When thinking of structuring aircraft leasing deals, which jurisdictions spring to mind? You might think Ireland. After all, it's one of the most common places to hold SPVs. The chances are Sweden wouldn't be at the forefront of your thoughts. So, it may be surprising to discover that Sweden has become a hotspot for aircraft lease-in and lease-out (LILO) SPVs. Sweden isn't a traditional aviation hub, yet the Nordic country does hold some strong connections with Argentina and Bolivia.
Sweden is a signatory of many international conventions, including Geneva, Montreal and Cape Town. It's also part of the OECD BEPS Multilateral Instrument and the OECD Model Tax Convention on Income and Capital. The latter convention is a base of Swedish double tax treaties.
It's clear Sweden is an attractive jurisdiction for setting up aircraft SPVs based on the business that is being done there. This is especially true for jurisdictions like Argentina and Bolivia that are yet to ratify the OECD BEPS Multilateral Instrument. The typical structure of such SPV arrangements is simple. The owner of the aircraft is usually an Irish entity while a Swedish limited company LILOs the aircraft. The aircraft are then leased out to an airline in Argentina or Bolivia. Such structures benefit from the double tax treaty. The profits from international operations are taxed in the state where the management takes place.
With an increase in transportation demand in Argentina and Bolivia, this will push the growth of leasing companies coming onto the market. Such leasing entities might be established independently or as a part of a larger Asset Backed Security (ABS) portfolio.
To benefit from international treaties, placement of effective management of such aircraft lease SPVs is of upmost importance. Certain criteria for the proof of company residency in Sweden must be met. Basic requirements include:
- incorporation of the company in Sweden
- legal domicile in Sweden
- an account with a reputable Swedish bank.
Swedish legislation allows company directors to reside anywhere in the European Economic Area. However, when there is no representation in Sweden, a residency exemption is needed and a process agent needs to be appointed in Sweden. Aircraft LILOs usually require a majority - or at least half - of directors (a dominant portion) to be residing in Sweden. Such requirements are led by provisions of laws outside of Sweden, comparable to the company residency test that satisfies Irish legal requirements.
Another criterion of effective company management in many jurisdictions is its board activity. Board meetings of company directors physically present in in the geographic location of the company have to be scheduled and run regularly. This allows the discussion of governance, risk assessment and compliance organisational matters. Arranging this requires local experts who can support lessors in making sure that any new regulatory requirements are brought up in front of the company board and addressed in a timely manner.
Documental proof of company residency is a requirement for lessors. This shows local airline authorities that Sweden is the place of effective management. For this residency certificates (under Anexo 2228) have to be issued annually.
As well as corporate secretarial and regulatory matters, lessors need to stay on top of SPV accounting and tax requirements. The company must ensure that it is registered for taxes such as VAT and Swedish F-tax. It must also ensure the entity's bookkeeping and reporting is performed and submitted to the Swedish reporting authorities. This is usually carried out in Swedish krona but in some cases can be in euros. Currency considerations are sometimes overlooked by large corporations operating in US dollars.
Talk to us
Having support on the ground with local knowledge can make a real difference when working in airline leasing in Sweden.
TMF Group is uniquely positioned to help clients find experienced independent directors for SPV/LILO management. Plus, its presence in all transactional aviation jurisdictions paired with local knowledge allows us to assess client entity compliance from a multi-jurisdictional angle.
We also help lessors in Sweden with all company and board requirements, such as by appointing directors and running board meetings, as well as obtaining residency certificates as necessary.
Contact us to discuss how we can help you with all your airline finance needs.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
