Tax blow in Sweden: U.S. LLC owner loses in court

U.S. LLCs have in recent years become a very popular business vehicle, particularly for smaller companies. The form is easy to set up, and under U.S. tax law it is possible to elect to treat the LLC as a so-called pass-through, meaning that the entity itself is not subject to tax on its income. Instead, the owner or owners of the company are liable for U.S. tax on the LLC’s results.

Although an LLC can be advantageous, and in certain cases may even result in no tax liability at all, ownership often entails significant risks for individuals who are tax resident in Sweden (that is, subject to unlimited Swedish tax liability). This was highlighted in a 2025 judgment by the Administrative Court of Appeal in Stockholm.

What is a U.S. LLC?

A U.S. LLC is a type of legal entity. The abbreviation stands for Limited Liability Company. An LLC operates largely like a Swedish limited liability company (aktiebolag), where the owners’ liability is limited to the capital invested. An LLC can be established relatively easily and does not require that the owner is resident in the U.S.

LLCs have become popular both among U.S. residents and among individuals working remotely around the world, such as digital nomads, but also among High Net Worth Individuals with international lifestyles.

How is a U.S. LLC taxed under U.S. law and how is it viewed under Swedish tax law?

Under U.S. tax law, an LLC may elect to be taxed either as a separate taxable entity in the same way as a Swedish aktiebolag, where the company itself pays corporate income tax on any profits earned. It is also possible under U.S. rules for an LLC to elect to be treated as a pass-through entity, with the effect that the LLC itself is not subject to U.S. tax. In such cases, it is instead the members of the LLC who are liable for U.S. tax on the company’s profits. This treatment can be compared with Swedish partnerships and limited partnerships, where the profits are taxed at the partner level.

Under Swedish tax law, however, an LLC that is treated as a pass-through for U.S. purposes (such as an S-corp) will normally also be treated as a flow-through entity for Swedish tax purposes. This means that if the owner is subject to unlimited tax liability in Sweden, Swedish income tax will apply to their proportionate share of the LLC’s profits regardless of whether the LLC has any operations in Sweden.

What were the circumstances in the Administrative Court of Appeal case?

The case concerned an individual who had moved from Canada to Sweden almost 20 years earlier. Approximately ten years ago, the individual had formed a U.S. LLC engaged in the business of selling vehicles.

As explained above, under U.S. law an LLC may be taxed as an S-corp, meaning that the shareholder or member is taxed on the LLC’s profits. The Swedish Tax Agency argued that this was the case with the LLC at issue and that, under Swedish domestic tax rules, those profits should therefore be included in the individual’s Swedish taxable income.

According to Swedish income tax law, taxation at the shareholder level applies where an individual who is tax resident in Sweden owns a flow-through entity, such as a U.S. LLC classified as an S-corp. It is irrelevant whether the company has any operations in Sweden. The mere fact that the owner is subject to unlimited tax liability in Sweden entails that profits derived by the LLC are taxable in Sweden in proportion to the ownership interest.

When taxing owners of such flow-through entities, Sweden applies the same tax regime as for sole proprietors. This means progressive income tax rates up to 53 percent together with social security contributions (egenavgifter) that may add approximately another 27 percent.

In the case, the Canadian individual argued that he had not been the owner of the LLC and furthermore that the LLC had not been taxed as an S-corp under U.S. law but as a C-corp. However, the Swedish Tax Agency had obtained extensive documentation from the U.S. Internal Revenue Service (IRS), clearly showing that the person was indeed the owner and that the entity had been classified as an S-corp during the relevant period.

The Administrative Court of Appeal sided with the Swedish Tax Agency and imposed a very substantial Swedish tax liability on the individual, a considerable tax blow.

Concluding remarks

As noted above, it has become increasingly common to use U.S. LLCs, particularly among individuals seeking to optimize their tax position, sometimes with the aim of avoiding taxation altogether. There are situations where such a goal may be achievable, but this typically requires competent international tax expertise to carefully assess how such a structure should be implemented. It is clear that, as a general rule, there is a significant risk of a major Swedish tax liability if an individual who is resident or otherwise subject to unlimited Swedish tax liability owns a U.S. LLC that is treated as a pass-through entity (S-corp). There may, however, be situations where, for example, a tax treaty restricts Sweden’s taxing rights, but such issues must always be assessed on a case-by-case basis.

Are you considering setting up a U.S. LLC, or are you perhaps already an owner of one? Do not hesitate to reach out to us for advice regarding the Swedish tax implications of owning a U.S. LLC while being subject to Swedish tax or having ties to Sweden.