Setting up an SPV (Special Purpose Vehicle) in Sweden for the purpose of aircraft leasing to airlines in Argentina essentially involves legal and tax cross-jurisdictional considerations. While each jurisdiction is adding certain tax or regulatory benefits, it also brings its own additional layer of jurisdictional complexity. Our seasoned experts in aircraft leasing explain some legal and financial factors to consider to successfully set up and manage an aircraft leasing SPV in Sweden.
Long-Distance Relationship
Despite the large (the size of over a quarter of Europe) territory to cover, Argentine aviation is still lagging behind its neighbour countries in South America. Pent-up demand and recent presidential promises towards making the aviation market in Argentina more competitive and attractive suggests good potential for growth in finance structuring for aviation assets in the country. The fact that demand for air transportation in Argentina is on the rise, furthermore supports the argument. Still state-owned, Aerlineas Argentinas, keeps growing its portfolio. Its nearest competitor, a several years old low-cost Flybondi tripled its own aircraft portfolio during the post-COVID time while. new players like JetSmart are entering the Argentine market. Even the turbulence and uncertainty in the future of Aerlineas Argentinas themselves might bring opportunities for existing and new players in the Argentine aviation market. The above concerns not only airlines but also lessors with more and more adding Argentine leases to their portfolios.
When it comes to leases, Argentina’s reliable partner in structuring aircraft lease deals that might surprise those less involved in the industry is Sweden, despite being located on the opposite side of the globe. But the partnership has a background. Both countries are signatories to the relevant international conventions such as Rome, Chicago, Geneva and Montreal, as well as accepted the Cape Town Protocol to the Convention 2001. Both Sweden and Argentina enjoy a double taxation treaty since 1997. Additionally, and unlike Argentina, Sweden is part of the OECD BEPS Multilateral Instrument and adheres to the OECD Model Tax Convention on Income and Capital.
Setting up a LILO in Sweden
Despite its remote location, Sweden is perfectly positioned as an appealing jurisdiction for setting up aircraft lease-in and lease-out (LILO) SPVs connected to Argentina. Usually, structuring such LILOs is straightforward. The aircraft is typically owned by Irish or the US designated entity and leased into a Swedish limited liability company. The latter sub-leases the aircraft out from Sweden to an Argentinian airline.
With that said, setting up a LILO in Sweden for the purpose of aircraft leasing to airlines in Argentina essentially involves cross-jurisdictional considerations. A LILO can be used to manage a single aircraft or a fleet and ring-fence the liabilities associated with the lease from the parent company. This setup must account for legal and tax factors both in Sweden per se and the countries of the aircraft ownership (such as Ireland or the US) as well as Argentina as the jurisdictions of the sub-Lessee. With each jurisdiction adding some tax or regulatory benefits, as well as its own additional layer of jurisdictional complexity.
These structures benefit from the double tax treaty in place, and taxation of their profits would heavily depend on fulfilment of the substance requirements from each jurisdiction involved. The first and the second requirement is incorporation in Sweden and having a local bank account using it for operations. While these requirements are straightforward, complexity with opening a bank account should not be underestimated. Our knowledgeable team can help navigate KYC complexities and guide through the whole process of opening a bank account in Sweden.
Lessors are obliged to provide residency certificate under Anexo 2228 on an annual basis, proving the place of effective management for lessors. This documentation is essential for local airline authorities to validate compliance with international tax regulations, ensuring the appropriate taxation and legal recognition of operations.
Navigating the Skies of Governance
The next local substance requirement concerns effective management of a Swedish company (LILO). The minimum number of directors in a limited company according to the Swedish Company Act is three, alternatively, one director and one deputy director. The Swedish residency requirement is that minimum 50% of directors or deputy directors shall reside in the EU / EEA. While Irish Revenue Commissioner’s company residency test requirements typically demand two Swedish resident directors acting as independent directors plus two non-resident directors (industry directors). Areta Group provides local independent directors and a management team with years of expertise in aviation leasing.
In order to show effective company management LILO’s needs to demonstrate substantial governance support. This typically includes regularly scheduled board meetings with directors physically present in the company’s geographical location. Such board meetings facilitate discussions on governance, compliance, legal, risk assessment, and similar matters. Our local experts can help lessors ensure that all necessary matters are presented to the board and duly addressed.
Balancing the Books
Besides governance, corporate secretarial and regulatory matters, SPVs are subject to local accounting and tax requirements and compliance. Minimum mandatory and business practice registrations would include UBO registration, VAT registration and F-tax registration. It must also ensure that the company’s bookkeeping and reporting are duly performed and submitted to the Swedish reporting authorities. Swedish regulation requires that accounting is conducted under Swedish GAAP allowing reporting in Swedish Krona or Euro. At Areta Group we offer full suite of professional accounting and tax compliance services focused on aircraft leasing for your LILO to be provided out of Sweden, as well as provide last mile accounting for the Swedish part for the larger structures where the Lessor needs to keep the main accounting at their headquarters.
Talk to us to explore how we can support your aircraft leasing structures in the Nordics.