Sweden is rather well known internationally, as a high tax country. However, since 2012, Sweden boasts a very beneficial tax regime, enabling individuals to receive capital income and capital gains almost tax free.
The regime has received some criticism, for being similar to tax rules of so called tax havens.
Capital tax in Sweden - the main rule
Sweden's ordinary tax rules, implies that capital income (dividends, interest etc.) on listed securities is subject to the Swedish capital gains tax at 30 %. Capital gains are calculated using the cost average method.
In Sweden, there is no such thing as long term capital gains, like in America. Instead, all capital income or gains from listed securities are taxed with the 30 % tax.
How does the ISK tax regime work?
However, the so called ISK tax regime was implemented during 2012. A Swedish tax resident can opt for opening a special ISK account at a Swedish bank, which implies that holdings of the ISK account will be taxed in accordance with the ISK tax regime.
So how does the ISK tax regime work? Instead of taxing each event, such as a dividend distribution, or capital gain, the total market value of securities held in a ISK account is subject to an annual lump sum tax. The flat lump sum tax amounts to 0,882 % for 2023, which is a very beneficial tax rate compared to the ordinary capital tax at 30 %.
However, one should note that no deduction is granted in relation to capital losses. This implies that a person would be subject to the annual ISK tax, even if the person made big losses in his ISK account during the year.
International tax aspects
The unique treatment of the ISK account can sometimes lead to issues, if the holder of the account is subject to a tax claim of also another country than Sweden. If this situation occurs, a detailed assessment must be made of the person's tax treaty residency, in accordance with the tax treaty between Sweden and the other country of residence.
Sometimes, there are interesting tax optimization strategies available, by combining Swedish domestic legislation, with the application of tax treaties and other state's legislation.
If a person is moving to or from Sweden, one should always make sure that this is done in a tax optimal matter, which usually would involve the setting up of a ISK account, at the perfect timing of the relocation. We always recommend that a tax lawyer is consulted before migrating to, or emigrating from Sweden.
Potential pitfalls
One should be aware, that the ISK tax regime does not apply to holdings of a personal company or a smaller business. Instead, such holdings are usually subject to the complicated "3:12" rules, which can lead to taxation of dividend and capital gains with up to 55 % tax. The ISK is solely applicable on listed securities, such as stocks, ETFs, bonds, warrants, options, futures, and mutual funds.
Summary
The Swedish ISK tax regime is a very beneficial way of holding listed securities, for investment purposes or for trading purposes. However, one should be aware that the regime does not apply to all types of holdings, and that the application of the regime can raise issues if the holder of an ISK account is subject to tax claims from multiple states.