Invest the dividends from your small business with 0 % tax and secure your pension

Small businesses in Sweden can take advantage of an annual amount of SEK 171,875 (2019) which can be paid out as dividends with a tax rate of 20 % instead of the regular +50 % that you get charged from the 3:12 regulations. Any amount that you don’t pay out can be saved for the future and also transferred to another family member.

I have given a lot of thought to weather I should keep capital in my company and receive returns there or if I should issue dividends and invest the money privately.

I now think that I have found the solution and it is called unlisted preference shares!

If I invest in unlisted preference shares through my company the received interest will be tax free, the tax has already been paid by the company that issued the preference shares. This means that my actual received interest will be higher than the terms of the shares states.

If I invest in unlisted preference shares that pays 7 % interest it means that my actual return is 8.8 % which has a huge effect for a long term investment.

The frequency of payments also matters a lot, if the issuing company pays out the interest monthly it means that I can re-invest the cash and quickly compound my interest.

In our company, Untie Group, we are launching our own unlisted preference shares in 15 hours which features all of the properties mentioned above.

Let’s say that we invest our SEK 171,875 that we make in profits each year , meaning an investment of SEK 14,323 per month with an interest of 7 % and 0 % tax, what would the result be over a period of 20 years?

After 20 years we have obtained more than SEK 7,500,000 and each month we are going to receive a payment of SEK 43,500 which we can issue in dividends against our saved annual amount or use in another way.

Best regards,
Stefan

Comparing investments in loans with the stock market

With all types of long term investments the compounding interest effect is the one that determines how value will develop over time. Have a look at the video below.

This is the reason why I have a very hard time finding an investment that generates better returns then investments in loans. The chart below shows the projected return at Kreditborsen (the credit exchange) compared to the Swedish general stock index called OMX during the past 20 years.

The chart above shows the return of 50,000 invested 20 years ago, in 1998, without any additional investments.

Getting ready for investments this autumn

The most important decision I can make as a trader is to decide when not to trade.

Unfortunately, this spring and summer have been plagued by tragedies which were private in nature. Early on I decided not to trade while this was going on. First and foremost trading is a psychological challenge. If I have another issue that puts a psychological toll on me I should not trade.

During this time it has been awesome to have other investments that have generated passive income for me. I mostly use the peer-to-peer lending service called Kreditbörsen (Credit Exchange) which I founded a while back.

At Kreditbörsen I receive constant returns of around 10 % per year without having to get engaged in any daily decisions. I simply enter how much I want to lend to each individual borrower to control my risk and then Kreditbörsen does the rest.

The chart above is copied from one of my accounts with Kreditbörsen. Since May 2017 I have kept 45,000 in my account and since then I have received 12 % return after tax which I think is a great base income.

I also have accounts with Toborrow but unfortunately, Toborrow only issues corporate loans while Kreditbörsen caters to private borrowers as well.

I draw from my experience as having operated a private lending business to individuals in Sweden since 2011 when I say that the risks with private debt in Sweden is much lower than corporate debt. The system that Sweden has implemented works and offers great protection for lenders using services like Kreditbörsen to issue loans.

How should capital be allocated? Obviously, this comes down to your goals and your level of commitment. I myself is placing 40 – 50 % of my capital in passive income services that generates between 8 – 15 % per year, this gives me a very strong base.

I am now using this warm summer to prepare for more trading activity during autumn!