New withholding tax on dividends announced in the Government’s budget proposal

Background

In the budget proposal for 2022, presented on 20 September 2021, the Swedish Government announced that the Withholding Tax Act (Sw. Kupongskattelagen) should be abolished and replaced with a new law for withholding tax on dividends to non-Swedish tax resident persons.

The Government motivates their announcement by stating that the current Withholding Tax Act needs a linguistic and technical modernization. The current regulation further needs to be adjusted to EU law in several aspects. It is also important that the rules cannot be circumvented.

The Government stated, more specifically, that the tax rate should remain at 30 % for dividends as a starting point. There should be requirements to leave information on an individual basis in the tax returns to obtain a reduced tax rate directly at the time of the dividends (Sw. Direktnedsättning). The Swedish Tax Evasion Act (Sw. Skatteflyktslagen) should be applicable on the new withholding tax law. The procedural rules in the current Withholding Tax Act should be incorporated into the Swedish Tax Procedural Act (Sw. Skatteförfarandelagen). The withholding of tax on dividends should be administered through tax deductions and even if the main responsibility to make such tax deductions should be placed on the dividend distributing company, an approved middleman (Sw. Godkänd mellanhand) should be able to take over the responsibility.

The coming proposal should enter into force on 1 January 2024 but the rules concerning approved middlemen should come into effect on 1 July 2023. The new withholding law should therefore be applied for the first time on dividends distributed after the 31 December 2023.

The Government intends to revert to the Parliament with a proposal for new law during 2022.

Deloitte comments

The Ministry of Finance submitted a proposal for a new law concerning withholding tax on dividends on 29 April 2020, that Deloitte has described earlier (New Swedish law for withholding tax on dividends (deloitte.com)). The new announcement from the Government does not imply any changes in relation to the previous proposal, except for that the entry into force has been postponed with 1.5 years.

The proposal from the Ministry of Finance has been criticized by several consultative bodies and it cannot be ruled out that the future bill, which now will be delayed until 2022, may be reworked and deviate from the previous proposal in several aspects.

The new announcement from the Government implies that there is strong reason to follow the development and we will likely need to get back on the matter.