The European Commission has taken action against Sweden by referring the country to the Court of Justice of the European Union. The referral is due to Sweden’s failure to align its preliminary income taxation rules with EU law, specifically concerning the principle of freedom to provide services under Article 56 of the Treaty on the Functioning of the European Union (TFEU) and Article 36 of the European Economic Area (EEA) Agreement.
Swedish clients are currently required to withhold a preliminary income tax at a rate of 30% on payments made to contractors from other EU or EEA countries unless these contractors have obtained approval from the Swedish tax authority, known as ‘F-tax approval.’ The Commission argues that this requirement infringes upon the freedom to provide services, especially when foreign contractors do not have permanent establishments in Sweden and thus no tax liability in the country.
The Commission previously issued a letter of formal notice and a reasoned opinion in July 2023 and May 2024, respectively, requesting that Swedish authorities address this incompatibility with EU law. However, efforts by Swedish authorities have been deemed insufficient, prompting today’s decision to refer Sweden to court.
Since legislative changes were introduced in 2021, Swedish clients paying for work carried out by foreign contractors without permanent establishments in Sweden must withhold preliminary income tax unless ‘F-tax approval’ is obtained. This obligation applies even if work occurs abroad but within the framework of a client’s activity in Sweden. The withheld taxes can be refunded upon request after final assessment by Swedish tax authorities—a process that can take up to two years despite it being clear that no Swedish tax was due.
These provisions create cash-flow disadvantages for foreign contractors wishing to offer services in Sweden and act as a barrier within the internal market. The administrative requirements for obtaining ‘F-tax approval’ further restrict service provision freedom.
For more information on this infringement procedure or related inquiries, contact Anna-Kaisa Itkonen at +32 2 29 57501 or via email at [email protected]. Alternatively, Saul Louis Goulding can be reached at +32 2 29 64735 or [email protected].
