Dividends from Norwegian companies to foreign shareholders - Documentation requirements for reduced withholding tax rate

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As of 1 January 2019, new rules concerning the application of a lower withholding tax rate than 25 per cent will apply on dividend distributions from Norwegian companies to foreign shareholders. The new rules were originally schedule to enter into force on 1 January 2018 (which originally represented a one year postponement). A further one year postponement of the entry into force of the new rules have however been implemented, in order to give the parties affected by the rules adequate opportunity to ensure that the documentation requirements are met in time for the entry into force of the rules.

The new rules are implemented in Sections 5-10a in the Regulations pursuant to the Tax Payment Act (henceforth: new Regulations), but with a postponed entry into force until 1 January 2019. The new Regulations can be found here.

Under the new rules, documentation requirements are introduced for the application of a lower withholding tax rate than 25 per cent on dividends payed on shares registered in the Norwegian Central Securities Depository (VPS):

  • For shares registered on a NOM (nominee) account in VPS, the custodian must receive the documentation described in section 2 below, for the application of a reduced or zero withholding tax rate on dividends, pursuant to a double taxation treaty or the Norwegian exemption method, cf. Section 5-10a-1 in the new Regulations. The same requirements will apply to shares registered on segregated accounts in VPS.

The new documentation requirements will also apply to dividends distributed on shares not registered in VPS; see section 3 below.

The current regime that permits foreign custodians to have VPS accounts (NOM accounts) with a withholding tax rate of less than 25 per cent will lapse when the new documentation rules enter into force 1 January 2019. A foreign custodian who still wishes to have such accounts in VPS must apply for a new permit; see section 4 below.

One of the new documentation requirements which will apply, is that shareholders who are not natural persons, must document their entitlement to a reduced withholding tax rate in accordance with a double tax treaty or with the Norwegian exemption method, by either (i) presenting an approved withholding tax refund application or (ii) present an approval from the Norwegian tax authorities confirming the dividend recipient's entitlement to a reduced withholding tax rate. This applies to both shares registered in VPS and shares that are not registered in VPS. The approval regime is described under section 5 below.

The rules were announced by the Ministry of Finance in connection with the introduction of the new Tax Administration Act. For a more detailed description of the background to the rule changes, see Proposition no. 38 L (2015 – 2016) item 15.2.7.

 

The new rules will be incorporated into the Regulations pursuant to the Tax Payment Act.

2. Documentation requirements for VPS-registered shares

For shares registered in VPS, the main rule will be that, if the dividend-paying company does not know the identity or tax status of the actual dividend recipient, the company must deduct withholding tax of 25 per cent from the dividend payment.

The actual dividend recipient (the foreign shareholder) may qualify for a withholding tax rate of less than 25 per cent. The account operator or custodian may register shares on an account in VPS with a withholding tax rate of less than 25 per cent.

For shares that are registered on an account in a foreign custodian's name (NOM account or an account that states the dividend recipient's name), and for shares registered on an account in the actual dividend recipient's name (segregated account), there may only be applied a withholding tax rate of less than 25 per cent pursuant to a tax treaty or the Norwegian exemption method  when the following information has been submitted to the custodian (NOM accounts) or account operator (segregated accounts) respectively:

  • for personal dividend recipients who claim a reduced withholding tax rate pursuant to a tax treaty:
    • A certificate of residence issued by the tax authorities in the shareholder's country of residence, expressly confirming that the shareholder is resident there in accordance with the relevant double tax treaty with Norway. The certificate of residence must not be older than three years at the time of the dividend payment. This means that it is not sufficient for a certificate of residence to be obtained at the request of or due to a control by the tax authorities.
  • for dividend recipients who are legal persons and other entities (shareholders who are not natural persons) that claim a reduced withholding rate tax pursuant to a double tax treaty:
    • Documentation of previously received withholding tax refund or approval from the Norwegian tax authorities that the shareholder is entitled to a lower withholding tax rate under a double tax treaty. The documentation will remain valid as long as the factual circumstances on which the received tax refund or approval from the Norwegian tax authorities is based remain unchanged.
    • A certificate of residence issued by the tax authorities in the shareholder's country of residence, expressly confirming that the shareholder is domiciled there in accordance with the double tax treaty with Norway. The certificate of residence must not be older than three years at the time of the dividend payment.  This means that it is not sufficient for a certificate of residence to be obtained at the request of or due to a control by the tax authorities.
  • for dividend recipients who are company shareholders domiciled in the EEA area:
    • Documentation of previously received withholding tax refund or approval from the Norwegian tax authorities that the shareholder is entitled to tax exemption under the Tax Act, Section 2-38. The documentation will remain valid as long as the factual circumstances on which the received tax refund or approval from the Norwegian tax authorities is based remain unchanged.
    • A confirmation certifying that the shareholder is domiciled in an EEA country, as well as a statement from the shareholder confirming that the basis for the tax-exemption status remains unchanged. The confirmation and the statement must not be older than three years at the time of the dividend payment.  This means that it is not sufficient for the confirmation and statement to be obtained at the request of or due to a control by the tax authorities
  • In addition, for all dividend recipients: confirmation from the dividend recipient that they are the beneficial owner of the dividend.

For further details of what "approval from the Norwegian tax authorities" entails, see section 5 below.

3. Shares not registered in VPS

For shares not registered in VPS, the main rule will be that, if the Norwegian dividend-paying company does not know the identity or tax status of the beneficial dividend recipient, the company must deduct withholding tax of 25 per cent from the share dividend. It is often easier for companies with shares not registered in VPS to have knowledge of its shareholders' identity and tax status. The specific documentation requirements will therefore not apply absolutely for dividend payments on shares not registered in VPS, provided that the dividend-paying company is able to confirm the shareholders' identity and tax status by other means. The Norwegian Tax Directorate has commented on this in the following statement.

Dividend-paying companies may however always, deduct withholding tax of less than 25 per cent without incurring any liability for deficient withholding tax deductions, if the company has received the following documentation from a shareholder (same documentation requirements as for shares registered in VPS):

  • for personal dividend recipients who claim a reduced withholding tax rate pursuant to a tax treaty:
    • A certificate of residence issued by the tax authorities in the shareholder's country of residence, expressly confirming that the shareholder is resident there in accordance with the relevant double tax treaty with Norway. The certificate of residence must not be older than three years at the time of the dividend payment. This means that it is not sufficient for a certificate of residence to be obtained at the request of or due to a control by the tax authorities.
  • for dividend recipients who are legal persons and other entities (shareholders who are not natural persons) that claim a reduced withholding rate tax pursuant to a double tax treaty:
    • Documentation of previously received withholding tax refund or approval from the Norwegian tax authorities that the shareholder is entitled to a lower withholding tax rate under a double tax treaty. The documentation will remain valid as long as the factual circumstances on which the received tax refund or approval from the Norwegian tax authorities is based remain unchanged.
    • A certificate of residence issued by the tax authorities in the shareholder's country of residence, expressly confirming that the shareholder is domiciled there in accordance with the double tax treaty with Norway. The certificate of residence must not be older than three years at the time of the dividend payment.  This means that it is not sufficient for a certificate of residence to be obtained at the request of or due to a control by the tax authorities.
  • for dividend recipients who are company shareholders domiciled in the EEA area:
    • Documentation of previously received withholding tax refund or approval from the Norwegian tax authorities that the shareholder is entitled to tax exemption under the Tax Act, Section 2-38. The documentation will remain valid as long as the factual circumstances on which the received tax refund or approval from the Norwegian tax authorities is based remain unchanged.
    • A confirmation certifying that the shareholder is domiciled in an EEA country, as well as a statement from the shareholder confirming that the basis for the tax-exemption status remains unchanged. The confirmation and the statement must not be older than three years at the time of the dividend payment.  This means that it is not sufficient for the confirmation and statement to be obtained at the request of or due to a control by the tax authorities
  • In addition, for all dividend recipients: confirmation from the dividend recipient that they are the beneficial owner of the dividend.

For further details of what "approval from the Norwegian tax authorities" entails, see the description in section 5 below.

4. Permission for custodians to register shares on NOM accounts at a reduced withholding tax rate

Based on current tax administrative practice, foreign custodians maybe granted permission from the Central Tax Office - Foreign Tax Affairs (SFU) for the registration of shares on a VPS account (NOM account) at a reduced withholding tax rate.

An equivalent regime will be established as of 2019, however now with basis in the new Regulations Section 5-10a-2. All permits issued to foreign custodians pursuant to the current administrative practice will therefore lapse from 1 January 2019.

Foreign custodians who wish to have NOM accounts with withholding tax rates lower than 25 per cent after 1 January 2019 must apply to SFU for a new permit in accordance with the rules applying as from 2019.

Such applications are being processed throughout 2018.

Application requirements

An application for permission to have a NOM account with a reduced rate (including zero rates) must include the following:

  • Confirmation from the custodian that they will provide information about the identity of the beneficial owner of the dividend payment, on request and within the deadline determined by the tax office. The information must be up-to-date as of the date it was resolved to pay the dividend, and must include the dividend recipient's name, address, country of residence for tax purposes, tax identification number in the country of residence, (alternatively social security number or company identification number), as well as the number of shares subject to lower tax and the tax rate applied, cf. new Section 5-10a-2 in the Regulations pursuant to the Tax Payment Act.
  • Confirmation from the custodian that they will produce documentation concerning each beneficial owner of dividend payments, in line with the applicable documentation requirements, on request and within the deadline determined by the tax office, with reference to section 2 above.
  • A copy of permission pursuant to the Act of 5 July 2002 No. 64 on the Registration of Financial Instruments (Securities Register Act) Section 6-3, issued by the Financial Supervisory Authority of Norway to be registered as a custodian in VPS. (In cases where significant changes have occurred after granting the permit, a new permit must be obtained.)
  • The VPS account numbers of NOM accounts to be registered with reduced rates, where available.

Applications and attachments must be sent to:

Central Tax Office - Foreign Tax Affairs (SFU)
Postboks 8031
4068 Stavanger, Norway

5. Application for approval as an entity entitled to a reduced withholding tax rate or exemption from withholding tax

The new documentation requirements mean that shareholders (actual dividend recipients) who are not natural persons must document their entitlement to a reduced withholding tax rate of less than 25 per cent in accordance with a double tax treaty or with the Norwegian exemption method, by either (i) presenting an approved withholding tax refund application or (ii) present an approval from the Norwegian tax authorities confirming the dividend recipients' entitlement to a reduced withholding tax rate. When the shares are registered in VPS, the documentation must be presented for either the nominee (NOM accounts) or the account operator (segregated accounts); see the description in section 2 above. For shares outside of VPS, documentation must be presented directly to the dividend-paying company; see the description in section 3 above.

This approval scheme allows shareholders who are not natural persons to avoid having to submit an application for a withholding tax refund in order to document their entitlement to a withholding tax rate lower than 25 per cent.

Shareholders who are not natural persons and who have not previously received a withholding tax refund may apply for such approval as of 2017.

An approval will remain valid as long as the actual conditions on which the approval is based remain unchanged.

Application requirements

The application for approval must give an account of and document that the conditions for either a reduced withholding tax rate under a double tax treaty or exemption from withholding tax under the Norwegian exemption method are met. If you wish to apply for a reduced withholding rate pursuant to a special provision in a double taxation treaty, this should be specified in the application.

Applications for exemption from withholding tax under the Norwegian exemption method should include an explanation of the foreign entity's company form (legal structure) and an assessment of which Norwegian company type the foreign entity corresponds to.  The shareholder must also be engaged in genuine business activity through an establishment in an EEA country, and should include an explanation or documentation when needed to substantiate the fulfilment of set condition, cf. paragraph 5 in the Norwegian Tax Act Section 2-38. 

The application must also contain the following information and documentation:

  • Full name and address of the dividend recipient (and of its representative, where relevant).
  • For applications under a double tax treaty: A certificate of residence from the tax authorities in the country where the dividend recipient is domiciled. The certificate of residence must be issued by the tax authorities and refer to the double tax treaty with Norway. The certificate of residence must not be more than six months old.
  • For applications under the Norwegian exemption method: A confirmation certifying that the shareholder is domiciled in an EEA country. The confirmation must not be more than six months old.
  • Proxy (if the application is not signed by the actual dividend recipient).

No special form is required to make such an application. The Tax Administration will consider designing a standard form for such applications.

Applications and attachments must be sent to:

Central Tax Office - Foreign Tax Affairs (SFU)
Postboks 8031
4068 Stavanger, Norway

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