High-Tax Country Resident Planning To Stay Put: Sweden

If you are resident and domiciled 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.

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.

Small holdings in foreign investment funds usually escape the anti-avoidance provisions, and will be particularly useful if they are weighted towards capital appreciation, so that income or gains, and the tax on them, are deferred until the latest possible moment. However, any Swedish tax resident wanting to shelter assets abroad, whether for asset protection purposes, or simply to minimise tax, will need expert professional advice in order to avoid falling under a continuing tax obligation.

In view of the availability of domestic tax-privileged investment instruments in Sweden, and the anti-avoidance legislation, many individuals will need to balance the advantages of domestic investment against the often superior returns that may be achievable offshore.

Pensions investment can also include an offshore element, although the tax advantages of pensions have been steadily eroded vis-à-vis other tax-efficient investments, which are more flexible. In particular, for high earners, pension provisions over and above that allowed for tax purposes have often been invested in offshore Funded Unrecognised Retirement Benefit Schemes (FURBS). The foreign (offshore) life assurance sector has been particularly innovative in these types of product.

For an individual wishing to explore the investment opportunities further afield, www.lowtax.net contains details of the investment and tax regimes for 35 offshore jurisdictions.

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.