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Denmark proposes taxation of dividends paid to foreign states — Orbitax Tax News & Alerts

  • The Danish Government has proposed taxation of dividends paid to foreign states as of 1 March 2023 and thereafter.

  • If enacted, dividends paid by Danish companies to foreign states and institutions that are an integrated part of foreign states will be subject to a 27% withholding tax that may be reduced to 22% (or lower if provided under a tax treaty) through a reclaim procedure.

On 23 September 2022, the Danish Government published a draft bill that introduces taxation of dividends paid by Danish companies to foreign states and institutions that are an integrated part of foreign states including sovereign wealth funds.

The proposal provides that foreign states and institutions will be subject to a 22% tax. The tax rate may be reduced pursuant to a tax treaty. A withholding tax rate of 27% will apply and a reduction to 22% or a lower rate under a tax treaty is available through a reclaim procedure.

If enacted the new rule will be applicable to dividends paid as of 1 March 2023 and thereafter.

Current legislation

Foreign states and institutions that are an integrated part of foreign states are currently exempt from Danish tax on dividends. An exemption may be obtained at source through a tax exemption certificate or through a reclaim procedure. Separate entities owned by foreign states are treated as corporates subject to ordinary Danish taxation.

Proposed legislation

The proposal provides that foreign states and institutions that are an integrated part of foreign states will be subject to a 27% withholding tax on dividends from Danish companies. The final tax rate under domestic law will be 22% as a foreign state should be entitled to a refund of 5%. A higher refund may be available under the terms of a tax treaty. The new taxation will not be applicable to dividends paid by certain Danish investment funds and investment companies.

The proposal will be effective for dividends paid as of 1 March 2023 and thereafter.

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For additional information with respect to this Alert, please contact the following:

EY P/S, Copenhagen

  • Jesper Frøkjær | jesper.froekjaer@dk.ey.com
  • Jens Wittendorff | jens.wittendorff@dk.ey.com