Contractors' Questions: Is 'Ltd' tax efficient in Sweden?
Contractor's Question: In Sweden, I pay tax at about 40% to the local authorities because I am physically in the country. To me, this indicates that there is little point in having this contract signed with my UK limited company, because if I am taxed at 40% already then whatever tax break HMRC gives me is pointless. Would I be better off skipping the use of my UK limited company entirely?
Expert's Answer: The question of whether to use a UK limited company while working abroad is raised very regularly, and the answer most often is a question itself: why do you want to use it?
In most countries, a foreign one-man limited company will not be recognised as a valid employment vehicle unless it is also registered in the country of work. If this is not the case, then the country of work may consider the use of such a vehicle as tax evasion, as you are making use of an artificial arrangement to reduce your tax bill.
In your circumstances, it seems that you are paying tax locally in Sweden, yet you are using your limited company. You are indeed correct that, if taxed at local rates for local work (as should be the case), there is no advantage to billing this through your limited company. On the contrary, as a director of your own limited company working in Sweden, you may be considered to have a permanent establishment there, thereby exposing the whole company's income to corporation tax, among other taxes, in Sweden.
My recommendation, therefore, would be that you, the contractor, find an accounting company to handle your local liabilities as an individual, and ensure that you are as tax efficient as possible under the Swedish system. Your UK limited company may then become dormant for the duration of the contract and could be resurrected upon your return to the UK.
This guidance is of course based solely on the information provided. I would advise having a detailed conversation with an expert in local tax before you make any decisions or arrangements.
The expert was Matt Walters, of overseas tax specialists Capital Consulting.