On June 3, 2024, the government proposed a set of changes to Sweden’s 3:12 rules. These amendments aim to simplify how the threshold determining dividend and capital gains taxes is calculated for closely held companies.
Ultimately, it is hoped that these simplifications will promote entrepreneurship in Sweden, while also helping small and medium sized enterprises (SMEs) to grow and build capital.
What are 3:12 Rules?
3:12 rules are concerned with the taxation of dividends from family-owned and closely held companies. These rules prevent these businesses from paying preferentially taxed dividends to their owners, rather than higher taxed employment income. This is done by calculating a threshold amount that determines how much of a dividend or capital gain is taxed at 20%.
What Changes to the 3:12 Rules Have Been Proposed?
- Introduce a common rule for calculating limit amount, replacing the current simplification rule and main rule.
- A wage-based amount to be added to the owner’s basic threshold amount. This amount would remain the same (50% of cash-paid gross wages and subsidiaries distributed among the owner’s shares in the company). However, a deduction of eight income base amounts per shareholder must be made first.
- Removal of wage withdrawal and capital share requirement of 4% ownership. This would give all shareholders the same opportunity to account for a wage-based amount.
- Indexation of share acquisition cost would only remain for costs exceeding SEK 100,000.
- Changing cap amounts, combining the current two cap amounts into a single cap amount of 90 income base amounts. This would apply to both dividends and capital gains for the current tax year and two preceding years for the shareholder and their relatives.
- Reduce qualification period from 5 years to 4 years.
- Narrow the definition of related parties. In the new proposed regulations, siblings, spouses of siblings, and children of siblings would not be considered relatives.
When Could the new 3:12 Rules Come Into Effect?
If approved, they may come into effect as early as January 1, 2026.
What Concerns Have Been Raised Over the Proposal?
Overall, our Swedish tax and accounting professionals hold a positive view on the proposed 3:12 rule simplifications. However, some concerns have been raised regarding the impact of the proposal on shareholders with a lower salary base, and of removing unused dividend space updates. The proposed new regulations would also require closely held companies to provide an annual control statement on shareholdings.
To find out more about the proposed changes and how they could affect your closely held company in Sweden, arrange a consultation with one of Leinonen’s Swedish tax and accounting experts today.
