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What is ROT/RUT and how to use it?

You may have stumbled upon the word “ROT” or “RUT” while researching the Swedish construction sector. However, as alarming as rot in the construction sector might sound, this “ROT” is something entirely different and much more useful. In this article we will explain the different terms and how ROT and RUT works in practice.

ROT and RUT are financial subsidies from the Swedish state for residents that they can use to have repairs or maintenance carried out on their property. ROT stands for Reparation, Ombyggnad, Tillbyggnad (repairs, conversions, extensions) and RUT stands for Rengöring, Underhåll, Tvätt (cleaning, maintenance, washing). In addition to the aforementioned types of works, the Swedish state also pays compensation for green renovation work, such as the installation of solar panels or a charging station for electric vehicles.

The program was introduced in 2008 and is still in use today. ROT and RUT is also often a politically important issue, as political parties and politicians debate over the necessity of ROT & RUT. Some say it is an important public support service to stimulate the economy and reduce the use of envelope wages. Others claim it is just a way of making life even more easy for the middle class and the rich, who belong to the demographic who have the money for repairs anyway and do not need subsidies to cover their basic needs.

By 2024, every permanent resident in Sweden will be entitled to a benefit of up to 75 000 SEK per year. Benefits for ROT and RUT works can be combined, but the limit for ROT works is 50 000 SEK per year. To use the benefit, the person must have paid sufficient income tax on his or her income, as the benefit is a tax deduction. Unlike many other tax deductions, claimants can use it immediately during the year instead of declaring it in their income declaration and later receiving a refund of overpaid tax.

So, what does this all mean for the entrepreneur? It means that if you carry out work for a private client, and the client meets the ROT/RUT criteria, and you have a company with the right Swedish registrations, you can provide a more affordable service to the private client and the Swedish state will pay the difference. You must bear in mind that you cannot simply invoice the client and deduct 50 000 SEK. The compensation can only be deducted from the cost of labor, not from the material, transport, or other costs. It should also be kept in mind that VAT is included in the compensation and that for each job done, up to 30% of the price of the labor can be deducted from the invoice.

Invoice example.

Let’s give a simple example of how an invoice would look like if a client has ordered the demolition of old façade walls and the construction of new ones.

  • Cost of material: 40 000 SEK
  • Cost of works: 50 000 SEK
  • Transport: 4 000 SEK
  • Admin costs: 2 500 SEK
  • TOTAL: 96 500 SEK
  • VAT 25%: 24 125 SEK
  • ROT compensation: -18 750 SEK ((50 000 labor cost + 12 500 VAT) x 30%)

Final amount to be paid by the client: 101 875 SEK.

Once the work is done, the company can send an application to Skatteverket (the Swedish Tax Agency) and ask them to pay the remaining 18 750 SEK. This can be done as soon as the contractor has finished the project for the client.

The ROT/RUT system gives the foreign contractor an opportunity to offer a more competitive service to the private client compared to companies that do not offer ROT/RUT. Namely, the company takes on the extra administrative work in order to enable the client to use the benefit. There is some risk involved, as clients can claim to be eligible for ROT/RUT while not actually being eligible. This results in the client paying a reduced price for the work, but Skatteverket not paying out the ROT difference. With some due diligence from the contractor, these situations are avoidable.

Temporary increase of ROT and RUT limits

The Swedish government has decided to temporarily increase the ROT and RUT limits to support the struggling Swedish construction sector. Between 1st July and 31st December 2024, the ROT upper limit will be increased from 50 000 SEK per year to 75 000 SEK. In addition to this increase, the ROT and RUT subsidies will receive separate upper limits, of 75 000 SEK each. Instead of being able to use max 75 000 SEK of ROT or RUT works combined during 2024, applicants can use 150 000 SEK of ROT and RUT combined. This change will likely increase demand and consumption of construction services in the B2C market.

Summary

ROT/RUT may seem confusing at first glance, but once it becomes a standard part of a company’s value proposition, it often pays off. It is also always possible to contact me, and I’ll manage all your ROT/RUT related invoices. I have many years of experience in this field and use programs where API interfaces between the program and the tax office make ROT/RUT management very easy. You can book a free consultation and discuss how you would like to set up your ROT/RUT processes.

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