Norwegian companies are generally required to withhold tax on dividends paid to shareholders who are tax resident outside Norway. However, the rules can be complex, and both Norwegian tax law, tax treaties and EEA law may affect whether—and to what extent—withholding tax must be paid.
For both foreign investors and Norwegian companies distributing dividends, it is therefore important to have a clear understanding of the applicable rules.
What is withholding tax on share dividends?
Withholding tax is a tax deducted at the time the dividend is paid. The distributing company pays the tax to the Norwegian tax authorities before the dividend is transferred to the shareholder.
The purpose is to ensure Norwegian taxation of dividends derived from Norway, even where the recipient is resident or domiciled in another country.
The rules are primarily set out in sections 2-3 and 10-13 of the Norwegian Tax Act, as well as the Tax Payment Act and the Tax Payment Regulations.
Who is covered by the rules?
Withholding tax generally applies where the recipient of the dividend is tax resident outside Norway.
This may include:
- individuals resident abroad;
- foreign companies;
- investment funds; and
- foundations and other foreign legal entities.
The key factor is normally where the recipient is tax resident and whether the recipient is the beneficial owner of the dividend. Where an intermediary or custodian receives the dividend on behalf of others, an assessment must be made as to who is the actual recipient entitled to the income.
Which payments are subject to withholding tax?
Withholding tax primarily applies to ordinary dividend distributions from Norwegian limited liability companies.
In certain cases, other distributions may also be treated as taxable dividends under Norwegian tax rules. The tax classification of the distribution will therefore be decisive in determining whether withholding tax must be withheld.
What is the withholding tax rate?
Where no tax treaty exists between Norway and the recipient’s country of residence, the ordinary withholding tax rate is generally 25%.
If Norway has entered into a tax treaty with the recipient’s country of residence, the rate will often be lower. Many of Norway’s tax treaties provide for a maximum withholding tax rate of 15%, while some treaties provide even lower rates or full exemption for certain corporate shareholders.
The applicable rate depends, among other things, on:
- which country the recipient is resident in;
- whether the recipient is an individual or a company;
- the ownership interest in the Norwegian company; and
- whether the conditions of the relevant tax treaty are satisfied.
It is therefore not sufficient to know the general rate—the specific tax treaty must always be considered.
EEA companies may be exempt from withholding tax
An important exception applies to companies resident within the EEA.
Under Norwegian tax rules, dividends paid to foreign companies may be covered by the Norwegian exemption method if certain conditions are met. This means that, in many cases, no Norwegian withholding tax should be payable.
However, the exemption does not apply automatically. Among other things, the company must be genuinely established and carry out genuine economic activity in its country of residence. Norwegian tax authorities often perform a specific assessment of these conditions.
Who is responsible for withholding the tax?
The Norwegian company paying the dividend is responsible for calculating, withholding, reporting and paying the withholding tax.
If the company does not have sufficient documentation regarding the shareholder’s tax residence or the conditions for a reduced withholding tax rate, the general rule is that ordinary withholding tax must be deducted.
This makes proper documentation particularly important for both the company and the foreign shareholder.
Can excessive withholding tax be reclaimed?
If a higher amount of withholding tax has been deducted than what follows from a tax treaty or Norwegian law, the foreign shareholder may generally claim a refund.
This requires, among other things, that the recipient documents:
- tax residence or domicile;
- that the recipient is the beneficial owner of the dividend;
- the amount of dividend received; and
- the amount of withholding tax actually deducted.
In certain cases, shareholders resident within the EEA may also be entitled to a further reduction through the shield deduction.
Conclusion
Although the general rule is that dividends paid to foreign shareholders are subject to Norwegian taxation, tax treaties, EEA rules and the exemption method may result in reduced taxation or full exemption.
For Norwegian companies, correct withholding and reporting are essential to comply with statutory obligations. For foreign investors, correct application of the rules may have significant financial implications, both when determining the withholding tax liability and when seeking a refund of excess tax paid.
