New Dividend Withholding Tax System in Denmark

June 12th 2020

On the 18 May 2020 Denmark announced its new dividend withholding tax regime. Under this new system relief at source will be granted to non-resident shareholders. It should be noted that shareholders need to have already registered their beneficial ownership with the Danish tax authorities in order to benefit from this.

Denmark had suffered from fraudulent claims resulting in suspension of all refund claims and therefore the overhaul of the system was an absolute necessity.

Currently there is a 27% withholding tax on dividends distributed to shareholders with non-residents being entitled to a lower rate of between 0%-15% depending on domestic law and any applicable double taxation treaties. This excess currently can only be claimed back by filing a refund application. This refund method has led to the complications for the Danish authorities.

Under the new system relief at source will be granted instead, subject to the shareholders having already registered their beneficial ownership with the Danish authorities prior to dividend distribution. In order to prevent the previous issues that fraudulent claims were making there is now also additional pressure on banks whereby they must be involved in the registration process and provide the shareholder with a withholding tax identification number which already indicates the correct withholding rate. Therefore the focus of fraudulent claims will be shifted from the investor to the bank therefore hopefully eliminating the problem.

As well as resolving the issues that Denmark has suffered from dishonest claims the above changes to the system should benefit legitimate distributions to shareholders eliminating the need to claim funds back, putting the responsibility on the banks and removing its current obstacle whereby legitimate claims are being suspended due to criminal activities.