Salary payments and other important year-end issues for owners of close companies

Christmas is around the corner and now in December there is a final chance for active partowners of close companies to pay salaries referring to salary year 2015. A close company owner can calculate the annual low-taxed salary payment possibilities, and an important factor here is the owner’s own salary.

The limit in the K10 attachment to the tax return stipulates the amount of compensation and capital gains the owner of a close company can receive at a 20 percent tax rate. Payments in excess of this limit are taxed on the basis of the class of income, services, with a marginal tax effect up to approximately 60 percent. A high limit is, consequently, valuable in the context of possible future compensation or with the sale of shares in the company.

In calculating the available limit, there is a requirement for salary year 2015 that the partowner, or a related person, has taken out gross salary of at least SEK 348,600 ( 6 income base amounts ) + 5 percent of the amount of the paid cash salaries during 2015, or a maximum of SEK 557,760 (9.6 income base amounts). It is the paid cash salaries for the respective calendar years which are applied in the calculation. This implies that the compensation must be paid in cash no later than on the last banking day in December 2015. The salary-based limit can total a maximum of 50 times the owner’s own, or the related person’s, cash compensation.

Simplification rule

The simplification rule is an alternative to applying the salary-based limit. According to the simplification rule, the limit is calculated as a standard amount equivalent to 2.75 income base amounts. The standard amount is allocated proportionally between the shareholders and is independent of paid salaries in the company. Owners who are passive during a qualifying period or who apply the simplification rule, incur a limit for income year 2015 of SEK 156,475. For income year 2016 (year of assessment 2017) the standard amount is SEK 159,775.

Government borrowing rate

The government borrowing rate (SLR) as per 30 November 2015 was determined at 0.65 percent, a decrease of 0.35 percentage points against the equivalent interest rate in 2014.The SLR rate is important in terms of calculating the value of company cars, interest allocation, interest on tax allocation reserves, saved limited amounts, etc. SLR is often applied to the owners’ financing of the company’s operations via private lending. Consequently, do not forget to update, in January, the interest calculation on any financing provided by owners where the promissory notes are linked to the SLR.

To remember as regards salaries

Twenty percent income tax applies in 2015 on salaries in excess of SEK 443,300 in addition to municipal tax. If the employee had a salary higher than SEK 629,200 in 2015, pay the employee a further five percent in income tax (the so-called temporary austerity tax) on that portion of the salary in excess of the breaking point. Consequently, for the employee there can be reason to exchange salary for, for example, an extra pension provision if they reaches the breaking point for income tax.

For 2016, the breaking point for income tax is not adjusted upwards. The government signals that the upward adjustment of the lower limit for deduction of income tax should also be limited for 2017. The lower breaking point for income year 2016 is SEK 443,300 which is equivalent to a monthly salary of SEK 36,933. The breaking point for the so-called temporary austerity tax will be SEK 638,800, which is equivalent to a monthly salary of SEK 53,233.

The highest pensionable income for 2016 (PGI) is SEK 478,551 (SEK 468,867 for 2015). Salary in excess of this generates no national pension contributions. The limit on the earnings related sickness benefits (SGI) is SEK 332,250 (SEK 333,750 in 2015).

To remember in terms of savings

Neither should you forget that the government has determined to entirely eliminate the tax deduction for costs for private pension savings. Previously, deduction of SEK 1,800 applied.

The standard income amount for savings in investment saving accounts and endowment insurance is also increased.