Sweden: Proposal to amend withholding tax on dividends paid to foreign recipients

The budget for 2022 provides an attempt to modernize the withholding tax regime.

The budget for 2022 provides an attempt to modernize the withholding tax regime.

The budget for 2022 addresses the withholding tax on dividends paid to foreign recipients.

The Swedish government previously planned to repeal the Withholding Tax Act (1970:624) with a new law on withholding tax on dividends paid to overseas recipients, and with the budget for 2022, the government has indicated it is ready to proceed with the change.

The budget for 2022 (as submitted to the Swedish Parliament on 20 September 2021) provides the following in an attempt to modernize the withholding tax regime:

  • The tax would be a withholding tax on dividends, and the tax rate would (as a starting point) be 30% of the gross dividend.
  • The legislation would be designed to prevent tax avoidance as far as possible, and the withholding tax on dividends would be covered by the provisions of the Tax Avoidance Act (1995:575).
  • Among other things, information in a tax return would need to be provided at an “individual level” to be able to receive a reduced tax rate directly at the time of the dividend payment (relief at source).
  • The tax would be withheld on dividends, and the company paying the dividends would be responsible for making the tax withholding. However, an agent who is an “approved intermediary” would be able to take over the responsibility for withholding, reporting, and paying withholding tax on dividends. In such a case, the responsibility would pass to the approved intermediary. 

The Swedish government intends to present the withholding tax proposal to the Parliament in 2022, with an expectation that the proposal would generally be effective 1 January 2024 (but effective 1 July 2023 for the provisions on approved intermediaries). Accordingly, the proposal would apply for the first time to dividends paid after 31 December 2023. 

KPMG observation

The budget announcement confirms the government’s plans to introduce a new withholding tax act on dividends, but that it will be postponed for one and a half years to include dividends paid after 31 December 2023 (instead of after 30 June 2022 as stated in a previously submitted memorandum from the Ministry of Finance). Read TaxNewsFlash

At this stage, the Swedish government has not announced any further details regarding proposed legislation on withholding tax on dividends. Because introduction of the bill is delayed, it could be possible for the proposal to be revised after receiving consultation responses and it could deviate from the Ministry of Finance’s previous proposal. 

Note that the Ministry of Finance’s previously remitted proposal includes a provision implying that the exemption from withholding tax on dividends on business-related shares would be limited only to dividends to companies within the European Economic Area (EEA). If implemented, dividends from Sweden to countries outside of the EEA would not be covered by the domestic exemption for business-related shares, but would be subject to Swedish withholding tax to the extent that follows from the applicable income tax treaty. If such a change is included in the final bill, it could mean a significant change for a large number of Swedish companies with parent companies outside the EEA.

Read a September 2021 report prepared by the KPMG member firm in Sweden

 

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