Have there been any notable recent developments in the provision of private client and offshore services in your jurisdiction, including any regulatory changes or case law?
As of July 2017 one or more persons can be given power of attorney to represent the principal in certain matters in future. Such power of attorney will come into effect when the principal, due to a mental disorder, illness, injury or similar circumstances, is unable to take care of the matters referred to in the power of attorney.
Residence and domicile
How is residence/domicile determined for tax liability purposes in your jurisdiction?
An individual’s residence determines his or her tax liability in Sweden. For tax purposes, an individual is considered a resident if he or she lives in Sweden.
An individual who does not live in Sweden, but who stays in the country permanently, is also considered a resident for tax purposes. There are no explicit rules in Swedish tax legislation regarding what constitutes a permanent stay. However, according to the Swedish tax authority, an individual who regularly stays overnight in Sweden for a consecutive period of six months should be considered as resident in Sweden. Notably, an individual could be deemed to stay in Sweden regularly even if he or she spends less time in Sweden than abroad.
If an individual does not stay in Sweden on a permanent basis, but has previously lived in Sweden and has essential connections there, he or she would be considered resident for tax purposes. Swedish tax law contains examples of which circumstances should be considered when deciding whether an individual has an essential connection to Sweden.
Describe the income tax regime in your jurisdiction (including tax base, rates, filing formalities and any exemptions, reliefs or deductions).
An individual who is regarded as tax resident in Sweden is liable to tax on all worldwide income from his or her arrival in Sweden. Income is divided into three categories:
· employment income;
· business income; and
· capital income.
Income is calculated separately for each category and is taxable unless explicitly exempted.
Income from employment and business is subject to local and national tax. Local tax is charged on the total taxable employment income at a progressive rate, ranging from 29.19% to 35.15%, depending on the municipality. A basic national tax of 20% is levied on taxable income exceeding Skr438,900. A higher national tax of 25% is levied on taxable income exceeding Skr638,500. In addition, social security contributions are levied on business income at 31.42%.
The income of employment or business is deducted with a basic reduction ranging from Skr19,300 to Skr35,100, depending on the level of income.
Individuals must file an annual tax return with the Swedish Tax Agency each May following the preceding calendar year.
Describe the capital gains tax regime in your jurisdiction (including tax base, rates, filing formalities and any exemptions, reliefs or deductions).
Capital income includes, for example, interest income from bank savings, dividends and capital gains from the sale of financial investments, real estate or other assets. Investment income is taxed at a flat rate of 30%.
To calculate the taxable income from capital, gross capital income is reduced by capital costs (ie, interest costs and capital losses). Some capital losses are deductible only to 70% or less. What remains after these deductions is taxed at the flat rate of 30%. A deficit results in a tax reduction from the tax on employment or business income. The reduction is calculated as 30% of the deficit, up to a maximum of Skr100,000, and 21% on any amount exceeding Skr100,000. An unused tax reduction cannot be carried forward for use in subsequent years.
There are detailed rules regarding some of the more complex questions in the capital gains area – for example:
· the sale of a share of a partnership or a limited company;
· the treatment of losses in connection with winding up a business; and
· the calculation of the capital gains tax base of shares and immovable property.
Inheritance and lifetime gifts
Describe the inheritance and gift tax regime in your jurisdiction (including tax base, rates, filing formalities and any exemptions, reliefs or deductions).
Sweden has no inheritance, estate or gift tax.
What taxes apply to individuals’ acquisition and disposal of real estate in your jurisdiction?
Stamp duty is levied on the transfer of real estate. The tax base for stamp duty is the higher of the purchase price and the assessed value of the property. The tax rate for individuals is 1.5% (for legal entities this increases to 4.25%). The buyer and the seller are jointly liable to pay stamp duty, but in practice stamp duty is paid by the buyer. Stamp duty is also levied on real estate mortgages.
A municipal fee is levied on private properties (private dwellings). The fee amounts to 0.75% of the assessed value of the property, up to a maximum of Skr7,687 per year. Real estate other than private dwellings is taxed between 0.2% and 1.0% of the assessed value of the property.
Non-real estate assets
Do any taxes apply to the acquisition and disposal of other assets apart from real estate?
The holding of investments might be a taxable event, depending on the type of investment. Swedish residents will be taxed on the deemed return of a foreign (non-Swedish) life insurance policy. Individuals are also liable for annual yield tax on assets in a capital insurance policy or an investment savings account (a Swedish financial savings instrument). Unit holders of an investment fund are liable for a standardised tax of 0.12% on the value of their units in the investment fund at the beginning of each year.
Other applicable tax regimes
Are any other direct or indirect tax regimes relevant to individuals?
Swedish value added tax is levied on the supply on goods or services unless these are exempt. The standard rate is 25%, with reduced rates of 12% and 6%.
Customs duties apply to goods imported from outside the European Union. Excise duties apply on certain types of good (eg, alcohol, tobacco and energy).
Are there any special tax planning considerations for individuals with a link to your jurisdiction?
An individual who is tax resident in Sweden is liable to tax on all worldwide income from his or her arrival in Sweden. In order to avoid Swedish capital gains tax, individuals should considering selling their assets before entering the country. Payment from a trust to a Swedish tax resident is expected to be taxed as income from employment. Therefore, it is advisable to investigate alternatives and possibilities to finalise or terminate payments from a trust to individuals who intend to move to Sweden.
Trusts, foundations and charities
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%.
Anti-avoidance and anti-abuse provisions
What anti-avoidance and anti-abuse tax provisions apply in the context of private client wealth management?
There is a general anti-avoidance rule in Swedish tax legislation. A transaction may be disregarded for tax purposes if:
- it, alone or in conjunction with other transactions, results in a substantial tax benefit;
- the taxpayer has, directly or indirectly, contributed to the transactions;
- the tax benefit can be assumed to be the predominant reason for the transactions; and
- taxation based on the transactions would be in violation of the legislation.
Anti-money laundering provisions
What anti-money laundering provisions apply in the context of private client wealth management (eg, beneficial ownership registers)?
The Anti-money Laundering Act contains the administrative regulations applicable to firms within certain sectors. Firms that are subject to the act (eg, banks, financial institutions, audit firms and law firms) must duly report suspected instances of money laundering or terrorist financing in their operations to the Financial Intelligence Unit of the Swedish National Police Board.
For companies registered in Sweden, an official register lists the board members and other important functionaries of the company. As of September 1 2017 most corporations, including limited companies, partnerships and foundations, must report all beneficial owners (persons with significant control or influence over the company) to the Swedish Companies Registration Office (Bolagsverket). The obligation to report all beneficial owners also applies to foreign trusts if the trustee lives in Sweden.
Wills and probate
What rules and restrictions (if any) govern the disposition of and succession to an individual’s property and assets in your jurisdiction?
Since August 17 2015 the EU Successions Regulation (650/2012) has governed international inheritance.
According to Swedish inheritance law, a testator may dispose of his or her estate by will with the following restrictions. Under forced heirship provisions, the children and surviving spouse are entitled to inherit a certain portion of the estate, regardless of the testator’s wishes as expressed in his or her will. Consequently, children are entitled to half of the shares to which they would be entitled under inheritance law. Moreover, the surviving spouse has an absolute right to receive four times the basic amount specified under the National Insurance Scheme (Skr45,500 for 2018). This latter right takes precedence over the heirship of the children. In order to benefit from the forced heirship rights, the children or spouse must enforce a claim to the rights.
Another limitation to these rights is that a surviving spouse cannot dispose of his or her inheritance from the first deceased by will, unless he or she has received the assets in question through a will after the first deceased gave him or her the right to dispose of the assets by will. In other words, property held with free disposal rights – and not full ownership – cannot be disposed of through a will.
Establishing a fideicommissum through a will is not valid under Swedish law.
What rules and procedures govern intestacy?
In the absence of a valid will, the property of a deceased person will be distributed in accordance with Swedish inheritance law.
The distribution of an estate by inheritance law is essentially based on the fact that relatives closer to the deceased should inherit before more distant relatives. Thus, the direct heirs of the deceased (ie, children and grandchildren) inherit first. Only if there are no direct heirs can other relatives inherit. The so-called ‘second inheritance class’ includes the deceased’s parents, siblings and nieces and nephews. Grandparents and parents’ siblings are included in the third inheritance class. One inheritance class must be completely empty before the legacy proceeds to the next inheritance class.
Notably, if the deceased was married at the time of death, the surviving spouse has the right to inherit not only before the second and third inheritance classes, but also before joint children. However, the surviving spouse will inherit with free disposal rights, not full ownership. Consequently, joint children receive their inheritance after both parents have died. Children of the deceased – but not of the surviving spouse – can claim their lawful share at the time of their parents’ death. Surviving cohabitants do not inherit under inheritance law.
What rules and restrictions (if any) apply to the governing law of a will?
On August 17 2015 Sweden’s international inheritance legislation came into line with the EU Successions Regulation (650/2012). The legislation applies to the succession of persons who died on or after August 17 2015.
According to Article 24 of the EU Successions Regulation, a will’s admissibility and substantive validity will be governed by the law applicable when the will was established. A person may also choose the law that he or she could have chosen in accordance with Article 22 and the conditions set out therein.
What are the formal and procedural requirements to make a will? Are wills and other estate documents publicly available?
Anyone 18 years or older or who is or was married at a younger age, may dispose of his or her property by will. Moreover, anyone 16 years or older can dispose of his or her earned income by will.
To be valid, a will must be made in writing and signed by the testator in the presence of two witnesses. If an emergency makes it impossible for a will to be made in such a form, it is possible to make an oral disposition of property before two witnesses or produce a handwritten document signed by the testator. Such emergency wills are invalid if the testator could have made a normal will in the succeeding three months.
A testator may revoke his or her will by making a new will, or in any other manner that indicates that the will has been revoked. When revoking an existing will, the formal requirements for setting up a will need not be met.
Validity and amendment
How can the validity of a will be challenged? Can the will be amended after the decedent’s death?
If a legal heir wants to have a will declared invalid, he or she must start a legal proceeding against the beneficiaries within six months of the date on which he or she was notified of the will. The claims must be based on any of the grounds of invalidity set out in the law.
How is the validity of a will established in your jurisdiction?
If the validity of a will is contentious, the court will make a final decision on its validity. However, the court will make such a decision only if a legal heir starts a court proceeding claiming that the will is invalid. The claims must be based on any of the grounds of invalidity stated in the law.
If legal actions regarding the validity of the will are not brought within six months of the date on which the legal heirs were notified of the will, the will will be considered valid.
To what extent are foreign wills recognised? Do any special rules and procedures apply to establishing their validity in your jurisdiction?
Foreign wills are recognised if they are valid under the applicable law according to the EU Successions Regulation.
According to Article 27 of the EU Successions Regulation, a will is valid if its form complies with the law of the state in which the disposition was made. The same is true if its form complies with the law of the state in which:
- the testator held citizenship, either at the time when the disposition was made or at the time of death;
- the testator was domiciled, either at the time when the disposition was made or at the time of death; or
- the testator had his or her habitual residence, either at the time when the disposition was made or at the time of death.
Insofar as immovable property is concerned, a will is considered valid if its form complies with the law of the state in which that property is located.
A European certificate of succession can be used to prove that a will is valid under the law of another member state.
What rules and procedures govern:
(a) The appointment of estate administrators?
If no special administration has been arranged (ie, no executor or estate administrator have been appointed to administrate the estate or execute the will), the parties to the estate – that is, the surviving spouse or cohabitant, the heirs and universal legatees – must jointly administrate the estate. The same parties are then entitled to represent the estate against third parties and have the right to bring and respond to actions before court in cases concerning the estate. However, if an estate is divided between spouses after the testator’s death, or if such division cannot be made, the surviving spouse or cohabitant will not be party to the estate, as long as he or she is not also an heir or universal legatee.
However, if so requested by a party to the estate, the court will appoint an estate administrator to administrate the deceased’s property. When an estate administrator is appointed, he or she absorbs the rights, obligations and responsibility that, according to the main rule, belong to the parties to the estate. A party requesting that the court appoint an estate administrator need not assign motives or reasons for making such a claim. Consequently, in such cases, the court will not consider why the party has requested an estate administrator to be appointed. The estate administrator must be a person that can be expected to have the knowledge and insight required – especially with regard to the character of the estate. If an executor is already appointed under the will, he or she will also be appointed as estate administrator, as long as there are no objections.
Notably, both parties to an estate and an executor under the will can call for the appointment of an estate administrator. The same is true for a legatee or creditor, if considered necessary based on the circumstances of the case.
(b) Consolidation and administration of the estate?
An estate inventory will be drawn up within three months of the testator’s death. The estate inventory must contain information about the property and debts of the deceased and their value upon the testator’s death. If the deceased was married, both spouses' assets and debts will be noted and valued individually. Further, the name, social security number, address and day of death of the deceased must be noted. In addition, the estate inventory must contain information about who should have been notified about the estate inventory proceeding and who attended.
After the estate has been properly investigated, a deed of the distribution of the estate will be drawn up. If the deceased was married, an estate division between spouses will be made before the distribution of the estate takes place. The same applies if there is a surviving cohabitant which, in accordance with the Cohabitees Act, calls for an estate division.
The deed of the distribution of an estate can be drawn up as an agreement between the parties to the estate or as a decision made by an estate administrator. The agreement or the decision declare the rights of the heirs and legatees, and can be used in relation to third parties as a proof of a certain right and to distribute the estate.
(c) Distribution of the estate to heirs?
The distribution of the estate is handled and executed by the individuals administrating the estate. During the estate investigation, those administrating the estate are responsible for taking care of the property of the deceased. Debts must be paid before the final distribution of the estate. Consequently, the net value of the deceased’s property will be divided between the heirs. Once the estate is ready to be distributed, the property will be handed over to the heirs and beneficiaries.
Notably, special rules apply to the distribution of legacies. For example, legacies can be distributed and handed over to legatees more or less immediately – that is, before the estate is fully investigated, the final distribution of the estate is drawn up or a deed of the distribution has become legally binding.
(d) Settlement of the decedent’s debts and payment of any taxes and fees?
The estate is an independent legal entity, responsible for its own costs and debts, including taxes. Before the estate is distributed and the property is divided between heirs and universal legatees, all debts must be paid.
Are there any special considerations specific to your jurisdiction that individuals should bear in mind during succession planning?
There is no inheritance or gift tax in Sweden.
As a rule, any gifts given to a direct heir by the deceased will be deducted from the heir’s inheritance, as an advance of the inheritance. This rule will be upheld unless otherwise prescribed or if the circumstances at the time of the gift clearly demonstrate another intent.
If the recipient of a gift is not a direct heir, an opposite presumption applies. Then deduction will be made only if this has been prescribed or must be assumed, due to the circumstances, to have been intended when the property was given.
Further, Swedish inheritance law includes an enhanced protection for the portion of the inheritance to which a direct heir is entitled under the rules on forced heirship. Where the deceased has given away property under such circumstances or on such understanding that the gift is meant to equate to a will, the worth of the gift at the time of the testator’s death will be returned to the estate (when calculating the portion of the inheritance to which the direct heir is entitled under the forced heirship provisions).
Consequently, the rule applies only if the gift has led to an infringement of a direct heir’s right. Any court actions in this regard must be brought no later than one year after the deceased’s estate inventory has been finalised. After this time, the right to take legal action will have lapsed.
Capacity and power of attorney
Loss of capacity
What rules, restrictions and procedures govern the management of an individual’s affairs where he or she loses capacity and the grant of power of attorney in such cases?
If a person is unable to manage his or her financial affairs or assets, a fiduciary can be appointed. A person who gets assistance from a fiduciary retains his or her legal capacity and the fiduciary must have the principal's consent to undertake major legal acts, except those relating to daily housekeeping.
Further, if the person requires greater assistance, an administrator with wider authority can be appointed instead of a fiduciary. In such cases, the principal will lose all of his or her legal capacity. An administrator can enter a legal act on behalf of the principal. However, the principal can terminate a contract for employment or other work and maintains control over income from his or her own work. That said, the court may restrict this right if necessary. The administrator does not require the principal’s consent to act, and will instead act based on his or her own responsibilities on behalf of the principal.
Fiduciaries and administrators are required by law to declare for their work and the actions taken on behalf of the principal. Moreover, each Swedish municipality must have a chief guardian or a chief guardian committee responsible for supervising the administration of fiduciaries, administrators and guardians. The chief guardian will, on application or notification, investigate the need to appoint a fiduciary or administrator.
Anyone with legal competence can, through a power of attorney, be given authority to represent another person. As of July 2017 one or more persons can be given power of attorney to represent the principal in certain matters in future. Such power of attorney will come into effect when the principal, due to a mental disorder, illness, injury or similar circumstances, is unable to take care of the matters referred to in the power of attorney.
What rules, restrictions and procedures govern the holding and management of a minor’s assets until the minor reaches the age of capacity?
Minors can have legal rights and hold assets. However, the legal competence of a minor is limited. By law, a person is considered to be an adult and have full legal competence at the age of 18. Before that, a minor’s parents usually act as custodians and are authorised to represent and make decisions on behalf of the child. As a rule, the custodians of a child are also his or her guardians; as such, they can administrate the child's property and represent the child in financial affairs.
Nevertheless, a will or deed of gift can set out that assets received by a child be administrated by someone other than his or her guardians. In such cases, a special administration will be set up and the guardians will have no control over the administration of the specified property.
If the child’s assets exceed eight times the basic amount specified under the National Insurance Scheme (Skr45,000), the chief guardian committee must be informed.
Marriage and civil partnerships
What matrimonial property regimes are recognised in your jurisdiction?
The default Swedish principle is the joint asset regime. During marriage, each spouse has individual rights to his or her assets. These assets can be either marital or private assets. When a marriage ends, each spouse is entitled to receive half of the net value of the marital assets, irrespective of whether the marriage is dissolved due to divorce or death. The default matrimonial property regime can be changed through a written and registered agreement. Such agreement can be written both before and during marriage.
Further, in divorce, the richer spouse may be entitled to keep more than half of the net value of the assets under certain circumstances. Further, if a marriage is dissolved because of death, the surviving spouse has the right not to accept a 50-50 division, but to instead keep his or her own assets.
Are same-sex marriages and/or civil partnerships recognised in your jurisdiction?
Yes, same-sex marriages are permitted in Sweden.
Is there a legal distinction between legitimate and illegitimate children in terms of estate and succession planning?
Legitimate and illegitimate children have an equal right to inherit from their parents. However, if a parent gets remarried (to someone who is not the parent of the child), an illegitimate child has the right to receive his or her lawful share of the inheritance at the time of his or her parent’s death. However, the child of a married couple will not receive the inheritance of the first deceased parent until the surviving parent has also died.
Is there a legal distinction between natural and adopted children in terms of estate and succession planning?
No. Adopted and natural children are treated equally in terms of estate and succession planning.