Swedish Tax Alert – Increased taxation for closely held companies

Today, the so called 3:12 investigation presented an extensive report of more than 500 pages with proposals for new rules for owners of closely held companies.

Some of the key proposals are:

  •  the rather complicated salary basis mechanism (Sw. löneunderlagsregeln) for calculating the amount subject to capital gains tax is amended;
  • yearly income up to the first threshold (Sw. gränsbelopp) is proposed to be subject to 25% tax (an increase of the current rate of 20%);
  • the tax rate on income above a capped amount (Sw. takbelopp) of approx. SEK 6 million is lowered from 30% to 25%;
  • income in between the first threshold and the capped amount continues to be subject to employment income tax (progressive rate up to 58%);
  • the simplification rule (Sw. förenklingsregeln) is made less favourable;
  • for owners of more than one closely held company, only one way of calculating the amount subject to capital gains tax can be used for all companies – either the salary basis or the simplification rule;
  • the equity requirement (Sw. kapitalandelskravet) of 4% is abolished as well as the definition of subsidiary for the purpose of these rules.

The investigation was appointed by the Government in March 2014, with the mandate to review the ownership of closely held companies. In January 2015, the investigation got a supplementary directive in which the Government requested a major overhaul of the regulatory framework for closely held companies. The proposal is expected to increase the tax revenue by approx. SEK 4.8 billion.

The proposal will now be sent out for consultation to different stakeholders, such as organisations, courts and the Tax Agency. The proposal must be approved by Parliament before any change in legislation can enter into force. The investigation proposes that the changes enter into force on 1 January 2018.

The proposal (in Swedish) can be found here. Feel free to contact us if you would like to know more about the current 3:12 rules or how the proposed changes may impact your business.