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Guest Series: Wealth planning – a Swedish perspective

According to the 2021 Knight Frank Wealth Report, Sweden is home to more than five thousand Ultra High Net Worth Individuals, and their number is predicted to grow substantially over the following years. The country is an ESG and digital adoption first mover and an international welfare leader with a high quality of life.

In the latest installment of our guest series, we talk to Suzanne Lauritzen, a Swedish tax lawyer and private client adviser based in Switzerland with longstanding international tax and wealth planning experience, about the Swedish private wealth environment.

Today we cover wealth management trends, discuss the possible new “millionaire’s wealth tax,” wealth planning strategies, and Suzanne’s advice for wealth owners looking to invest, move from or relocate to Sweden.

Thanks, Suzanne, for taking the time to have a chat with Centro LAW. What is your field of expertise, and can you tell us more about the Swedish tax environment for wealth owners?

 

I’m an adviser specializing in international tax planning, wealth structuring, and family business governance. Originally from Sweden and as a Swedish-trained lawyer, I’ve always worked closely with Scandinavian clients having international investments and businesses.

The Swedish tax environment is interesting and worth understanding since the differences in taxation can be significant depending on how you structure your income and wealth.

Sweden has a reputation of being a high tax country, which is compensated by a very generous social insurance system. The most notorious tax aspect is, for certain, the marginal tax rate on salaries (up to 57%).

Moreover, entrepreneurs with closely held companies suffer an average 43% tax levy on dividends and capital gains, in addition to being prohibited from taking loans from their own company.

However, for wealth owners the tax environment is quite the contrary. Sweden has no wealth tax, no gift and no inheritance tax, and real estate taxes are marginal. This means that inheriting wealth or moving to Sweden with wealth earned abroad can be very interesting from a tax perspective.

Add to this, as an example, the possibility of acquiring exceptional housing in beautiful locations, such as on a private island in the city-near archipelago, makes it an interesting country for wealth owners.  

Are there any particular developments wealth owners should be aware of right now?

 

Indeed there are. Particularly worrying at the moment is the recent announcement by the Finance Minister that Sweden’s ruling Social Democratic party wants to introduce a new “millionaire’s wealth tax” to reduce the gap between the richest and the poorest. Also, entrepreneurs with closely held companies face the risk of disadvantageous changes. These ideas and proposals will need to be followed closely.

A few years ago, there was a plan to introduce an exit tax for individuals leaving Sweden. The proposal was subsequently withdrawn.

However, there are still plans to introduce rules with a similar purpose. Currently, there is a rule of presumed continuous tax residency in Sweden during the ten years after an individual has left Sweden, implying that careful planning may be necessary before departure.

In many cases, tax treaties reduce this period; however, Sweden is generally attentive to how the new residence state taxes the income. UK non-domiciled residents are one example whereby Sweden only exempts income if it is remitted and taxed in the UK.

Another example is Sweden’s recent unilateral termination of the tax treaties with Portugal and Greece. By canceling the tax treaties, Sweden may continue taxing such individuals who, despite having left Sweden, have kept certain connections to Sweden, e.g., controlling investments in Swedish businesses or specific real estate.

How can Swedish residents effectively structure private assets, real estate, and corporations?

 

Sweden is a civil law country that hasn’t signed the Hague Convention to recognize trusts. Consequently, trusts are generally avoided since they imply a risk of very disadvantageous taxation, especially for beneficiaries.

Income from capital, i.e., interests, dividends, and capital gains, are taxed at a flat rate of generally 30%. However, generous participation exemption rules for unlisted assets imply that such investments are usually structured through a holding company.

Listed shares are often held through a foreign holding company or unit-linked life insurance or special investment saving accounts providing similar benefits. The choice between these options depends on the specific situation and the character of the investments.

Sweden has specific anti-abuse rules, making the choice of both entities and jurisdictions limited if they are not considered comparable to Swedish legal entities or subject to taxation similar to Swedish companies.

What trends do you see in wealth management?

 

I see an increased demand for a more integrated approach when working with wealth owners and their families. This implies focusing on the financial aspects and caring about the social dimensions, i.e., how the wealth owners can contribute to society, and the human dimensions, assisting the families in aligning their values and visions while also listening to the individual needs and interests.

As a result, there is an increased focus on governance, ensuring a responsible and purposeful utilization of wealth and involving and preparing the next generation to govern the wealth in the future.

This inter-generational dynamic, where the younger generation is getting more involved, also implies a need for the wealth management industry to adapt to the younger generation’s functioning and expectations.

I’m thinking especially about digitalization and the immediate access to fast, transparent, and comprehensive information.

In parallel, the advisers need not only to be able to apply and explain the technical aspects but also include the human and social dimensions. The concept of tailor-made advice requires a fully holistic approach.  

There is a strong interest in alternative investments, such as private equity and impact investment. In Sweden, I find that family offices have become more visible, especially when it comes to their ESG investments.

But the families also wish to engage directly in charitable actions, and I foresee increased use of foundations and other special purpose entities, depending on where the beneficiaries are located.

Finally, globalization combined with increased reporting and compliance has led to a shift in the awareness of the need for expertise to manage the new reality. We’ve experienced several years of frustration, both in the industry and among clients, over the increased documentation and reporting obligations.

Luckily, we now see a shift towards a better understanding and acceptance that the highest quality professional services are an absolute necessity.

Due to the increased complexity in compliance and the dangers of cybercrime, I foresee a trend of simplification of investment structures and consolidation of services.

Advisers and service providers must respond not only to a wide range of services but, more essentially, take a genuine interest in the clients’ needs and objectives.

Since you are based in Switzerland, what benefits do Swiss wealth advisory and administration offer to Swedish wealth owners for their wealth planning strategies?

 

The most attractive attribute with Switzerland, and one of the reasons I moved here to work, is the truly international character of the industry.

Switzerland is a global financial center, and many advisers and service providers have a deep understanding of the cross-border aspects. They can provide genuinely integrated and often multi-disciplinary services.

The high professional standard, with well-educated staff, combined with a stable political environment and prosperous economy, is simply a perfect combination of factors needed to meet wealth owners’ needs and expectations regarding their wealth planning strategies.

In general, what wealth planning advice would you have for Swedish wealth owners?

 

The most important advice is always to develop individual wealth planning strategies in advance. For all those moving out, moving to, or investing in Sweden, a good understanding and sufficient time to adapt the wealth structure is essential.

Another crucial piece of advice is to ensure flexibility in all plans, enabling changing investment structures to new circumstances on the personal and external levels.

When considering various options and scenarios, I strongly recommend including the family members and conducting open and honest discussions about values and visions for the family but also the individual members’ needs and interests.

The planning needs to include more than one perspective. This increases the potential for a sustainable and harmonious result. As an example, when “packaging” investments into holding companies, often for tax optimization purposes, it may be beneficial to include succession planning and transferred ownership in the plan.

For wealth owners planning to move to Sweden, I recommend considering realizing income (including pension income) and capital gains before taking up residence, alternatively restructuring direct holdings.

I also recommend changing any expected or potential trust benefits and consider alternatives such as endowment insurances.

On the other hand, any other direct wealth transfers can be made once taking up residence in Sweden since such transfers can be made exempt from both gift and succession tax.

Wealth owners in Sweden should also look over their marital regime. Under Swedish civil law, if nothing has been specified, spouses split their wealth upon divorce or succession, including assets held before marriage and gifts received after marrying.

On the other hand, spouses are considered to have equal financial earning capacity, and no maintenance is generally allowed to one or the other of the spouses upon a divorce. Establishment or modifications in marital agreements, or a formal election of applicable law, may need to be made.

For wealth owners considering moving out from Sweden, I recommend analyzing the consequences well in advance to implement their wealth planning strategies in the best way, both from a tax perspective and for long-term reasons, including succession planning.

This also holds true for the situation in the planned new residence country. There are often measures that need to be taken before taking up residence.

About Suzanne Lauritzen

Suzanne is a Swedish lawyer resident in the French-speaking part of Switzerland and specializes in international taxation (LL.M.) and wealth structuring (TEP - Trust and Estate Practitioner). She has over twenty years of experience in advisory and multi-family office services obtained in Sweden, France, the USA, and Switzerland. Suzanne holds an advanced certificate in family business governance, an accreditation in commercial mediation, and is certified in cross-cultural communication and negotiation. She advises and assists private clients, families, and corporate clients in national and international matters.

03-08-2021

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