New Verdict on "Väsentlig Anknytning" (Swedish Tax Residency)

During the spring of 2025, we have seen a relatively steady stream of new advance tax rulings from the Swedish Council for Advance Tax Rulings (Skatterättsnämnden) concerning the concept of Swedish tax residency through “substantial affiliation” (väsentlig anknytning). In June 2025, yet another advance ruling was issued on this matter, addressing the question of whether the acquisition of Swedish real estate property via a company may give rise to substantial affiliation (tax residency) for a previous Swedish resident.

What is Substantial Affiliation?

Sweden applies three alternative criteria to determine whether an individual is tax resident (obegränsat skattskyldig) in the country. One of these is substantial affiliation, which applies only to individuals who were previously resident in Sweden. This basis for tax liability is sometimes referred to as the “extended domicile principle” (den utsträckta hemvistprincipen), reflecting Sweden’s continued taxation of individuals who maintain ties to the country.

A finding of substantial affiliation means that an individual has left Sweden but is still considered tax resident due to insufficient severance of personal and economic ties. It is important to note that even where substantial affiliation exists, Sweden’s right to tax may be limited through the application of a double taxation treaty.

The concept has existed in Swedish tax law for a very long time, although it has evolved significantly, primarily through extensive case law from the Swedish Supreme Administrative Court (Högsta förvaltningsdomstolen, HFD). Over time, the legal position has drifted from the literal wording of the provision in the Income Tax Act. For instance, while the legislation establishes a number of connecting factors to consider, case law has effectively narrowed these down to three that are generally considered decisive in determining substantial affiliation.

What Is an Advance Tax Ruling?

As this article illustrates, tax legislation is not always clear or predictable. To address this issue and increase legal certainty, Swedish law allows taxpayers to apply for a binding advance tax ruling (förhandsbesked).

This mechanism allows individuals, companies, and other legal entities to obtain a binding interpretation of how a proposed future transaction or action will be treated for tax purposes. Applications are handled by a specialised tax court, the Swedish Council for Advance Tax Rulings (Skatterättsnämnden). Decisions from this council can be appealed directly to the Supreme Administrative Court (HFD) without the need for leave to appeal.

What Were the Facts of the Case?

The case involved a Swedish individual who, together with his spouse, had lived abroad since the year 2000—a very long period of non-residency.

The individual had been offered the opportunity to acquire real estate in Sweden. The ruling indicates that the property included a building used for some form of business activity. The plan was for the property to be purchased by a company wholly owned by the individual. The acquisition price would exceed the market value, but this would be offset by a below-market rent for the use of the building. Although not entirely clear, it appears the transaction was intended to be a form of sale-and-leaseback arrangement with the current property owner.

It was also stated that the individual would not be involved in the management or maintenance of the property, which would instead be outsourced to a third party.

The individual therefore asked the Council for Advance Tax Rulings whether the acquisition—made via his wholly owned company—would give rise to substantial affiliation, thus making him fully tax resident in Sweden again.

How Did the Council Rule?

The Council began by outlining the legal framework, noting that ownership of real estate in Sweden does not automatically constitute substantial affiliation. The key consideration is whether the ownership has a passive character (i.e. a capital investment), or whether it involves active participation in the property's management or business operations.

In essence, there is a clear distinction between ownership held as a passive capital investment and ownership resembling an active business venture.

The Council pointed out that the individual in question had lived abroad for a long time—a factor which, according to established case law (e.g. HFD 2019 ref. 12), generally weighs against a finding of substantial affiliation. It then concluded that the intended property acquisition had the character of a capital investment and would therefore not trigger substantial affiliation. The fact that the acquisition would be made through a wholly owned company did not alter this assessment.

In summary, the Council found that the proposed acquisition would not result in substantial affiliation for the individual living abroad.

What Does This Ruling Mean for the Legal Position?

Although the outcome is not particularly surprising, we at nomadtax view the ruling as further confirmation that increased weight is now placed on the duration of non-residency when assessing substantial affiliation. The ruling also reinforces the importance of distinguishing between passive investment and active involvement when evaluating ownership of Swedish real estate or Swedish companies.

Overall, the decision contributes to greater clarity for person's that previously have lived in Sweden who wish to retain or make investments in Sweden—a welcome development in our view.