• Sweden edition
 

Sweden a tax haven for investors

Published: 26 Mar 2010 15:32 GMT+01:00
Updated: 26 Mar 2010 15:32 GMT+01:00

To the world, Sweden is known for dark winters, bright summers and the Nobel Prize. To Swedes it is also known for taxes, high taxes, and higher taxes. But to a growing group of investors it is known as Europe’s secret tax haven. By using an investment vehicle known as kapitalförsäkring, residents of Sweden can essentially avoid capital gains taxes from equity investments.

Kapitalförsäkring started as a vehicle to stimulate investment. And many Swedes have taken advantage of this rare opportunity. Capital injections into kapitalförsäkring policies by private investors have grown at annual rates of 25 to 30 percent, pouring tens of billions of Swedish kronor into the stock market each year.

And it is not only Swedes that are allowed to sign up. Any foreign citizen with a Swedish visa or EU passport living in Sweden can open an account.

Quentin Helgren, an American citizen who moved to Stockholm two years ago, opened a kapitalförsäkring policy in 2009.

“I found out about kapitalförsäkring through a friend working for a Swedish bank. And to be honest, when I signed up, I kept asking my agent what the catch was. It really seemed too good to be true, especially in Sweden of all places.”

You might think that the mere thought of not paying taxes or even provoking the Swedish Tax Agency (Skatteverket) is enough to make most Swedes shake in their snow boots, but the investment vehicle has been steadily gaining in popularity.

“At first I was afraid to tell people that I was involved with kapitalförsäkring,” Helgren says.

“I didn’t want to be known as a greedy American. But the more people I spoke with, the more I realized how many people actually use this system.”

Perhaps it is not widely used by ex-pats because of the process for creating an account. Instead of opening a normal stock market trading account, investors must sign up for a life insurance policy with a licensed insurance company and trade through them. Also, most advertisements for the insurance companies are in Swedish. So if an ex-pat doesn’t read Swedish publications it is unlikely that they will ever know about the system.

There are several disadvantages for investors using kapitalförsäkring policies. In addition to various administrative costs for opening accounts, investors forfeit all company voting rights to the insurance policy brokerage (although unless you plan on a hostile takeover of a publically traded company, this drawback shouldn’t deter you). Also, trading losses cannot be deducted from income and dividends are fully taxed.

And there is a major loophole that the taxman is looking to close. Tax assessments are made on January 1st on the total value of the insurance policy – not the value of capital gains (the tax rate is a derivative of the government’s borrowing rate and presently hovers around 1 percent). Many investors have been exiting all investment positions, emptying their accounts before January 1st, before reinvesting their funds after the tax assessment.

Legislation to close the zero taxation "loophole" is currently being considered. According to Hans Svensson of the insurance and investment company Skandia AB, which provides kapitalförsäkring services, a new bill is being drafted in the Swedish parliament that will change when the tax assessment is made. Instead of a one-time assessment on January 1st.

“It could be done monthly or weekly. We just don’t know yet.”

Svensson also believes the new bill will allow consumers to trade with kapitalförsäkring policies by using a modified brokerage account provided by any company with standard investment services. By eliminating the need to open a life insurance policy, this change could make the kapitalförsäkring process much easier for consumers.

However, Swedish law states that in a national election year, no new legislation can be passed after March 23rd until the new government is formed. As such, it is highly unlikely that any changes will be enacted until 2011.

When the new government is formed, this bill will likely go through a series of debates and modifications. But investors needn’t worry. This is not likely to be a top priority for a new government and a vote would be delayed through 2011, which means any changes to kapitalförsäkring would be enacted in 2012.

“In the States this type of thing would be totally exploited. Not in Sweden. I think it has to do with the Swede’s introverted nature or even a sense of guilt,” says Quentin Helgren.

Joel Molin

Paul Rapacioli (paul.rapacioli@thelocal.com)

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Your comments about this article

18:01 March 26, 2010 by biffweezer
Mr. Helgren might want to consult with a US tax attorney - if he hasn't already done so - and stop publicizing the fact that he has a kaptialförsäkring, in the meantime.

The IRS would be very interested in that fact and very most likely will not give the same the tax treatment as Skatteverket. In fact, they might apply punitive-like tax rates that wipe out the benefits, and then some.

It is a shame, as a kaptialförsäkring is a brilliant investment vehicle if you believe in a market upswing. Best to consider having a Swedish spouse/sambo open the account.
18:36 March 26, 2010 by Larry Cotter
To think that people would try to abuse a good system just to save 1%.....

Ridiculous.
13:50 March 27, 2010 by StockholmSam
1% on a million dollars is a lot of cash, Mr. Cotter.
14:10 March 27, 2010 by VicTaulic
I'll pass. I never invest in something I can't pronounce.
15:50 March 29, 2010 by calebian22
Biffweezer,

As long as Mr. Helgren has a tax home in Sweden and not the US, the IRS can suck it. The only thing he has to keep in mind is that if he has more than 10,000 dollars in any one foreign account this has to be declared, but not taxed, every year on a TDF-90 form like all American expats. The penalties if discovered are 100,000 dollars or 10% of the account, whichever is larger. More and more Americans are getting hit with this little known rule and unfortunately, ignorance is not a defense.
19:50 March 29, 2010 by biffweezer
Calebian22, feel free to file the 1040 Suck It, however it may only be a matter of time before all US expats are getting the UBS treatment. The US taxes worldwide income, and a kapitalförsäkring produces just that. The IRS is not obligated to follow Skatteverket's practices, and therefore seeking professional advice for a definitive view is advisable.

You give a good reminder about the Dept of Treasury form. Note that the 10k USD is an aggregrate figure for all foreign accounts, not per account.
21:04 March 29, 2010 by calebian22
Biffweezer,

As long as you don't maintain a tax home in the US with residency, as an expat, you will not be double taxed. You are right, that the US does have the capability to tax it's citizens but if you pay taxes in Sweden, you are not on the hook for US taxes as well. Well, as it stands now that is.

Any idea where the Schedule 1040 EZsuckit is located on the IRS.gov site?
14:59 March 30, 2010 by judoflares
Is it not always the same that the rich never want to give back to society?

Taxes are there to help balance society against the injusteses imposed by the rich on the poor for generations.

Sweden has been a glowing light for equality of life. Sadly with these types of loopholes in tax, greedy selfish Americans and a capatalist government soon the working classes of Sweden will resemble the underclass that exists in Britain and many other countries in the world.

tyvär
15:59 March 30, 2010 by swedishninja
Judoflares, this system was built for the SWEDES, not Americans. The tax advantages are not advantageous for Americans (re: previous comments). Please direct your complaints accordingly.
12:46 March 31, 2010 by Swedesmith
Meanwhile the great majority of the people struggle day to day just to make the rent and put food on the table. Strange world we live in.
19:13 March 31, 2010 by krrodman
@Judoflares

Taxes do not exist to "help balance society against the injustices of the rich."

Complete nonsense.

Ask yourself why the Swedish government set up the kaptialförsäkring. Certainly, it was not to enrich the rich. It was done out of necessity. The Swedish tax structure has been punitive for generations. And, like it or not, citizens get to choose what they do with their hard-earned money. The government needed to incentivize citizens to invest in Sweden. Think of it this way: Would you rather invest in the Swedish economy or the Chinese economy? The question was answered this week when Volvo was purchased by a Chinese company. The Chinese economy is much more vibrant than the Swedish economy. The kaptialförsäkring is a simple way to get citizens to invest in Sweden.
15:48 April 1, 2010 by MichaelZWilliamson
Judoflares: The rich give to society by spending money, hiring staff, building homes, hiring employees. This improves the economy and GDP.

What do poor people give to society? Generally not a thing. Poor people should be taxed for their failure to contribute.

(hey, it makes as much sense as the idiotic whine you offered)
23:27 April 12, 2010 by wxman
Good one, Williamson!
20:56 July 31, 2010 by Michael Whitfield
To Michael Z Williamson- Touche! You are correct sir. You must be a right winged conservative with good sense. Something the left could never comprehend. The left is usually emotion based on their ideas, and the right is bulls eye on common sense and practicality. The left have always been generous with other peoples' money.
04:50 January 15, 2011 by poopooman
I know this guy, he's a huge tool.
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