The Swedish so-called "3:12 Rules"

The "3:12 Rules" refer to the rules regarding the taxation of dividends from closely held or family owned companies. The background is that capital income - such as dividends - usually is taxed lower than employment income.

If there were no special rules family owned companies would prefer paying dividends instead of high taxed employment income to its owners. The rules should secure that the owners get a reasonable amount of low taxed dividends based on capital invested.

However, the Government has also included an incentive for family owned companies to hire employees in the rules. High salaries in a company may lead to a lower taxation of dividends. A family owned company can distribute dividends within a certain low tax space at a flat tax rate of 20 %.

Parts of dividends exceeding the low tax space will be taxed as employment income (but without the usual social charges) up to an employment income of approximately SEK 7 million. Parts of dividends also exceeding this threshold will be taxed at a flat rate of 30 %. The rules are extremely complicated but we have the experience to deal with them. We would be happy to help you!

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