New proposal on exemptions from the Swedish Withholding Tax Act for foreign states

On 27 January 2026, the Government Bill "An exemption in the Withholding Tax Act for foreign states" was published, which proposes to exempt foreign states and foreign equivalents of Swedish regions, municipalities or associations of municipalities from withholding tax (WHT) on dividends. The publication signifies that the legislative process has progressed and is approaching a finalized bill.

The bill is based on Keva, et al v Skatteverket (C-39/23) (the Keva case), where the Court of Justice of the European Union (CJEU) ruled that the Swedish Withholding Tax Act is not compatible with the free movement of capital in Article 63 of the Treaty on the Functioning of the European Union (TFEU), as withholding tax is levied on dividends from Swedish holdings to foreign public pension funds, while the corresponding dividend is not subject to taxation if it accrues to Swedish public pension funds. You can read more about the Keva case here.

The Government notes that the legal effects of the Keva case cannot be limited to foreign public pension institutions, but that the exemption must, in order to be compatible with EU law, also be extended to foreign equivalents of other Swedish tax-exempt entities that are covered by the tax exemption for the state and municipalities. 

The new exemption thus means that foreign states and their equivalents to Swedish regions, municipalities and associations of municipalities are no longer liable to pay WHT on dividends from Swedish holdings. The bill states that the term foreign state also refers to bodies governed by public law that are part of the foreign state, such as government authorities and public pension institutions. However, publicly owned companies are not covered by this term.

The principle of free movement of capital also applies to third countries, and the exemption from WHT is thus proposed to apply to the above-mentioned entities both within the EEA and outside, as long as the state in question has entered into a tax treaty or other agreement with Sweden that allows for the exchange of information in tax matters.

The assessment of whether a foreign entity can be considered equivalent to a Swedish public law entity must be made from both a Swedish and a foreign perspective. No absolute identity is required, and the assessment is made on a case-by-case basis. In order not to risk an application contrary to the EU law, that no specific criteria be set for this assessment. The criteria for comparability are instead left to the application of the law. 

The amendments are proposed to enter into force on 1 July 2026.

In principle, the bill contains the same information as the previous draft legislation and the referral to the Council on Legislation, which KPMG has written about. What is being introduced is a broad exemption for foreign states and foreign equivalents of Swedish regions, municipalities and associations of municipalities, including public law bodies such as government agencies and public law pension funds. Our assessment is that this may also include, for example, sovereign wealth funds, i.e. state-owned and controlled investment funds that manage a country's assets for investment purposes. It is important to note that, according to our interpretation, it should not be decisive whether those investments are made in the name of the foreign State, which can be compared to Keva investing in its own name in that case. Foreign municipal, ecclesiastical and regional pension funds, for example, should also be covered, as has been confirmed in both the Keva case, and in subsequent case law recently in Swedish lower courts.  

Although there is no more detailed definition of what is meant by 'corresponds', the interpretation should, in our opinion, be broad if one takes into account that the Swedish exemption has a broad purpose and does not set up special requirements, in addition to domicile, more than being state or municipal. There can therefore be no question of a detailed comparability assessment. However, it remains to be seen how the exemption is interpreted by the Swedish Tax Agency.   

It is already possible for the said investors to apply for a refund of WHT, up to five years back, with reference to EU law and the Supreme Administrative Court's rulings. To apply for a refund, an application must be submitted to the Swedish Tax Agency.

You are welcome to contact us if you have any questions!

Read more:
The article in Swedish