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The withholding tax rate on dividend payments to foreign shareholders is at the outset 25 percent, but the rate may be reduced according to a tax treaty or a zero rate for companies covered by the Norwegian tax exemption method.
With effect from 1 January 2018 the rules regulating the way in which foreign shareholders are granted a reduced or zero rate at the time of dividend distribution are amended. Foreign shareholders are granted a more liberal access to reduced or zero rate than under current rules.
If the distributing company knows the identity and the taxable status of the foreign shareholder, this continues to be sufficient to distribute dividends with a reduced or even zero rate withholding tax. Under the new rules, the Norwegian distributing company or custodian (a custodian holds the shares in the Norwegian company as a nominee on behalf of the foreign shareholders) may also withhold at lower rates than 25 percent without carrying a potential liability for not having withheld sufficient taxes even if they do not know the identity and tax status of the foreign shareholder. The latter requires that certain documentation requirements are fulfilled towards the distributing company or the custodians.
In order to insure against such potential liability, the following documentation must be collected from the foreign shareholder:
It is important to note that the new rules represent an easing of the liability of the distributing companies. In cases where the tax withheld is lower than the foreign shareholders were entitled to, the distributing company will only be liable if they have acted negligently. Under the current rules the liability is objective.
It is equally important to note that the new rules introduce a stricter liability for custodians. If custodians cannot provide documentation that the foreign shareholders are entitled to the reduced or zero rate they have applied, they may become liable for these taxes. At the same time, the tax authorities maintain the current sanction to withdraw the custodians’ approval to operate with reduced or zero withholding tax.
Custodians, companies and foreign shareholders must pay attention to the new rules effective as of 1 January 2018.
For more information of the new documentation requirements please see the publication by the tax authorities:
Arntzen de Besche assists in both filing and requesting documentation and guiding shareholders, custodians and companies through the new legislation. Both the fact that this is new legislation and our experience with the processing time with the tax authorities suggest that these processes should be initiated at an early stage. We would of course be happy to assist you.