New Ruling on Swedish Tax Classification of Trusts and Foundations

In June of 2025, the Swedish Court for Advance Tax Rulings (Skatterättsnämnden) issued an advance tax ruling (Förhandsbesked) concerning the Swedish tax treatment of a foreign trust and a foreign foundation. The decision is, in some respects, a welcome development for Swedish individual taxpayers with ties to foreign trusts or foundations, as the court expressed a willingness to consider foreign legislation, to the benefit of the tax payer.

How Are Trusts and Foreign Foundations Treated Under Swedish Tax Law?

For a long time, there was considerable legal uncertainty as to how foreign trusts and foundations should be treated for Swedish tax purposes. This uncertainty stemmed primarily from the fact that Sweden has no domestic legal equivalent to a trust, although foundations (stiftelser) do exist under Swedish law.

However, over the past decade, a fairly extensive body of case law has developed from Swedish tax courts, clarifying the legal position. In short, an assessment is to be made comparing the foreign trust or foundation to what is referred to in Sweden as a “familjestiftelse” (family foundation). If the foreign entity is deemed equivalent to a Swedish family foundation, any distributions to beneficiaries are taxed as periodiskt understöd (periodic support) in the hand of the receiver/beneficiary. This means the income is taxed under the category of employment income (tjänst), subject to progressive rates of up to approximately 53% marginal tax, which can lead to massive tax bills.

On the other hand, if a foreign trust or foundation is seen as non equivalent to a Swedish family foundation, the trust or foundation is instead seen as owned directly by the person or persons with the highest degree of control over the trust or the foundation, which is often more beneficial for tax purposes. In fact, great results can sometimes be achieved with proper structuring, implying tax rates at approx. 1 %.

In determining whether a foreign trust or foundation corresponds to a Swedish family foundation or not, the trust deed or other formation documents are of central importance. For trusts, the key question has been whether the settlor has irrevocably relinquished control over the assets contributed to the trust. Another critical factor is whether the administration of the trust and its assets has been sufficiently separated from the control of the beneficiaries.

What Were the Facts in the Advance Ruling Court Case?

The applicant in the court case was a Swedish individual who had lived abroad for an extended period but was planning to return to Sweden. This person was a beneficiary of a trust formed under New Zealand law by the individual’s father. The individual was also a beneficiary of a Liechtenstein foundation (Stiftung), which had not been established by the father, although the father had contributed assets to it.

The applicant asked the court how the trust and the foundation should be classified under Swedish tax law, specifically, whether they would be deemed equivalent to a Swedish family foundation, triggering taxation for the beneficiary at high progressive tax rates.

What Did the Court Conclude?

In assessing a foreign trust or foundation, the founding document, often referred to as a trust deed—is generally the most important piece of evidence. It establishes which individuals or bodies have authority over the assets and operations of the trust or foundation, including powers to make distributions, investment decisions, and so forth. The document can be likened to the articles of association of a company.

Nevertheless, in certain cases, particularly before Swedish tax courts, consideration has also been given to the actual administration of the trust in practice. This is because it is not uncommon for a trust’s deeds to be loosely followed in real-world operations. For example, it is not unusual for a beneficiary to submit non-binding recommendations or wishes to the trustee, which are then followed in practice.

Accordingly, some Swedish courts have chosen to assess both the formal structure of the trust (as set out in the deed) and its actual administration in practice.

In the present case, the court considered the fact that, under mandatory New Zealand law, a trust must be liquidated if the beneficiaries jointly request it. This element, stemming not from the deed itself, but from New Zealand's mandatory legislation, led the court to conclude that the beneficiaries held such influence over the trust that the requisite separation was not achieved. The majority of the judges of the court therefore held that the trust did not qualify as equivalent to a Swedish family foundation. However, it should be noted that two judges (a minority) of the court did not share this view.

As for the Liechtenstein foundation, the formation documents stated, somewhat simplified, that a board of directors was responsible for managing the foundation and making decisions on distributions at its own discretion. Given this governance structure, the court found that the foundation was equivalent to a Swedish family foundation.

Does This Case Change the Swedish Tax Treatment of Trusts and Foundations?

As noted above, it is a new development for mandatory foreign legislation to be considered in determining the classification of a trust or foundation for Swedish tax purposes. Historically, the emphasis has been placed on the formation documents of the trust, with quite limited scope for considering other factors, such as how the trust has been administered in practice.

It is therefore a welcome development that the court now acknowledges the relevance of mandatory foreign legislation affecting the function and governance of a trust. Ideally, the ruling will be appealed to the Supreme Administrative Court (Högsta förvaltningsdomstolen), which could then provide further clarification of the legal framework.