A new Withholding Tax Act

The Swedish government has previously had plans to repeal the Withholding Tax Act (1970:624) (“WTA”) and to pass a new law on withholding tax on dividends to overseas recipients. The government now wants to proceed with the proposal. This was announced in the budget for 2022 submitted to the Swedish Parliament on September 20th, 2021, which e.g. stated the following:

The WTA is in need of modernization. This applies to both the editorial and linguistic design, as well as the technical deign of the regulations. The current rules also need to be adapted to EU law in several respects. Furthermore, it is important that the regulations cannot be circumvented. Some changes have been specifically mentioned:

• The tax should be called withholding tax on dividends and, as today, the tax rate should as a starting point be 30 percent on the gross dividend.
  
• The legislation should be designed to prevent tax avoidance as far as possible
  
• Withholding tax on dividends should be covered by the provisions of the Tax Avoidance Act (1995:575).
  
• Among other things, a requirement should be introduced to provide information at an individual level in a tax return in order to be able to receive a reduced tax rate directly at the time of the dividend payment (relief at source).
  
• Tax should be withheld on dividends and the company paying the dividends should have the basic responsibility for making the tax deduction. However, an agent who is an ‘approved intermediary’ should be able to take over the responsibility for withholding, reporting, and paying withholding tax on dividends. In such a case, the obligation to withhold tax passes to the approved intermediary. 
  

The Ministry of Finance remitted the memorandum New law on withholding tax on dividends, DS 2020:10 (sw pdf 2MB) in April 2020 (for further reading, please see a previous issue of TaxNews). The Swedish government intends to get back to the Swedish Parliament in 2022 with a proposal. The proposal should enter into force on July 1st, 2023, in respect of the provisions on approved intermediaries, and otherwise on January 1st, 2024. The proposal should be applied for the first time in respect of dividends paid after December 31st, 2023. 

The budget announcement is important since we now have been informed that the plans to introduce a new withholding tax act on dividends will be postponed one and a half years to include dividends paid after December 31st, 2023 (instead of after June 30th, 2022 as stated in the Ministry of Finance’s previously submitted memorandum). 

At this stage, the Swedish government does not announce any further details regarding the new law on withholding tax on dividends. As the bill is delayed, however, it is not impossible for the remitted proposal to be revised after receiving consultation responses and to partly deviate from the Ministry of Finance’s previous proposal. 

It could be noted 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 is limited only to dividends to companies within the 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 be subject to Swedish withholding tax to the extent that follows from the applicable double tax treaty. If such a change is included in the final bill, it would of course mean a significant change for a large number of Swedish companies with parent companies outside the EEA. The Swedish government’s forthcoming proposal is thus followed with great interest by foreign companies outside the EEA that have invested or intend to invest in Sweden through Swedish companies. 

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