Expatriate Executive: Sweden

Summary of local taxation situation

You are resident in Sweden if one of the following applies:

• Your 'real home and dwelling' is in Sweden; or
• Your 'habitual abode' is in Sweden - this is usually interpreted to mean that you spend more than half the year in Sweden; or
• You have no habitual abode in Sweden, but you formerly had a 'real home and dwelling' there, and you have an 'essential connection' with Sweden.

'Essential connection' means, for instance, that you have real property, a business or a family in Sweden. Anyone who has spent more then 10 years resident in Sweden is deemed to remain resident for 5 years after departure, unless they can prove that they have no 'essential connection' to the country.

A tax resident of Sweden pays tax on world-wide income and capital gains; non-residents pay tax only on Swedish-source income and capital gains.

A Swedish tax resident can obtain exemption on income earned abroad if the period of absence is at least six months.

Sweden has quite well-developed Controlled Foreign Corporation and anti-avoidance tax law, which applies to individuals as well as to corporations. Substantial holdings in foreign companies are treated normally only as long as the company is in a jurisdiction with which Sweden has a double tax treaty; in practice this means, in other high-tax countries. Swedish holders of shareholdings in corporate entities in low-tax jurisdictions will be subject to taxation on the undistributed profits of those entities.

The situation regarding trusts in Sweden is very unclear. There is no substantive law, but there have been some court judgements. The general direction of the law is that a settlor will be treated as owning trust assets unless he is clearly excluded from enjoyment of them by the terms of the trust. It follows from the anti-avoidance legislation that the settlor of an offshore trust is likely to be taxed on undistributed profits in the trust.

All in all, it will only be small holdings in foreign investment funds that escape the CFC and anti-avoidance provisions - virtually all types of private family trust or financial holding company will be caught: therefore, anyone about to take up Swedish residence definitely needs professional advice before doing so, to make sure that international investments of any kind will not fall under Swedish taxation.

On January 1, 2001, new tax legislation for foreign key personnel became effective in Sweden, in order to facilitate Swedish companies' recruitment of foreign personnel with special expertise and to encourage foreign investment in Sweden.

The tax relief for key foreign personnel gives several benefits for the first three years in Sweden. 25% of gross remuneration is exempt from income tax. Reimbursement of moving expenses, employer-provided home leave (twice a year) for the employee and his or her family, and school fees paid by the employer for the employee's children until second upper grade are all tax-exempt. Moreover, Swedish social security charges are not levied on tax-exempt amounts. The categories of eligible personnel include:

• Foreign experts — The person must possess competence not available or rare in Sweden. Examples include individuals working in product development or new technology (industrial technicians).
• Scientists — Again, the person must possess competence not available or rare in Sweden. Importantly, the scientist must bring new knowledge to Sweden, such that he or she may be employed in industry or by a research institute.
• Other foreign key personnel — The work must be in senior management or must be of great importance to the company. Examples of senior management are CEOs of Swedish subsidiaries or other directors with responsibility for high-level management of the company. Examples of key personnel are specialists in areas such as administration, logistics, marketing, production, engineering, and IT.

NB: The Swedish tax rules are considerably more complicated than the above simplified summary, and professional advice on the situation of any particular individual is a necessity.

Offshore Investment Opportunities

It follows from the above that foreign investments made during a period of Swedish tax residence should be limited to small participations in capital-appreciation vehicles, so that tax will be deferred until residence has finished.

www.lowtax.net contains extensive information on the investment, tax and legal regimes in 35 of the main offshore jurisdictions. Further information is available in our Investment Information Providers Section, and the four main types of offshore investment are described in the Guide to Offshore Investment on this site.

NB: The suggestions given above do not constitute investment advice. They are intended only to assist individuals in finding appropriate professional advice, which is essential for anyone planning offshore investment.