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Trusts, foundations and charities

Trusts

Are trusts legally recognised in your jurisdiction? If so, what types are available and most commonly used?

The trust system and the concept of trusts is unknown to the Swedish legal system. Sweden is not a party to the 1985 Hague Convention on Law Applicable to Trusts and on their Recognition, and trusts are not recognised in Swedish legislation.

What rules and procedures govern the establishment and maintenance of trusts?

There is no trust regulation in Swedish legislation. Trusts are not legally recognised and therefore it is impossible to establish a trust under Swedish law.

How are trusts taxed in your jurisdiction?

The Swedish tax treatment of trusts is unclear. There is no trust regulation in Swedish tax law and only a few cases on trusts have been decided by the highest tax court.

The cases from the highest tax court support that a foreign trust should be examined in light of the Swedish legal entity that closest corresponds to the trust system. In practice, some trusts are similar to that of a Swedish family foundation. Another similar Swedish legal concept is the ‘special purpose administration’, which is set out in the Code on Parenthood and Guardianship and allows an individual donating an asset to a minor to stipulate that the asset will be administered by an administrator appointed by him or her until a specific future date. Further, a trust may be similar in function to the Swedish concept of inheritance or gifts.

The Tax Agency has issued a statement that income from a family trust should be taxed in the same way as income from the closest Swedish equivalent to a family trust. According to the agency, a trust can be considered equivalent to a Swedish family foundation if the essential requirements for the formation of a family foundation are met. Income from a Swedish family foundation is normally taxed as income from employment.

Foundations and charities

Are foundations and charities legally recognised in your jurisdiction? If so, what forms can they take?

The general rules regarding foundations are set out in the Foundations Act 1994. Foundations are legal entities with their own directors and are regarded as separate entities for tax purposes.

Foundations can be divided into the following three categories:

  • Family foundations – the only or main purpose of this type of foundation is to benefit the members of a certain family.
  • Charitable foundations – the purpose of these foundations is to promote scientific research, to make provision for old age or the education of children.
  • Other foundations – foundations which do not benefit members of a certain family or qualify as charitable.

What rules and procedures govern the establishment and maintenance of foundations and charities?

A foundation is created when a grantor irreversibly transfers assets to be permanently and separately administered for a specific purpose. Normally, a foundation is created through a donation or under a will. Both individuals and legal entities can create a foundation. There are no legal requirements regarding the minimum capital to be injected when creating a foundation but, according to case law, the capital must be of a reasonable amount for the foundation’s purpose. Foundations may conduct business.

How are foundations and charities taxed?

Depending on the purpose of the foundation, different tax rules apply.

Family foundations are subject to income tax at the corporate tax rate of 22%. Foundations can set paid-out subsidies against taxable income, provided that the receiver is liable to tax on payment. An individual beneficiary who has completed his or her basic education will be taxed on amounts received from a family foundation at the same rate as income from employment.

In principle, charitable foundations are exempt from income tax.

Foundations which do not benefit members of a certain family or qualify as charitable are subject to income tax at the corporate tax of 22%.

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