Investing via a holding company
Investing in unlisted shares privately through a standard custody account means that you pay around 25% capital gains tax on the profit upon sale in Sweden. For many active investors, it is therefore popular to make investments through their own limited company (often called a holding company or investment company).
Business-related shares (Näringsbetingade andelar) — the major tax advantage
The primary reason to invest via your own limited company is the Swedish tax rules regarding business-related shares (näringsbetingade andelar).
If your holding company owns unlisted shares (i.e., shares not admitted to trading on a regulated market), these are almost always classified as business-related.
This means that:
- Tax-free dividends: When the unlisted company distributes profit to your holding company, no corporate tax is levied on the dividend.
- Tax-free capital gains: When your holding company sells the unlisted shares at a profit (e.g., in an exit), the entire capital gain is 100% tax-free within your holding company.
This makes it extremely advantageous to build up capital and reinvest in new companies without the capital being taxed along the way.
Taxation only occurs upon private withdrawal
The profit remains untaxed in your holding company. It is only when you, as a private individual, want to withdraw the money (as salary or dividend) from your holding company that you are taxed, usually according to the closely-held company rules (3:12 rules in Sweden). If the purpose is to let the capital grow over time, the holding company is a superior structure.
Things to consider: LEI code and bureaucracy
- LEI code: In order for a company to carry out securities transactions, a so-called LEI code (Legal Entity Identifier) is required. It carries an annual administrative cost.
- Accounting: An investment via a company requires bookkeeping of the acquisition and potential changes in value (depending on accounting rules).
- Capital losses: If a business-related share is sold at a loss, that loss is not tax-deductible for your holding company.
Summary
Buying unlisted shares through a company is both possible and recommended for those who plan to invest actively. Thanks to the rules on business-related shares, the holding company avoids tax on both dividends and capital gains upon sale, which gives you the maximum compound effect for future investments.