client also does not know what kind of contract he should demand from you, and therefore you may be required to confirm in writing that you accept the responsibility. This in turn can cause you a lot of problems in the future if you don't know exactly what requirements apply to you.

Often, the subscriber is betting on the good will of the service provider. He asks for the work to continue despite the payment delays, arguing that it is necessary to avoid delays in terms of deadlines. If the client wants to continue with the work, even though the work done has not been actuated, this directly indicates a danger where the client does not want to compensate you for additional expenses.

There are general contractors who do not require their subcontractors to sign collective agreements. In this case, the entrepreneur can be more flexible, reduce the amount of administrative activities and costs, and offer his client either a cheaper price or earn more himself.

However, if the main contractor demands the fulfillment of a collective agreement, it is worth clarifying very precisely what obligations the conclusion of the collective agreement entails. For example, the contract may include high overtime rates, a ban on offering a fixed-term employment contract, etc. Also, when concluding a collective agreement, the company is obliged to guarantee pension fund payments to employees in Sweden, which is about 5% of the gross salary. There are a lot of specific conditions in collective agreements, and an entrepreneur who does not familiarize himself with them and does not make a thorough price calculation based on the obligations, discovers at the end of the project that indirect costs have created a situation where the realized object was unprofitable.

ID06-cards

On larger construction sites, it is mandatory to keep a log of people on site, and one of the most popular tools for this is the ID06 card system. ID06 is not only intended to keep track of people on the construction site, but also to provide an overview of whether the taxes related to the employees have been paid. ID06 cards are connected to the Swedish Tax Agency's (Skatteverket) system, and officials from Skatteverket, or the Swedish Tax Agency, visit construction sites from time to time to do spot checks.

New taxation rules came into force in Sweden last year, which allow private individuals to work in Sweden for 45 working days before paying taxes. ID06 issuers only offer ID06 cards for 25 calendar days if employees have not applied for a Swedish personal identification number. The entrepreneur should remember that if he wants to use the same employees for more than 25 calendar days in a row, it is useful to apply for a Swedish personal identification number for the employees.

Summary and recommendations

The Swedish construction sector is regulated in great detail, and Estonian entrepreneurs are often surprised by how many obligations and requirements arise when starting to operate in Sweden. If you are considering starting to offer construction work in Sweden, we will give you the following recommendations:

  • Choose your orientation:

Many entrepreneurs are excited that there is a considerable demand for the execution of various construction works in Sweden, and they try to simultaneously offer the execution of works with different profiles, for example, both conventional construction work, pipe work and tiling, etc. In Sweden, officials are highly specialized and most service categories have their own unions and contracts. A company that offers several different services at the same time can find itself in a situation where it has to sign two (or more) collective agreements at the same time, and then finds itself in a situation where it does not know which one to start with, as both unions insist on fulfilling their own agreement.

  • Do a thorough valuation analysis:

Before saying yes to the client, make it very clear to yourself what conditions your client requires you to fulfill. If the client requires the conclusion of a collective agreement, find out what it is about and take into account in your price offer the financial and time costs of all additional obligations that come with the execution of the collective agreement.

  • Make yourself clear about possible tax risks:

Depending on the length of the projects, the rotation of workers, parallel employment contracts and other circumstances, both the company and the employees may have tax obligations in Sweden. It is also worth considering how the payment of daily allowance is regulated, and whether the calculation should be based on Estonian or Swedish legislation. Before accepting the work, it is worth making a schedule, how long the project will last, which employees should be sent to carry it out, as well as whether you want to operate in Sweden for a long or short term. When operating in the long term, it may be beneficial to create a separate Swedish company and keep the Estonian and Swedish businesses separate, as this may be necessary to increase efficiency and mitigate risks.

  • Contact a specialist:

Entering the Swedish market, especially in the construction sector, is a long and complex process, where many different specific circumstances need to be taken into account. Being in too much of a hurry can end very badly and lead to failure. We have helped many companies with the same issues and prepared a well-thought-out plan for them to enter the Swedish market. We have long-term experience in dealing with Swedish authorities and state apparatus in order to help our clients obtain the necessary certificates and certificates and operate in the best possible way on the Swedish market.

Get in touch

Contact us using the contact form, call or send an e-mail. We will answer you as soon as possible.
  • Write us about your wishes or the problem you are looking for a solution to.
  • In most cases, our consultant will contact you to ask some clarifying questions or invite you to a meeting.
  • After receiving the necessary information, we will prepare a non-binding offer for you, which we will send by e-mail.