Salary or dividend?

The profit that a company makes can essentially be picked out in the form of pay or dividends. As the owner of a small company, gravitating towards dividends can be tempting, as it is purely tax-advantageous to choose dividends over wages. Capital income from qualifying shares is taxed only at 20% up to a certain limit amount (more on that later).

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If you choose to withdraw your profits in the form of salary, a lot will disappear in tax and employer contributions, especially if you end up over the cut-off point for state income tax. In 2024, the cut-off point for state income tax for those who have not reached the age of 66 is set at SEK 615,300.

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As the owner of a small company, dividends are therefore the most effective way to share in your company's profits. At the same time, it is rarely a good idea to abolish pay altogether. This is mainly due to two reasons:

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1. Salary entitles you to good and important benefits.
2. Salary withdrawals can give rise to greater dividend space.

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If you collect wages, you will be entitled to benefits such as a general pension, sickness allowance and parental allowance. The same does not apply to capital income. Consequently, it may be a good idea to collect wages, as it creates social security, both today and tomorrow.

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Amounts for said benefits in 2024:

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• Retirement income (PGI) SEK 614,900
• Sickness benefit income (SGI) SEK 573,000
• Parental allowance (based on SGI) 573,000 SEK

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How Much Pay Maximizes Your Benefits

To maximize your PGI, SGI and parental allowance, you should therefore charge an annual salary of SEK 614,900. Although salary is taxed more heavily than capital, at this annual salary you maximise your general pension savings, while you are entitled to the highest possible compensation from Försäkring in case you become ill or need to be on parental leave.

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In addition to salary entitling you to benefits, salary withdrawal can also give rise to greater scope for distribution. In simpler terms, this means that a higher salary can create conditions for greater dividends, especially if the company has high wage costs, as the limit amount is often larger.

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The question was: salary or dividend?

And the answer is almost always that a combination of both is the best option. Exactly how much salary and how much dividend you should taking out is of course more situation-based. It depends a lot on what situation you and your business are in. Is the company making a profit? Should the profits be reinvested? Want to maximize your benefits?

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How Much Dividend You might withdraw (at tax of 20%) and how much wages you thusly should take out, however, is a completely different question, considerably easier to answer. That answer can always be found in the 3:12 rules, and more specifically in the limit amount calculated using the same.

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Therefore, let's take a closer look at it.

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What is a limit amount?

At the most fundamental level, the limit amount represents how much of the dividend may be taxed at 20%. Thus, the limit amount is a value that governs the size of the portion of the dividend that is subject to lower taxation.

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The limit amount can be calculated in two different ways, by the simplification rule or by the main rule. It is free to apply the rule which provides for the maximum limit. However, you may only use the simplification rule in one of your companies, in the event that you would own more.

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Simplification rule

The simplification rule is often, but not always, most advantageous to apply in smaller, few companies with few employees. The limit amount is determined by the simplification rule by a flat rate:

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• Limit amount according to the simplification rule 2024:204,325 SEK
• Limit amount according to the simplification rule 2025:209 550 SEK

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The main rule

The second option to calculate the limit amount is by applying the main rule. The limit amount is then determined by the salary cap, which is 50% of the company's wage base, i.e. half of the total cash salary payments from the previous financial year. Let's say that your company's salary payments amount to 3 million, then according to the general rule you would be entitled to a low-taxed dividend of 50% of the salary space, i.e. 1.5 million SEK.

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However, in order to be able to apply the main rule, it is necessary that you meet the so-called salary withdrawal requirement, which you do by collecting enough salary from the company or someone related to you.

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In 2024 and 2025 respectively, the salary withdrawal requirement for dividends according to the general rule amounts to:

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2024:

• SEK 445,800 (6 IBB) + 5% of the company's cash wage base (2023) or SEK 713,280 (9.6 income base amount)

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2025:

• SEK 457,200 (6 IBB) + 5% of the company's cash wage base (2024) or SEK 731,520 (9.6 IBB).

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How much salary should I charge in 2024 according to the main rule?

As we saw, there were two ways to establish the salary withdrawal requirement, which then becomes the basis for determining the limit amount according to the main rule. There was a lower limit, 6 IBB + 5% of the company's cash wage base, and a higher limit of 9.6 income base amount.

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For those who will receive dividends in 2024, the higher limit will be most advantageous to apply if the total salary base in 2023 exceeds SEK 5,349,600. For those who intend to receive dividends in 2025 and plan the salary base in 2024, the higher limit will be most advantageous to apply when the total salary base exceeds SEK 5,486,400. Consequently, the option of 6 IBB + 5% of the company's cash wage base will be better to apply if the salary base is lower than the amount mentioned above.

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Calculation example

The reason why the different options are most advantageous in different scenarios is simply because lower wages are more cost-effective for you as an owner, as your taxes and fees will be less. At the same time, you need to collect enough salary to meet the salary withdrawal requirement.

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It is thus a matter of finding the break point between the lower and the higher limit and this we can do as follows:

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For 2024:

1. Higher limit: Requires withdrawal of SEK 713,280 (9.6 IBB).
2. Lower limit: Requires withdrawal of SEK 445 800 (6 IBB) + 5% of the company's cash wage base.

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Next, we need to find when 5% of the salary base is equal to the difference between 713,280 SEK and 445 800 SEK:

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Difference = 713,280 - 445 800 = 267,480

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Then we simply need to find out the total wage base when 5% of the wage base = 267 480:

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267,480/0.05 = 5,349,600

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• When the salary base is higher than SEK 5,349,600, 5% of the wage base is higher than SEK 267,480.
• The total requirement (6 IBB + 5% of the salary base) will then be higher than SEK 713,280.

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Thus, if your company's payroll payments in 2023 amounted to a maximum of 5,349,600, you should use the lower limit to understand how much salary you as an owner will have to collect in order to be entitled to a low-tax dividend of 50% of the total wage space. If the wage gap is larger than that, you should use the higher limit and thus collect a salary of SEK 713,280 in order to be entitled to a low-taxed dividend of 50% of the total wage space.

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Wage based space cap

It may also be worth noting that there is an upper ceiling on how big the pay gap can get. According to the rules, the salary cap or limit amount may not exceed an amount equal to 50 times the remuneration of the company's own or a close relative.

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Reverse salary exchange

One way to increase the company's cash wage base and thus be able to benefit from the main rule in the form of a higher limit amount is through so-called reverse wage exchange. This means that you exchange a benefit for a cash salary.

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Saved dividend space

Just because you can make a dividend, of course, doesn't mean you have to. And in cases where you choose not to make a dividend, the limit amount will be added to your so-called saved dividend space and tallied up against the government loan rate plus three percentage points.

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Dividends above the limit amount

It is quite possible to make dividends greater than the calculated limit amount. But the portion of the dividend that exceeds the limit amount will be considered income from service and thus taxed at about 32-57 percent, depending on how much total income from service you had in the same year.

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Advice, support or help?

Economics can be as complicated, as simple, as fun as boring. No matter where you are on the shuttle, we at Saldo are here for you. We are more than happy to help you with your accounting and provide advice, support and ideas so that you can make the most profitable decisions for you and your business. Get in touch via our contact form and we will take it from there.

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