When are you considered to be subject to unlimited tax liability in Sweden due to affiliation?
When being considered to be subject to unlimited tax liability in Sweden, you are liable to tax for all your income, regardless of origin. Unlimited tax liability may arise due to residence, habitual residence, or substantial affiliation.
Unlimited tax liability is thus also counted as a person who neither resides nor stays permanently in Sweden but previously resided in Sweden and has a substantial connection here. The law states several circumstances that must be considered when assessing whether a person has a significant affiliation to Sweden. These circumstances are:
- If the person is a Swedish citizen
- How long the person has lived in Sweden
- If the person is not a long-term resident of a particular foreign place
- If the person is abroad for studies or health reasons
- If the person has a residence in Sweden that is set up for year-round use
- If the person has their family and underage children in Sweden
- If the person is engaged in economic activity in Sweden
- If the person is financially engaged here by holding assets that, directly or indirectly, give a significant influence over the business in Sweden
- If the person has a property in Sweden
- Similar conditions
The circumstances are taken into account on a case-by-case basis, and an overall assessment is made. It is clear from the case law that some of the abovementioned connecting factors carry more weight in assessing a substantial link. For example, factors of extra importance are housing, family, and financial commitment.
Holdings of housing in Sweden
The holding of a year-round residence in Sweden has been considered a strong connecting factor. If the taxable person retains a home in Sweden after the move, this typically means that the person is considered liable to unlimited tax in Sweden. The connection is robust in the case that the dwelling was previously used as a permanent residence by the taxpayer.
The holding of a holiday home, such as a summer cottage that is not set up for year-round use or a mountain hut, does not normally entail a strong enough connecting factor for the taxpayer to be considered to have a substantial connection to Sweden. However, a holiday home can be given greater importance in cases where it is set up for year-round use and located in an attractive area.
Family in Sweden
Another connecting factor that is given importance is if the family of the displaced person lives in Sweden. In this case, family means spouse and underage children. Thus, a substantial connection may arise if the family of the displaced person remains in Sweden after moving out. Even if a person's family moves back to Sweden, without the mover moving with them, a substantial connection may arise due to the family's resettlement.
Business and economic engagement in Sweden
After moving from Sweden, if a person conducts business or is engaged in the business in Sweden, this is considered a strong attachment. One thing that is of great importance for the assessment is whether the person's financial interests mean that they, directly or indirectly, have a real influence over the business. Pure capital investments shall not affect the assessment.
The unlimited tax liability ceases when the connecting factor(s), which causes the person to be liable to unlimited tax, ceases. For example, that the residence is sold or that the family moves out.
Swedish regulations show that anyone who has moved from Sweden for five years after the move has the burden of proof that there is no substantial connection to Sweden. After the end of the five years, the burden of proof shifts, and the Tax Agency must show that there is a substantial connection.
A common misconception is that the five-year rule means that the essential affiliation ends after five years; this is not true, but the five-year rule only states with whom the burden of proof lies. Thus, if the connecting factors that entail unlimited tax liability persist after five years, the person who moved out is still liable to unlimited tax. If an attachment factor arises again after moving out, you as a taxable person can be considered returned. Also, note that attachment factors have a different rating in the Tax Agency's assessment. It can be said that the number of days in Sweden, the family's return, or that permanent residence that is not intended solely as a holiday home is acquired, can provide a direct connection to Sweden such as resettlement as of the day that the connecting factor arose. Please note that the Tax Agency may subsequently examine resettlement and impose tax surcharges on undisclosed tax returns in Sweden.
An attachment factor that we want you to pay extra attention to is the family's being. Even if a person in a family stays abroad and works abroad, they can be considered taxable in Sweden in full for all income, capital, as well as service taxation about the rest of the family and underage children for whom the foreign working person has been liable.
As a foreign Swede who is considering moving home permanently or temporarily for someone in the family or acquiring an asset in Sweden, we recommend that you always contact a tax lawyer to review tax consequences and tax return obligations. Feel free to contact one of Mazar's tax lawyers if you are thinking of moving from Sweden or resettling here, and we will help you!