Proposal to change the withholding tax rules for certain share redemption procedures

On 17 May 2023, the Swedish Ministry of Finance submitted a proposal to the Legislative Council regarding changes to the Swedish Withholding Tax Act, which will remove the possibility to reduce withholding tax on distributions to non-resident shareholders by way of redemption procedures.

Generally, non-resident shareholders are subject to Swedish withholding tax on dividends from Swedish companies, unless an exemption applies. Payments to non-resident shareholders in connection with a share redemption procedure is also considered dividends within the meaning of the Swedish Withholding Tax Act, which means such redemption consideration is subject to withholding tax. However, since such consideration is taxed as capital gain rather than as dividend for resident shareholders, non-resident shareholders may apply for a reclaim of the withholding tax that is attributable to the acquisition cost of the shares or, for listed shares, 20% of the redemption amount. If non-resident shareholders, however, sell redemption shares to a third party, before they are redeemed, there should be no withholding tax on the disposal of redemption shares.

According to the proposal, the full consideration paid in connection with a share redemption is now proposed to be subject to Swedish withholding tax, without the possibility for non-resident shareholders to claim a refund for the withholding tax that is attributable to the acquisition cost of the shares. As such, non-resident shareholders would no longer be able to avoid withholding tax liability by way of selling shares received in connection with a share redemption procedure before such shares are redeemed.

The changes are proposed to enter into force on 1 January 2025 in order to give banks and the Swedish Tax Agency enough time to implement the necessary adjustments.