Tag: starting business 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.

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  • Write us about your wishes or the problem you are looking for a solution to.
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  • After receiving the necessary information, we will prepare a non-binding offer for you, which we will send by e-mail.

Payment difficulties in Sweden and national dept collection

So many businessmen have experienced the old truth that doing business involves risks and may not always succeed. Sometimes the business plan runs aground, sometimes there are unexpected changes in the world that lead to a sudden increase in costs, sometimes laws change, and in rare cases, diseases can hit key people. Stoppage of cash flows quickly leads the company to payment difficulties, which in turn is followed by non-payment of invoices and state taxes. No one is safe from the unexpected.

In this article, we will focus on what happens if you run into payment difficulties while operating in Sweden, or if your customers owe you money for a long time and you have to deal with Kronofogden.

In Sweden, Kronofogden has both a debt enforcement and bailiff role

Kronofogden is a Swedish state agency whose main task is the processing and collection of debt claims and related activities, such as the organization of forced sales (exekutiv auktion). Kronofogden has offices in 32 cities and employs 2,300 people. Kronofogden is a compound word consisting of the words "krono", translated as crown, or country, and "fogde", translated as overseer, so kronofogden refers to a person of high position who does supervisory work for the state. Today, the holders of this office have an administrative role, where they help to determine and collect debts.

Kronofogden has a reputation as a very serious institution in Sweden. It is a respected, impartial authority with great rights. In the event that Kronofogden has been approached to collect a debt from your company, the company automatically has a stigma on it that cannot be easily removed. Swedes start to mention Kronofogden in conversations mostly when repeated reminders to pay bills and debt collection notices have not led to the payment of debts.

Before turning to Kronofogden with a debt claim, you should think about whether it is worth it. If you approach them without proper evidence, even if your claim is initially registered, the process will not get very far. Unfair and/or incorrect claims are filtered out in the first round. For example, a subcontractor who has signed a contract with an intermediary and not directly with the main contractor cannot simply collect debts from the main contractor using Kronofogden.

When contacting Kronofogden, you must have a clear factual basis to prove your claim. In order to achieve the best result, a cooperation agreement between the companies is necessary, as well as invoices submitted by you that have not been paid by the other party and a short explanatory letter for what you are owed.

The Kronofogden process takes time and cannot be forced

The process usually includes the following steps.

A company demanding payment of a debt submits an application for the debt (Ansökan). Kronofogden registers the filing of the claim and sends an injunction (Föreläggande) to the recipient of the claim, which the recipient must sign and return to Kronofogden - by doing so, he acknowledges receipt of the injunction (Delgivningskvitto). If no written response is received, a reminder will be sent initially. If this is also not answered, after 6 weeks Kronofogden will issue a default judgment (Särskild delgivning med juridisk person) regarding the legal person and the debt claim will be enforced.

If the recipient of the claim is of the opinion that the claim is not justified, he must react to the first letter - prepare a written objection (Bestridan) and send it to Kronofogden by post. Kronofogden now in turn sends a response to the claimant (Underrättelse), who is also given the opportunity to present an additional position taking into account the new information. After that, a decision (Utslag) is made on the claim. If the recipient of the debt claim decision acknowledges the debt confirmed and determined by Kronofogden, the next step is to pay or collect it. If the debtor contests the decision, matters are resolved in the county court (Tingsrätt). Kronofogden also helps organize the collection of confirmed debts (Indrivning).

Avoiding responding to Kronofogden's letters is unwise. In such a case, Kronofogden may make a decision in favor of the debt claimant.

To summarize the above, both parties can present their vision to Kronofogden at every step of the process. Therefore, the procedure also takes time. It should be taken into account that it takes months from the submission of the claim to the confirmation of the claim and the determination of the amount of the debt. Once you are familiar with the process, you can use this time to your advantage, such as finding a solution to debt financing.

What happens if you do not pay a debt claim that has been approved and set for payment by Kronofogden?

The short answer is that Kronofogden has the right to foreclose on your assets. At the same time, you enter the debt database, which in turn is reflected as a corresponding mark (Betalningsanmärkning) in the databases of credit companies and financial institutions. If the company has such a note, any possibility of using bank credit disappears. Further financial activities of the company can be done either in cash or as advances, which is not very practical.
Swedish companies are particularly sensitive to companies on Kronfogden's list. This tells them that this company is not a reliable business partner.

When dealing with Kronofogden, there is a lot of paperwork to fill out, the terms used in which are quite complex. Citizens who have a Swedish digital identity card (Bank-id) can do things digitally. However, foreigners, such as Estonians, have to complete the entire process on paper.
When dealing with Kronofogden, we always recommend contacting a company with the appropriate competence, who has experience in communication with Kronofogden and whose business languages include Swedish. WiseCounter AB consultants will find the best and fastest solution to your problems. Feel free to contact us if you have received a letter from Kronfogden or need help with debt collection.

Kronfogden foreclosure auctions take place here.

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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.

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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Which business form to prefer in Sweden

A wise entrepreneur examines the possibilities of doing business in Sweden well in advance before entering the Swedish market, and determines which business form best suits their needs. This article discusses three different ways to operate as a legal entity in Sweden. There are other business forms as well, but they are mostly used for very small businesses (e.g., sole proprietorships) or in exceptional cases.

The three business forms discussed in this article are:

  1. Foreign company registered in Sweden;
  2. Foreign company with a branch in Sweden;
  3. Swedish AB (AB is short for "Aktiebolag," which translates to "Stock Company" and is equivalent to an Estonian OÜ).

Making the right decision is also influenced by how long you plan to operate in the Swedish market. If you plan to operate for less than 6 months, registering your company in Sweden is sufficient. However, if you plan to operate for more than 6 months, you will need to establish either a branch or a Swedish AB.

Regardless of the business form chosen, it is necessary to register for F-skatt, VAT number, or employer registration, depending on whether the company engages in taxable sales or hiring employees. Some companies may require all three registrations. These registrations are done at Skatteverket (Swedish Tax Agency), and the processing time is 3-6 weeks.

Swedish company registration numbers are 10-digit (XXXXXX-XXXX) and can identify the type of business form.

Foreign company registered in Sweden (50XXXX-XXXX)

+ Suitable for entrepreneurs with occasional short-term projects in Sweden.

+ No additional obligations beyond submitting declarations.

+ The smallest investment cost, both in terms of time and money.

- If a permanent place of business is established (more than 6 months), a branch or AB must be created. Later establishment of a branch or AB requires transferring previous activities, which can be cumbersome and time-consuming.

- Swedes prefer to collaborate with Swedish companies. Often, companies that are not branches or ABs are offered less favorable conditions.

Required registrations

Most entrepreneurs start their activities in the Swedish market using this business form. The company likely has a short-term project in Sweden, lasting less than 6 months, and that's where it ends. In such cases, registering for F-skatt, VAT number, or employer registration is sufficient. 

A VAT number is required if you sell goods or provide services to individuals in Sweden that are not subject to EU reverse charge rules. It is also required if you voluntarily want to pay VAT in Sweden.

An employer registration must be made if employees need to pay income tax in Sweden, i.e., if they receive income for work done in Sweden for more than 6 months or if their "actual employer" is a Swedish company.

By making one of these three registrations, the company receives a temporary 10-digit registration number starting with 5 and 0 (50XXXX-XXXX). The registration process takes 3-6 weeks. This number is not permanent and does not represent a separate branch of the company. It is essential to know this because many larger Swedish companies (especially in the public sector) collaborate only with Swedish companies or branches. Companies with registration numbers starting with "50" ARE NOT branches.

Foreign company with a branch in Sweden (51XXXX-XXXX)

+ The most cost-effective business form for a foreign company with a permanent place of business.

+ A branch can do almost everything an AB can do.

- Not the most optimal form for building long-term trust. Swedes prefer to collaborate with ABs.

- A branch is not a separate legal entity. If business in Sweden goes bad, it may affect the obligations of the company's other branches.

- The risk of not recording or double-recording company transactions is higher. This is because a branch may appear as a separate entity even though it is not. It is essential to clearly define which transactions are conducted by other branches of the company and which are done by the branch, especially concerning cross-border transactions.

Permanent establishment in Sweden and associated obligations

If it is known that the company will have a permanent establishment in Sweden, it is required to register a branch. A permanent establishment occurs when the following criteria are met:

  • There is a specific geographic location for conducting business.
  • The business activity lasts for more than 6 months.
  • The company conducts its main business activities locally.

With a permanent establishment comes additional obligations for the company:

  • The company must submit an income declaration and pay income tax for the income generated in Sweden.
  • The branch must maintain separate accounting for its business activities.
  • The company must submit an annual report to the Swedish Business Registry. The same document can be submitted to both Estonian and Swedish business registries, but translated into either Estonian or Swedish.

The branch of the company must operate according to Swedish laws, just like other Swedish companies. It is important to remember that despite this, the branch is not a separate legal entity or an independent company. The branch is just one part of a foreign company. Therefore, Swedish branches have the same obligations as other Swedish companies but not all the same rights.

When registering a Swedish branch, the company will receive a registration number starting with 5 and 1 (51XXXX-XXXX). The registration process takes 1-2 weeks. The application process is extensive, and all documents must be translated into Swedish.

After registering the branch, it is also necessary to register for F-skatt, VAT number, or employer registration, which takes an additional 3-6 weeks. In total, the registration of documents for the branch takes 4-8 weeks.

Swedish AB (55XXXX-XXXX)

+ The simplest business form for operating in Sweden. Customers and partners have the highest trust in ABs, and it is easier to demand transactions on Swedish terms, especially if there have been a few successful fiscal years.

+ It is much easier to submit various declarations and applications.

+ Domestic and Swedish companies are kept separate, reducing risks.

- The initial investment is expensive and time-consuming. However, the share capital is not a cost; it can be used to acquire assets for the company later.

For long-term operations in Sweden, creating a Swedish AB is the most reasonable option. There are several good reasons for this. For instance, Swedes themselves take ABs much more seriously than other business forms. ABs appear more like "real companies" to them and create trust. As mentioned earlier, a branch can do almost everything that can be done with an AB, but branches are not as common.

Information about a Swedish AB is easy to find since company details, including annual reports, are publicly available. Interested parties can quickly gain insight into the company's financial situation. This may not always be possible with the other two options.

Advantages of Swedish AB

Another advantage of operating under a Swedish AB is that it is much easier to keep its business activities separate from other branches. This is crucial, especially when operating in multiple countries. Confusion about whether a specific transaction was made by another branch or the branch itself is eliminated. A Swedish AB is an independent company responsible for its obligations. The responsibilities of an AB do not transfer to the home-based company, making this form of operation secure.

Creating a Swedish AB can also reduce the time and cost involved in accounting activities. Swedish accounting programs, e-environments of various country authorities, and form submissions are all designed for Swedish ABs. Therefore, handling business with this form and communicating with various government agencies are significantly more straightforward.

To establish a Swedish AB, a share capital of 25,000 SEK is required. Depending on whether you want a Swedish or Estonian bank account for your company, registering a new AB takes 2-6 weeks. After that, you need to register for F-skatt, VAT number, or employer registration, which takes an additional 3-6 weeks. At the same time, you must register changes in management, new owners, a new business address, etc. All these procedures take 5-8 weeks in total.

You can expedite the process by purchasing a ready-made shelf company, where the AB is already established, and you only need to register for F-skatt, VAT number, or employer registration. Shelf companies can cost between 250 to 1000 euros, depending on how much assistance the selling company provides with the transfer.

Wisecounter's recommendation

In summary, registering your Estonian company in Sweden is suitable for those who do not undertake significant projects in Sweden and operate there on a short-term basis, less than 6 months.

A branch is suitable for those conducting large-scale projects in Sweden that last longer than 6 months and are uncertain about whether it is a one-time project or there will be more work. This is also a good solution for companies engaged in seasonal work.

AB is recommended for companies planning to operate in Sweden in the long term and develop their business there. Doing business in Estonia and Sweden is entirely different, and it is essential to follow the local customs in both countries. Even if you plan to operate in Sweden for only a year, we still recommend establishing an AB because it adds credibility. Additionally, if you no longer wish to conduct business in Sweden, you can sell the Swedish company.

However, to make the right choice and find the best solution, you should consider various other factors. It is advisable to consult with an expert who has enough experience in this field and can anticipate obstacles, ensuring a smooth and efficient entry into the Swedish market with your business.

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.

Swedish taxes – when to pay and on what basis

Estonian entrepreneurs operating in Sweden often lack a precise overview of Swedish taxes, including when and based on what these taxes need to be paid. We frequently receive inquiries from entrepreneurs wondering why certain tax obligations have arisen and what could have been done differently. Therefore, it is beneficial for every entrepreneur to thoroughly understand the tax obligations they will have towards the Swedish state before commencing operations in Sweden. For foreign companies, there are three primary tax obligations: paying corporate income tax on profits, paying value-added tax (VAT), and paying taxes for employees.

In the article tax changes for Estonian entrepreneurs operating in Sweden, we clarified under what circumstances an employer becomes obligated to pay taxes for employees in Sweden. Now, we will briefly discuss Swedish taxes, namely the corporate income tax and value-added tax (VAT) obligations.

The obligation to pay corporate income tax arises when a company has a permanent establishment in Sweden. Entrepreneurs who aspire to conduct business in Sweden in the future have likely come across the term "permanent establishment" during their data collection process. Once a permanent establishment is established, the company is required to declare its income and expenses in Sweden and pay corporate income tax on its profits. The corporate income tax rate varies each year but is generally between 20-22%. As of 2021, the corporate income tax rate is 20.6%.

Swedish taxes vs. "Permanent Establishment"

A "permanent establishment" must meet three criteria:

  1.  Business activities are conducted at a fixed location.
  2. The location is used continuously.
  3. The location is used primarily or entirely for the company's core business activities.

Different situations may have different nuances, but in most cases, if an entrepreneur conducts their core business activities at a specific location in Sweden for more than 6 months, a permanent establishment is deemed to exist. It is essential to understand that once a permanent establishment is established, it remains in place until the business activity is terminated.

Examples of "Permanent establishment"

Example 1: AutoMechanic LLC rents a workshop in Stockholm and maintains trucks for 10 months. AutoMechanic LLC also performs car repairs in Estonia, which is its core business. Since the company has a fixed location where it conducts its core business activities for more than 6 months, a permanent establishment is established, and the company must declare its revenues and expenses earned in Sweden, paying corporate income tax on its profits.

Example 2: AutoMechanic LLC rents an office in Stockholm for its accountant. The accountant resides in Stockholm and performs bookkeeping for the company throughout the year. As the activities in Sweden are not the company's core business, there is no permanent establishment, even though the company has a presence in Sweden for more than 6 months at the same address.

There are situations where the existence of a permanent establishment can bring advantages, such as when sending employees to work in Sweden for an extended period and having to pay income tax on their salaries. Foreign companies with a permanent establishment can use Swedish tax tables to calculate income tax. Depending on the salary, the income tax rate ranges from 20% to 25% based on the tax table. However, if the company does not have a permanent establishment, a flat rate of 30% must be used, regardless of the salary amount.

The term "permanent establishment" often appears in various tax regulations, but the matter is more complex than it may seem initially. The Swedish Tax Agency uses two expressions, "fast driftställe" and "fast etableringsställe," which can be translated as "permanent establishment" and "permanent establishment for setting up," respectively. It is crucial to keep these two concepts separate, as their criteria for establishment and the obligations that come with them are different.

"Permanent establishment for setting up"

A "permanent establishment for setting up" determines whether a foreign company operating in Sweden is obliged to add Swedish VAT to its sales invoices and declare and pay taxes to the Swedish Tax Agency.

To establish a "permanent establishment for setting up," the following three criteria must be met:

  1. The company has employees working in Sweden.
  2. The company manages technical resources in Sweden.
  3. The company has a sufficiently stable location to operate from in Sweden.

Interpreting these criteria can be more ambiguous than determining the existence of a permanent establishment. The presence of employees is straightforward to interpret: if the company has employees whose work allows it to carry out its core business activities, this criterion is met. Technical resources refer to the equipment, accommodation, and even smaller resources, such as servers used for an e-commerce store. The company does not necessarily have to own these resources; renting them is sufficient to meet the criterion. The final criterion, having a sufficiently stable location, is the most unclear. It means that the company has the capability to independently sell services and/or goods and purchase services and/or goods. Additionally, a "stable location" can refer to having long-term accommodation for employees where customers and suppliers can contact the company, for example, by visiting the location or sending invoices there.

If it is known that there will be costs in Sweden on which VAT can be reclaimed, it is a good idea to submit an application to the Tax Agency, explaining why you want to declare sales in Sweden and pay VAT on them. This simplifies the process of reclaiming VAT from Sweden and also helps to solve liquidity-related issues more quickly.

Examples of "Permanent establishment for setting up"

Example 1: ForestWork LLC performs forestry work in Sweden. The company has sent its employees to Sweden, along with its machinery, and receives ongoing instructions from its client's office, which is a Swedish forestry association. The presence of employees and machinery fulfills the first two criteria, and the forestry association, as the client, agrees that their office can be used as a contact point for anyone wishing to get in touch with ForestWork LLC. Additionally, ForestWork LLC is entirely capable of independently providing the service and purchasing the necessary goods and services for service delivery. Thus, a "permanent establishment for setting up" exists, and ForestWork LLC should issue invoices to its client in Sweden with Swedish VAT, which will be declared and paid in Sweden.

Example 2: Welders LLC rents 10 employees to a pipe manufacturing factory in Sweden. The factory is located in Gothenburg, and the work lasts for 8 months. The Swedish client provides accommodation and all necessary tools and machinery for the workers. Welders LLC has personnel present in Sweden and a "stable location" (a place where they can provide services and where suppliers can contact them), but since the company has not directly acquired accommodation or machinery, the technical resources criterion is not met. As a result, the company does not have a permanent establishment for setting up, and invoices to the client should be issued with reverse charge VAT, and the sale should be declared as a sale made in Estonia (as an intra-EU supply).

Exceptions

There are a few exceptions regarding the establishment of a permanent establishment and a permanent establishment for setting up, especially in the construction sector. The exception regarding the establishment of a permanent establishment means that each project is analyzed separately. If a company performs, for example, three consecutive projects, the first one taking 3 months, the second 7 months, and the third 4 months, only the revenues and expenses from the projects lasting more than 6 months need to be declared. This exception is specified in tax treaties with each EU country, and different countries have different time limits for the establishment of a permanent establishment, especially in the construction sector. Estonia's limit is 6 months, but, for example, Poland's limit is 12 months.

The second exception concerns the VAT liability for construction companies. Since construction companies sell their services to other construction companies with reverse charge VAT, the tax authorities may not issue a VAT number because the foreign company does not carry out sales with VAT. This can become problematic, as Swedish clients may not cooperate with foreign companies that do not have a VAT number. However, it is entirely possible to obtain a VAT number since there are another set of rules that stipulate that construction services related to a real estate object are considered, under certain conditions, as services provided in Sweden, i.e., as domestic sales.

Analyze future jobs before making registrations

As you can see, it is not always straightforward to know in advance what tax obligations may arise. In many situations, it is not clear whether a permanent establishment or a permanent establishment for setting up will be established or something else. It is recommended to conduct proper preliminary research and make the necessary registrations for the company immediately. Otherwise, there might be delays in collaboration with clients. Not having made the correct registrations or facing retrospectively imposed obligations or taxes by the tax authority may occur.

As the Swedish Tax Agency does not decide directly on behalf of the entrepreneur whether taxes need to be paid, it is the entrepreneur's responsibility to gain a clear understanding of how to conduct business. It is essential to explain as precisely as possible to the Tax Agency what obligations the company will have. When the business activity has been ongoing in Sweden for some time and it is necessary to declare activities, the Tax Agency compares whether the obligations have been fulfilled or not. This may lead to the Tax Agency retrospectively imposing additional obligations or taxes that were not initially considered.

If you want to be sure that the correct registrations are made and avoid potential issues in the future, feel free to contact us - we can review the situation together.

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.

Tax Changes for Estonian Entrepreneurs Operating in Sweden (as of 2021)

By now, it's probably not unnoticed by any active Estonian entrepreneurs operating in Sweden that new tax changes for foreign entrepreneurs came into effect from January 2021. New rules for taxing labor were introduced, including the concept of "economic employer" or "actual employer." This new concept aims to limit the abuse of the 183-day rule by foreign companies to avoid paying taxes in the country where the work is performed, namely Sweden. The tax changes in Sweden have led to many foreign companies having to pay income tax in Sweden for their employees much earlier than before. Additionally, the obligation for foreign companies to register for F-tax has been strictly enforced, putting the responsibility on Swedish companies to withhold 30% of payments made to non-registered companies. As a result, Swedish companies are reluctant to collaborate with any firm that lacks F-tax registration.

Employee Income Tax in Sweden or Estonia - How to Proceed?

Many foreign companies sent employees to work in Sweden and did not pay income tax in Sweden, relying on the 183-day rule, which allows foreign companies to continue paying income tax to their home country as long as the employee does not spend more than 183 days in Sweden. However, the new tax changes in Sweden now require the Swedish Tax Agency (SKV) to consider that if the "actual employer" is a Swedish company to whom a foreign company sells its services, the 183-day rule cannot be applied. Since January, the actual employer is determined based on the following criteria:

  • Actually bears the payroll costs
  • Provides tools and work materials to employees
  • Determines the number of employees used for the work and their qualifications
  • Has the authority to decide who is allowed to perform certain tasks and who can terminate the collaboration
  • Determines vacations and work schedules
  • Has the authority to discipline employees

Based on these criteria, it seemed that there were quite a few situations where Estonian companies sending their employees to Sweden could be considered the actual employer. The Swedish client orders a service and the desired outcome is the Estonian company's responsibility, but the Swedish client has minimal involvement in organizing the work.

However, this year, the actions and enforcement of various agencies (SKV, ID06, trade unions) have created a situation where all the above criteria are of little importance when determining the actual employer.  From the beginning of the new year, a criterion will be used, which changes the situation where it is almost impossible for an Estonian company to consider itself an actual employer.

According to the new criteria, the actual employer is the company responsible for the workplace where the work is performed

SKV argues that the main determiner, who is the actual employer, is the one who owns, is responsible for, or benefits from what is done at the workplace where he has hired a foreign company to do the work. The old criterion "who determines who does what work" is interpreted by SKV to mean that the Swedish company still indirectly chooses who will do the work on its site, even if the service provider chooses who does what from among its employees. The Swedish client indirectly chooses all employees of the Estonian company to work on their site/object. The new rules have made it nearly impossible for foreign companies to avoid taxation in Sweden.

RULE: If the Swedish client is the actual employer, the foreign company providing services to the Swedish client (performed on Swedish territory) must declare and pay income taxes for its employees from the 46th workday, except if the work lasts for more than 15 consecutive days. Each calendar year, each employee can work a maximum of 45 workdays before becoming subject to tax. This means that days when no work is performed (e.g., weekends) are not counted.

Which registrations are needed?

Many Estonian companies that operate in the construction, forestry, and other sectors where work is physical and on-site need to apply for the following registrations in 99% of cases:

  • F-tax: Proof that the company pays its own employees' taxes. This shows the Swedish client that they don't have to worry about SKV demanding the payment of income taxes and social taxes for the purchased services.
  • Employer registration: Allows the Estonian company to declare and pay labor taxes in Sweden.
  • A-tax or SINK-tax: These registrations are required for each individual employee and allow the company to pay the employee's income tax in Sweden. An A-tax registration is made for employees staying in Sweden for more than 6 months within a 12-month period. The A-tax rate is based on the Swedish tax tables (i.e., according to Swedish standard conditions) if the company has a permanent establishment. If the company doesn't have a permanent establishment, the rate is 30%. SINK-tax is applied to employees staying in Sweden for less than 6 months. For SINK-tax, the rate is 25% with a permanent establishment, and 0% without one. In the latter case, no integration into the Swedish tax system takes place, and thus, no temporary personal identification number is issued, making it difficult to apply for ID06 cards. Both A-tax and SINK-tax registrations (taking into account the permanent establishment condition) lead to the Swedish Tax Agency issuing a temporary Swedish personal identification number for the employee, which allows for the declaration and payment of the employee's income tax.

For companies operating in other sectors, similar registrations are often required, but depending on the situation, there may be other nuances.

Tax changes in Sweden - what are the exceptions?

Foreign companies that are hired in Sweden to provide services to another foreign company that does not have a permanent place of business can, in most cases, operate according to the old 183-day rule and continue to pay income tax in Estonia, but there are also important nuances that must be taken into account.

Tax Changes in Sweden - What Does It Mean for Estonian Entrepreneurs?

Many try to avoid the situation where they have to familiarize themselves with the tax regulations, accounting practices, and other circumstances of two different countries. This is understandable because operating in two countries and complying with the bureaucratic rules entails both financial and time costs. However, the clearer enforcement of the new rules makes the situation more transparent, as there are fewer gray areas and less uncertainty about how to proceed.

Our recommendation for Estonian entrepreneurs is to consider that with each passing day, the Swedish Tax Agency becomes increasingly efficient, and any entrepreneur planning to enter the Swedish market should consider it self-evident that they have to comply with Swedish legislation when operating in Sweden. This requires careful planning before entering the Swedish market, as several registrations need to be made before commencing work to ensure proper operation.

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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.