On 7 June, the Swedish Ministry of Finance published a revised draft of a new statute on withholding tax on dividends (Swedish Dividend Withholding Tax Act), with several amendments compared to the Memorandum that was sent out for consultation in April 2020. The draft legislation entails fundamental changes for both foreign recipients of dividends and Swedish companies that distribute dividends compared to the current Swedish Withholding Tax Act, both in terms of liability to tax and procedure.

In summary, the proposal includes i.a. the following:

  • Withholding tax will be levied at 30% (as at present) on dividends from Swedish limited companies, Swedish European companies, Swedish investment funds, and, according to the proposal, also on dividends from non-profit associations.
  • A taxable person/entity is any party who is not subject to unlimited taxation in Sweden and who is entitled to the dividend at the time of distribution.
  • The Swedish Tax Procedures Act will apply to withholding tax on dividends.
  • In order to maintain the requirement for information at the individual level, but still to allow for direct reductions, a system of “approved intermediaries” is proposed.
  • As a general rule, the company, non-profit association or approved intermediary that pays out taxable dividends must withhold tax.
  • The tax withholding must be reported in a separate tax statement no later than four months after the date of the distribution. The withholding tax shall be decided on a case-by-case basis for each occasion of distribution of dividends.
  • It is proposed to extend the scope of the Swedish Tax Avoidance Act to include withholding tax on dividends.

Some preparatory work remains to be done before the new proposal for a new legislative enactment on withholding tax at source on dividends can become a reality. The Government of Sweden has launched a new round of consultations seeking comments, with a cut-off date of 7 October this year. The proposed legislative amendments are intended to be adopted and in force from 1 July 2023 and be applied from 1 January 2024.

KPMG's comments

The exemption for business-related ownership interests/shares

The draft clarifies that the business related shares exemption (sw näringsbetingade andelar) will not be limited to recipients within the EEA, as proposed in the 2020 Memorandum. The exemption is therefore proposed to continue to apply to recipients also outside the EEA.

New tax return reporting obligation

Compared to the existing Swedish Withholding Tax Act, one of the major changes proposed is the introduction of a new procedure for filing a tax return. Under the proposal, the tax returns are to be submitted by the entity who is under an obligation to withhold tax on dividends, i.e. the distributing legal entity or an intermediary, such as a central securities depository, approved by the Swedish Tax Agency. Under the proposal, such a tax return would have to be submitted at each occasion a distribution was made. The tax return must contain several details on the dividend itself, the shares upon which the distribution of dividends is paid out, and the recipients of the dividend payment. It is proposed that the party liable to file the tax statement must indicate, inter alia, the tax residence of the recipient of the dividend and the amount of the deduction for taxes made for each of the recipients liable to tax under the new legislation on withholding tax on dividends.

In order for the obligation to file a tax return to arise for a company, non-profit association or approved intermediary paying out dividends, it is sufficient that one or more of the beneficial owners of the dividend is liable for tax under the Swedish Dividend Withholding Tax Act. At the same time, to enable the tax returns to be prepared, taxpayers are required to provide the necessary information to the party responsible for preparing the tax return. In connection with this, a possibility is introduced for the Swedish Tax Agency to impose a tax surcharge on a person/entity liable to withholding tax on dividends if incorrect information has been provided to the intermediary or the company or association that has paid the dividend.

Tax liability

As a general rule, it is proposed that all persons/entities who are not subject to unlimited taxation in Sweden should be subject to withholding tax on dividends. This represents a change from the existing Swedish Withholding Tax Act. The current Swedish Withholding Tax Act’s restriction to foreign legal entities means that withholding tax cannot be levied on dividends paid to a foreign association with limited tax liability that is not a foreign legal entity, such as foreign contractual funds and trusts. Under the proposal, this restriction is now removed, so that such recipients are also subject to withholding tax.

Furthermore, it is the “entity entitled to the dividend” (sw. den som har rätt till utdelningen) at the time of the distribution who has a liability for the tax (as opposed to the “beneficial owner of the dividend” (sw. utdelningsberättigad) under the current Withholding Tax Act, which is defined as “the entity entitled to collect the dividend for its own benefit”). The current draft differs slightly in the interpretation of “the entity entitled to the dividend” compared to the proposal of the Memorandum, which suggested that the interpretation should be closer to the meaning of the term “beneficial owner” in an international context. In the current draft, the Government of Sweden considers that the basis for tax liability should be the civil law entitlement to the dividend, even if the civil law entitlement to the dividend is limited in respect of the disposition of the funds received. However, this should not mean that the legal owner (beneficial owner) is automatically regarded to be the person/entity entitled to the dividend.

Exemption from withholding tax at source

The exemptions from withholding tax are numerous and most of them have a counterpart in the current Swedish Withholding Tax Act. However, new exemptions are proposed to codify case law of the Court of Justice of the European Union. For example, dividends are exempt from withholding tax if the entity entitled to the dividend is a foreign equivalent of a Swedish foundation, non-profit association, registered religious community, or other such legal entity that is not liable for tax on dividend income in Sweden according to the Swedish Income Tax Act. The same applies to foreign insurance and occupational pension funds that receive dividends relating to insurance or occupational pension contracts that are subject to Swedish yield tax in the hands of the policyholder. It can also be noted that the exemption for qualifying investment funds (foreign equivalents of mutual and special funds) remains broadly intact. In addition, the deferral of withholding tax for loss making recipients (Sofina case) remains the same as previously.

In the same spirit, in order to codify EU case law, the proposal allows natural persons and legal entities to deduct from the taxable dividend, expenses directly related to the receipt of the dividend.

A further difference compared to the current Swedish Withholding Tax Act and the Memorandum is that the exemption for foreigners with diplomatic status, foreign missions and others, is proposed to be removed.

However, unlike the proposal in the 2020 Memorandum, the proposal to exempt foreign states, municipalities and governmental authorities has been scrapped.

The Tax Avoidance Act can be applied

For the purpose of preventing abuse, it is proposed to extend the scope of the Swedish Tax Avoidance Act to include withholding tax on dividends. In the previous version of the proposal, it was suggested that the Tax Avoidance Act should be redrafted at the same time to allow for a wider range of legal outcomes. Instead, the redrafted proposal is satisfied with a minor amendment to the Swedish Tax Avoidance Act to make it also applicable to withholding tax on dividends.

At the same time, it is also proposed to include a specific tax avoidance provision in the Swedish Dividend Withholding Tax Act, covering practices “predominantly aimed at obtaining an undue tax benefit.” This is intended to replace the anti-abuse rule in the current Swedish Withholding Tax Act. Like the anti-abuse rule, the new tax avoidance provisions mean that natural persons and legal entities who pay income tax in Sweden (are subject to unlimited taxation) may need to pay withholding tax on a dividend in some circumstances. However, the new tax avoidance provisions are intended to be more easily applied by clearly targeting known abuses. The draft gives several examples of how the rule can be applied, for example in cases of circumvention of the law by means of loans on shares, “treaty shopping,” and via the acquisition of dividends.

The proposal explains that both the Tax Avoidance Act and the special tax avoidance provisions can be applied, as the Tax Avoidance Act can be used to deal with unforeseen methods of evading withholding tax on dividends not covered by the special tax avoidance rule. The Tax Avoidance Act could also be used to tax the beneficial owner of a dividend, according to the proposal.


The differences compared to the heavily criticised 2020 Memorandum are not very significant, however the Ministry of Finance has to some extent responded to the criticism, for example with regard to the exemption for business-related shares. Nevertheless, it is questionable whether the proposal has sufficiently modernised the withholding tax system in Sweden and whether the proposed procedure is appropriate. For example, there is no explicit possibility for a “zero tax card", similar to the one in Finland, which makes the practical application more difficult and means that an application for a refund will still be required to a large extent in order to obtain a reduction under many of the exemptions.

At the same time, the EU has launched an initiative to introduce a common EU-wide system of withholding tax on dividends and interest payments within the EU. The timing of the new legislation on withholding tax in Sweden is therefore somewhat unfortunate.

As mentioned above, a consultation period now follows, which will end on 7 October 2022.

If you have any questions, concerns, or would like to pass on comments on the Government’s draft, please do not hesitate to contact us. 

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