High-Tax Country Resident Planning To Go Offshore: Sweden

If you are resident in Sweden (which will be the normal situation for a native-born Swedish individual) then you are taxable on your world-wide income and capital gains.

Many resident individuals will be participating in domestic Swedish tax-privileged savings and investment instruments, and usually these can simply be discontinued on leaving without serious tax penalties.

Abandoning Swedish tax residence is not necessarily straightforward. 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.

It is fairly clear then that establishing non-residence will involve a very complete sundering of ties with Sweden.

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.

Small holdings in foreign investment funds escape the anti-avoidance provisions, and will be particularly useful if they are weighted towards capital appreciation, so that income or gains are not generated before residence finishes.

Taking into consideration both the adverse tax treatment of foreign corporate entities and the attitude of the tax authorities, a Swedish tax-resident planning to move to a low-tax jurisidction should definitely take professional advice on the best asset-management strategy prior to departure.

Once a definite decision to move offshore has been made, careful thought should also be given to existing Swedish capital assets, including pension assets. Will it be possible to move them offshore without incurring capital gains tax? Is it desirable to move them early and pay the tax anyway? These are complex questions, and the answer will depend on individual circumstances, but for many individuals there will be interesting tax planning possibilities.

Once Swedish residence has been terminated, and if non-residence is expected to be permanent, then an ex-Swedish resident is free to invest offshore in order to obtain the best possible returns.

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.

Individuals who have significant Swedish business income need to take the residence rules into account. They may be able to make use of offshore corporate tax structures, but anyway need to take expert advice on how to structure this income once emigration has taken place, to ensure that they do not fall within the residence rules.

www.lowtax.net contains details of the corporate and partnership legal structures available in the 35 most prominent offshore jurisdictions, together with descriptions of the most important business sectors in each jurisdiction, local tax regimes, and the international treaties entered into by each jurisdiction.

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.