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How do dividends work?
This is one of the most common questions we get from entrepreneurs who run limited companies, and it is not the easiest to answer with a few sentences. There are many details and exceptions that are too complicated for most people to familiarize themselves with, and which are also not relevant to know about for most people who want to know more about this topic. So the focus of this article is to explain the regulations in as simple terms as possible for the person or persons who run smaller limited companies without complicated ownership structures.
What is a dividend?
Dividends are something that the shareholders in a limited company can decide to pay out to themselves. The dividend is paid to all shareholders in proportion to their ownership. What can be distributed is the so-called unrestricted equity in the company. This is normally the accumulated profit in the company and any previously conditional shareholder contributions.
When can you make a dividend?
You can only distribute non-restricted equity that has been established in an annual report, so even if a year goes very well, you must wait until the annual report for the year is ready before dividends can be made, if there is no non–restricted equity from previous years to hand out. Decisions about dividends are made either at the Annual General Meeting in connection with establishing the annual report, or at an Extraordinary General Meeting. If you decide about extra dividends at an Extraordinary General Meeting, you must notify the Swedish Companies Registration Office (Bolagsverket). Dividends may only be paid if the board deems that the company’s financial position allows it with regard to risks to the business.
How many dividends can you make?
The simple answer to the question is that you can make as much dividend as you have established non–restricted equity in the latest annual report. But the real question is really most often: How much dividends can be made with favorable taxation?
The answer to that question is that you can distribute the lowest amount of:
- Determined non-restricted equity in the most recent annual report. In other words, normally the accumulated profit in the company. If you have no accumulated profit, you cannot make a dividend.
- Allowed dividends (Utdelningsutrymme) according to the shareholders’ K10 forms that belong to their private annual tax returns.
So, if you have an accumulated profit of SEK 300,000, but only SEK 187,550 in allowed dividends, you can distribute SEK 187,550 as most for favorable taxation.
How do I fill my K10-form?
You will find your K10 appendix in your private income tax return, which you can find if you log in at www.skatteverket.se in the Inkomstdeklaration 1 e-service. There it is under the heading Appendices. There are two versions of the K10 attachment, according to two different rules that you can choose to use.
The simplification rule is a standard rule with a fixed amount you receive in allowed dividends, SEK 187,550 for 2022 and SEK 195,250 for 2023. You can always use it, but only for one company that you own.
The main rule is used if you are not allowed to use the simplification rule because you have already used it in another company you own during the same year, or if you meet a certain salary requirement which means that this rule gives you a greater allowed dividend than the simplification rule provides. The salary requirement is 6 IBB + 5% of your company’s total salaries. If you are alone in the company, this means that you need to take a salary of at least SEK 448,421 throughout 2022 to reach the salary requirement.
- Fill in your organization number in the field “Company organization number” if it has not already been filled in.
- Check the Simplification Rule or Main Rule. Which one you should use is described in the previous paragraph.
- In the field “Number of owned shares at the beginning of the year”, fill in the number of shares that you owned at the date that is in the same field, which is the first of January of the year before the tax return. You can either write the number of shares, or the number of percent of the shares if it is an integer. So if there are 500 shares in the company and you owned 500 shares, then you can fill in 100 or 500 as long as you are consistent with this in the follow-up questions.
- In the field “Total number of shares in the entire company at the beginning of the year”, you either fill in how many shares there are in the company in total, or 100 if you in the question before have entered a figure in percent.
- If you have received a dividend during the year, fill it in in the field “Dividend received” if it’s not already there. It is decided dividends that must be declared, so if you decided about the dividend in December but paid it in January the year after, it must be declared in the year that December was in.
Once you have decided which rule you want to use, fill in the K10 appendix as below.
The simplification rule
On this page, you normally only need to click on “Summarize” and then “Save” and “Back”. The exception is item 1.4, which must be filled in if you have sold or given away shares as a gift during the year. But it is unusual and complicated, and is not covered in this article.
The main rule
This rule is more complex than the simplification rule, and it is difficult to write a simplified article that does not risk making you fill it in the wrong way in certain situations. Therefore, we recommend that you seek help if you qualify for the main rule, and we are of course happy to help. Click here to access our contact form.
When this is done, you will get new allowed dividends that you can use to get more favorable taxation. You can either use it already for the same year for which you declare income, or you can save it for the future.