Common rule for calculation of low-taxed space
The primary purpose of the 3:12 rules is to determine how much of a dividend or capital gain on shares in a limited company is to be taxed as capital income at 20 percent and how much is to be taxed as salary at 31–55 percent.
Under the current regulations, the low-taxed limit amount (20 per cent) can be determined according to a main rule or a simplified rule, and for a sole owner of a closely held company, the low-taxed allowance for 2024 according to the simplified rule amounts to approximately SEK 205,000. In the proposal, the low-taxed allowance will only be calculated in one way, with the lowest limit amount corresponding to 4 income base amounts, which for 2024 means approximately SEK 305,000. This amount is distributed amongst the shares in the company.
If a shareholder has a stake in more than one closely held company, they cannot claim more than 4 income-based amounts as a low-taxed basic amount for all their shareholdings. The four income-based amounts are distributed proportionally based on the size of the different shareholdings.
Abolished requirement for salary withdrawal
Under current rules, a shareholder needs to draw a certain minimum salary to be able to count paid salaries in the company towards the low-tax allowance. The requirement for a certain minimum salary is proposed to be abolished.
The calculation of the size of the salary-based allowance will, however, be based on the same principles as today, which mean that 50 per cent of the company's cash salary sum creates an allowance with low taxation. However, according to the proposal, a special salary deduction will be introduced for each shareholder, meaning that a deduction amounting to 8 income base amounts, i.e. almost SEK 610,000 for 2024, will be made from the shareholder's share of the salary-based allowance.
The requirement that the salary-based allowance shall not exceed 50 times the individual's own salary will also remain. Consequently, the individual's own salary extraction will continue to be relevant for a co-owner's opportunities to account for paid salaries within the low-taxed allowance.
Abolished share requirements
To be able to count salary payments made in the low-tax bracket in the current regulatory framework, an ownership stake of at least 4 percent is required. This ownership requirement is now being abolished in the proposal for new rules.
Shortened waiting period
Under current rules, after an active partner ceases their work efforts, the shares in the company remain qualified for a grace period of five full tax years. The grace period for a partner is now shortened to four full tax years.
Reduced circle of close contacts
The circle of related persons applied in the regulations for small business owners is being narrowed, and the change means that siblings, siblings' spouses, and siblings' children will no longer be included in the circle of related persons. This restriction in the circle of related persons constitutes an improvement, for example, by preventing a passive shareholder from being affected by a sibling's work efforts in the small business.
The interest on the cost base
Under the main rule of the current system, a portion of the owner’s cost basis (the government bond rate increased by nine percentage points) can be included in the low-tax allowance, which for 2024 is 11.62 percent. Under the proposal, this portion of the acquisition cost will only be credited to cost bases exceeding SEK 100,000.
Distribute dividend
Today's enumeration of saved dividend capacity (the government bond rate increased by three percentage points) will not be permitted under the new regulations.
Joint roof amount
A common cap will be introduced for the maximum taxation of capital gains and dividends from a small company within the employment income class. The common cap means that at most 90 income base amounts, currently approximately SEK 6.9 million, during a three-year period will be taxed in the employment income class.
The definition of a subsidiary is abolished
The specific definition of a subsidiary for limited companies within the 3:12 rules will be abolished, and the assessment of subsidiaries will revert to being based on civil law rules. This will reintroduce the possibility of dual group membership for two shareholders to be able to count salary expenses.
The foreigner rule
The investigation has analysed whether any changes should be made to the application of the outsider rule, which simply means that if external passive shareholders hold at least 30 per cent of the shares in the company, then an active shareholder's shares are not covered by the 3:12 rules. No changes are proposed to the application of the outsider rule, other than the 30 per cent limit being directly expressed in the legislation.
The regulations concerning the same or similar activities that are relevant for the assessment of qualifying holdings and the arm's length principle will also remain unchanged. The case law that has developed on this matter, which is in many respects complex, will therefore continue to be relevant.
At the same time, other proposed changes in, for example, the circle of close associates, will affect the assessment of the outsider rule and the examination of the same or similar business activities.
Generational change
The investigation was also tasked with reviewing the regulatory framework to facilitate the transfer of family-owned small and medium-sized enterprises (SMEs) between generations, both within the family and to employees. For various reasons, the investigation does not present any proposals for changes in these areas, and the existing regulatory frameworks will continue to apply.
Unchanged tax rates
The proposal does not include any changed tax rates. Taxation within the low-tax bracket will therefore continue to be 20 per cent, and the taxation of capital income above the ceiling amount will still be 30 per cent.
Commentary
The proposal left clearly entails a series of improvements and simplifications to the, in many respects, complicated regulations for small business owners.
For smaller companies, the proposal means, for example, an increase in the lowest low-taxed allowance from the current 2.75 income base amounts (just over SEK 200,000) to 4 income base amounts (currently just over SEK 300,000). Other clear improvements are the abolished earned income requirement and the removed shareholding requirement in order to be able to claim earned income allowance. Overall, the investigation also assesses that approximately 8 out of 10 closely held company owners will benefit from the proposal for a new formulation of the 3:12 rules.
A deterioration is the salary deduction that is to be made when calculating the salary-based allowance, which means that 8 income base amounts are deducted from the owner's salary-based allowance. This limitation particularly affects smaller companies with a limited payroll. A flaw in the proposal is also that no changes are made to the arm's-length rule to simplify the often complex application of this provision. Another weakness in the proposal is that the inquiry does not put forward any proposal to facilitate generational transfers of a closely held company within the family or to the company's staff.
It will undoubtedly be interesting to follow the work on the design of the final legislative proposal. According to the inquiry, the intention is for the new rules to come into effect on 1 January 2026. As a co-owner of a small limited company, there is, in other words, every reason to be aware and observant regarding the final design of the new 3:12 regulations and their effects on taxation.
Johan Larsson
Tax lawyer / Authorised tax advisor
