When I started thinking about saving one thing that came to my mind was tax planning as we do in India where we have multiple avenues or sections that can be used to save on taxes by investing. It was hard for me to find those options as finding the right applicable taxation at the Skattaverkt website was hard and even if I found anything it was difficult to understand and interpret them using Google translator and Swedes try to avoid discussing financial things openly during a fika. I was super excited when I found ISK and KF for long term saving with minimum tax implications.
There are three types of accounts that can be used to trade in Sweden.
Aktie & Fond konto (Stock and Fund Account) is a normal trading account and is taxed at 30% for all capital gains as well as dividends. You need to declare each and every stock transaction detail that is done during the year in the account when filing tax using a K4 form. The only positive point of this type of account is that you can offset the capital losses that you incur in the account against any capital gains during the financial year. For all dividends that are received in the account a preliminary tax of 30% is deducted. I use the Aktie & Fond konto as a holding account for money before I transfer it to ISK or KF. As there is no interest on liquid funds that are in this account there are no tax implication if you place your buffer money in Aktie & Fond konto. The Aktie & Fond konto are covered under the deposit guarantee insurance which assures a compensation of upto 950 000 SEK in case the custodian bank goes bankrupt. I use this account to receive barn bidrag amount before I transfer them to their respective accounts for investment.
At the end of the blog I have detiled out the steps to open the accounts
ISK - InvesteringsSparKonto is a trading account which was introduced to support long term investing with better tax conditions .You can buy stocks aswell as mutual funds. The taxation is based on the size or the capital base in the account and not on the capital gains or losses that happen. You will have to pay a quarterly tax based on capital base .The rate of tax is based on the government loan rate that is on November 30 of the year plus 1% and the minimum rate was set to 1.25% considering currently we have very low interest rates.
In the above example I started the year with 50K in the account and added another 50K during this year.
Capital base is calculated as (292000+50000) / 4 = 85500
Then it is multiplied by Government loan rate (2018 rate was 1.51% ) : 85500 * 1.51% = 1291.05
I will pay 30% of the amount as tax 1291.05 * 30% = 387.31
One of the brokers I use is Avanza, who is currently giving free Stock Trading in the main Stockholm stock exchange across all type of accounts for new customers until your savings reachs SEK 50,000 or 500 trades within a period of 12 months. You could use the below link to open an account and get the free trading, all you need is a personal number aswell as Bank ID to open a new account. Opening of any type of accounts are free of cost.
Open New Account with Avanza
I will write another blog with comparison of different Stock Brokers and their fee structure.
There are three types of accounts that can be used to trade in Sweden.
- Aktie & Fond konto (Stock and Fund Account)
- ISK - InvesteringsSparKonto
- KF - KapitalFörsäkring
Aktie & Fond konto (Stock and Fund Account) is a normal trading account and is taxed at 30% for all capital gains as well as dividends. You need to declare each and every stock transaction detail that is done during the year in the account when filing tax using a K4 form. The only positive point of this type of account is that you can offset the capital losses that you incur in the account against any capital gains during the financial year. For all dividends that are received in the account a preliminary tax of 30% is deducted. I use the Aktie & Fond konto as a holding account for money before I transfer it to ISK or KF. As there is no interest on liquid funds that are in this account there are no tax implication if you place your buffer money in Aktie & Fond konto. The Aktie & Fond konto are covered under the deposit guarantee insurance which assures a compensation of upto 950 000 SEK in case the custodian bank goes bankrupt. I use this account to receive barn bidrag amount before I transfer them to their respective accounts for investment.
At the end of the blog I have detiled out the steps to open the accounts
ISK - InvesteringsSparKonto is a trading account which was introduced to support long term investing with better tax conditions .You can buy stocks aswell as mutual funds. The taxation is based on the size or the capital base in the account and not on the capital gains or losses that happen. You will have to pay a quarterly tax based on capital base .The rate of tax is based on the government loan rate that is on November 30 of the year plus 1% and the minimum rate was set to 1.25% considering currently we have very low interest rates.
In the above example I started the year with 50K in the account and added another 50K during this year.
Capital base is calculated as (292000+50000) / 4 = 85500
Then it is multiplied by Government loan rate (2018 rate was 1.51% ) : 85500 * 1.51% = 1291.05
I will pay 30% of the amount as tax 1291.05 * 30% = 387.31
If I would have had the same type of transaction in Aktie & Fond konto and considering a 8% ROI I would have paid 100000 * 8% = 8000 * 30% = 2400 . Hence saving in ISK is tax efficient than the Aktie & Fond konto
It is beneficial to buy only Swedish Stocks in ISK as the dividends are not taxed and for Non-Swedish dividends are taxed at 15% to 27% based on the company and can be automatically claimed back in the tax declaration against interest expenses but the ceiling is set to SEK 500 , hence I buy only Swedish , Non-Dividend paying Foreign stocks and Mutual funds in ISK.
KF - Kapital Försäkring or Capital Insurance is similar to ISK but you can nominate some one else as the nominee other then immediate family as its beneficiary for example you can nominate the account to kids from your previous marriage and they will inherit it when they turn 18 . In case of your untimely death the nominee would receive an additional 1%.
Regarding the taxation its a little bit different than ISK on how its calculated. Deposits during the first half of the year are counted as 100%, while deposits during the second half are calculated as 50%.
Regarding the taxation its a little bit different than ISK on how its calculated. Deposits during the first half of the year are counted as 100%, while deposits during the second half are calculated as 50%.
Capital base is calculated as 50000 +15000 +21000 + (50% * (5000 + 9000 ) = 93000
Then it is multiplied by Government loan rate (2018 rate was 1.51% ) : 93000 * 1.51% = 1404.3
I will pay 30% of the amount as tax 1404.3 * 30% = 421.29
Swedish Dividends are tax free similar to ISK but its beneficial to buy Foreign Stocks in KF as the Stock broker is the custodian of this type of account and will take the responsibility to get the withholding tax back without an upper limit. Usually they take a couple of years to get back your withholding taxes, hence I buy only Dividend paying Foreign stocks in KF.
Don't move money in and out too frequently from ISK or KF as it would increase your tax liability.
How to open an Aktie and Fond KontoThen it is multiplied by Government loan rate (2018 rate was 1.51% ) : 93000 * 1.51% = 1404.3
I will pay 30% of the amount as tax 1404.3 * 30% = 421.29
Swedish Dividends are tax free similar to ISK but its beneficial to buy Foreign Stocks in KF as the Stock broker is the custodian of this type of account and will take the responsibility to get the withholding tax back without an upper limit. Usually they take a couple of years to get back your withholding taxes, hence I buy only Dividend paying Foreign stocks in KF.
Don't move money in and out too frequently from ISK or KF as it would increase your tax liability.
One of the brokers I use is Avanza, who is currently giving free Stock Trading in the main Stockholm stock exchange across all type of accounts for new customers until your savings reachs SEK 50,000 or 500 trades within a period of 12 months. You could use the below link to open an account and get the free trading, all you need is a personal number aswell as Bank ID to open a new account. Opening of any type of accounts are free of cost.
Open New Account with Avanza
I will write another blog with comparison of different Stock Brokers and their fee structure.
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