Reverse charge VAT in the construction industry, Sweden


Construction and woodworking
Target Groups: 


Undeclared work accounts for about half of the total tax gap in Sweden and the country has taken important measures to tackle undeclared work, especially in sectors such as commerce, construction and other sectors with high cash turnover. To tackle VAT fraud and undeclared work in the construction industry, the government introduced a law on reverse charge VAT effective from 1 July 2007. The reverse charge means that the buyer becomes liable for the payment of VAT.



During the late 1990s and early 2000 the Swedish Tax Agency observed problems of undeclared work and tax evasion in the construction industry. Undeclared wages on the part of the construction industry engaged in installation was a particularly problematic area and was estimated to be at least SEK 2.5– 3 billion (€297–360 million) annually. As a result, the state lost approximately SEK 500–600 million (EUR 59–70 million) in VAT annually. In light of this, the government decided on 21 February 2002 to appoint a special commission with the task to propose measures aimed at promoting competition, prevent the use of black labour force and cartel formations in the construction sector. In December 2002, the commission announced several suggestions, one of which was to introduce a reverse charge VAT mechanism in the construction industry (Ministry of Finance, 2005). The legislative proposal was accepted by the government and came into force on 1 July 2007.


The aim of the reverse charge is to reduce tax evasion and undeclared work, which is considered a problem in the construction industry.

Specific measures

As of 1 July 2007, a reverse charge is used within the construction industry. Reverse charge means that the buyer, not the seller, must file and pay VAT. This system is similar to the one used in the trade of goods and services between companies in different countries within the EU.

A company which performs and sells construction services, more than on a temporary basis, must pay VAT for its subcontractors. If the purchaser of the service is not a construction company, the vendor shall add VAT to the invoice. If the purchaser of the service is a construction company, the vendor shall not add VAT to the invoice. The purchaser will be responsible for reporting the output VAT. Reverse VAT liability does not apply to sales which consist solely of materials.

Actors involved

This law applies to companies in the construction industry performing and selling construction services, more than on a temporary basis. The buyer is liable for the payment of VAT to the Swedish Tax Agency.

Outcome of evaluations: lessons and conclusions

Achievement of objectives

According to a survey by the Swedish Tax Agency (2010), around 39% of the surveyed companies believed that the reverse charge affected the extent of undeclared work in the construction sector in a positive way. The Swedish Tax Agency doesn’t find support for this argument when investigating a possible increase in reported payroll taxes. The Swedish Tax Agency does, however, not preclude that the measure may have affected the prevalence of undeclared work.

Obstacles and problems

The reverse charge has resulted in an increased administrative burden for companies affected by the rules. A survey conducted by the Swedish Construction Federation (BI) in cooperation with the Swedish Tax Agency, shows that a large proportion of businesses consider the reverse charge to result in increased administrative work equivalent to approximately four hours a month (the Swedish Tax Agency, 2010).

Lessons learned

Several companies find it difficult to know which services are covered by the new rules and which are not. The Swedish Tax Agency is therefore discussing a setup of an online register of the various services covered by the law.

Impact indicators

The Swedish Tax Agency (2010) concludes that the reverse charge has had positive effects in terms of increased reporting of output tax in the construction sector with SEK 700 million (€82.3 million) in 2008.


Reverse charge in the construction industry has been introduced in several European countries, for example Finland and Cyprus. The Swedish Ministry of Finance (Finansdepartementet) has also suggested that reverse charge for the sale of iron and scrap metal is introduced from 2013.


The Swedish Tax Agency (Skatteverket).


Given the high level of tax in Sweden, the issue of undeclared work has during the last decade been a recurrent argument for lowering income taxation and the tax wedge. Combating undeclared work constitutes a high priority of the Swedish Government and efforts to prevent this seem to have increased when the centre-right government took office in 2006.


Almega, Hemservice - Attityder och fakta kring hushållsnära tjänster,

European Employment Observatory, Article on Undeclared Work from SYSDEM Correspondent, 2007.

Motion 2011/12:Sk399, Åtgärder mot skattefusk och svartarbete

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The Swedish Tax Agency, Purchasing and performing undeclared work in Sweden, 2006:4.

The Swedish Tax Agency, Tax gap map, 2008:1.

The Union of Construction Managers, Okunskap föder svartarbete, 29 February 2012,


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