Managing Dividend Withholding Tax for Foreign Shareholders: A Comprehensive Guide

Learn about the documentation requirements for a reduced withholding tax rate, and the steps involved in obtaining pre-approval and refund of taxes from the Norwegian Tax Administration.

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Understanding Withholding Tax Deductions on Dividends

‍Foreign shareholders who receive dividends from Norwegian companies may face taxation in Norway. In cases where the distributing company lacks information about the foreign shareholder's identity and tax status, a standard 25 percent withholding tax is applied to dividends.

However, there's an opportunity to apply a reduced withholding tax rate based on a double taxation treaty or a 0 percent tax rate using the exemption method in the Norwegian Tax Act. This reduction is contingent upon the shareholder providing sufficient documentation to prove their eligibility for a reduced withholding tax rate.

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Documentation Requirements for Reduced Withholding Tax Rate

‍Shareholders need to submit documentation before the tax deduction, typically before the dividend distribution. This requirement applies to both shares registered in VPS (the Norwegian Central Securities Depository) and those not registered in VPS. The documentation must establish the shareholder's entitlement to a reduced withholding tax rate.

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Rules for Corporate Shareholders

‍Corporate shareholders, distinct from private individuals, can also benefit from a reduced withholding tax rate under a tax treaty or qualify for exemption under the exemption method (section 2-38 of the Norwegian Tax Act). The documentation requirements for both scenarios are outlined below.

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Documentation for Reduced Withholding Tax Rate under a Tax Treaty

1. Documentation proving entitlement to a reduced withholding tax rate under a double taxation treaty, such as a decision on the refund of withholding tax or a pre-approval letter from the Norwegian Tax Administration.
2. A certificate of residence issued by the shareholder's country of residence, confirming compliance with the relevant tax treaty with Norway. This certificate should not be older than three years at the time of the tax deduction.
3. Confirmation from the shareholder regarding their status as the beneficial owner of the dividends.

Documentation for Exemption from Withholding Tax under the Exemption Method

1. Documentation establishing entitlement to exemption from withholding tax under the exemption method in the Norwegian Tax Act, like a decision on the refund of withholding tax or a pre-approval letter from the Norwegian Tax Administration.
2. A certificate of residence or registration certificate demonstrating the shareholder's residence in an EEA country. This certificate should not be older than three years at the time of the tax deduction.
3. A statement from the shareholder confirming that the basis for the tax exemption status remains unchanged. This statement should not be older than three years at the time of the tax deduction.
4. Confirmation from the shareholder regarding their status as the final dividend recipient.

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Conclusion

‍Effectively managing dividend withholding tax for foreign shareholders involves understanding the rules, documentation requirements, and the application process for reduced withholding tax rates. Feel free to contact ECOVIS' legal department for advise on how to obtain a reduced withholding tax rate on dividends from Norwegian companies.

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