Withholding tax at source on dividends paid to nominee-registered shares
Tax at source must be withheld on dividends paid to a non-resident taxpayer. Tax at source is withheld in accordance with the Finnish Tax at Source Act unless a tax treaty or another international treaty is applied on the dividend at the time of payment.
When applying tax at source rates in accordance with Finnish legislation, the dividend beneficiary in accordance with Finland’s national legislation, i.e. the one who has the right to the dividend on the record date defined in the dividend distribution decision, must be determined. In this case, the tax treaty’s provisions on the beneficial owner are not significant.
Tax at source withheld on dividend
The amount of tax at source withheld on dividends paid to a non-resident taxpayer is
- 20% if the dividend beneficiary is a corporate entity
- 30% if the dividend beneficiary is other than a corporate entity
- 35 %, if the dividend is paid to a nominee-registered share and the dividend beneficiary is unknown
The tax at source rate of 20% can be applied on dividend income, if the foreign beneficiary is equivalent to a Finnish corporate entity. Finnish corporate entities include limited companies, cooperative enterprises, savings banks, mutual insurance companies, associations and foundations. The dividend beneficiary may provide, for example, a trade register extract or a certificate issued by the tax authority as a certificate of their legal form.
When the dividend beneficiary is not a corporate entity, the tax at source withheld is 30 %. The tax at source is 30 % when, for example, the dividend beneficiary is a natural person, a business operator or self-employed individual, or a partnership.
If the dividend payor or an Authorised Intermediary can report the identifying information of the dividend beneficiary in their knowledge to the Tax Administration in their annual information return, 30 % tax can be withheld on the dividend. In this case, the dividend payor or the Authorised Intermediary does not have tax liability on tax at source left unwithheld.
If the dividend beneficiary is unknown and thus the payor or the Authorised Intermediary cannot report the information on an annual information return to the Tax Administration, 35 % tax be withheld on the dividend.
Frequently asked questions
- Yes, if the authorised intermediary has the above information on the beneficiary, it can apply the 30% tax rate to dividend payments.
- The beneficiary's country of tax residence does not need to be investigated when the 30% tax-at-source rate is applied.
- When withholding 30% in tax at source and providing the above information about the beneficiary, the authorised intermediary can trust that no under-withholding occurs even if the interpretation or information is later found to be incorrect. The tax identification number must be given if it is available to the intermediary.
- Yes, if the authorised intermediary has the above information on the beneficiary and, in addition, an account saying that the beneficiary is comparable to a domestic corporate entity referred to in § 3 of the act on income tax (Tuloverolaki 1535/1992), it can apply the 20% tax rate to dividend payments.
- The beneficiary's country of tax residence does not need to be investigated when the 20% tax-at-source rate is applied.
- When withholding 20% in tax at source, the authorised intermediary can trust that it will not incur tax liability in a situation where it can produce a reliable account received from the dividend beneficiary.
- A non-resident beneficiary must be determined in the same way as a resident beneficiary is determined in purely national situations. A beneficiary is the party that has the right to the dividends, on the record date specified in the company’s decision to distribute dividends.
- The investor self-declaration can also be used when tax benefits based on national legislation are granted.
- In such a case, the authorised intermediary must see that the ISD contains sufficient information so that a national tax benefit can be granted.
- Accordingly, the authorised intermediary can apply the 20% tax-at-source rate to dividend payments if the ISD indicates that the beneficiary is comparable to a corporate entity referred to in § 3 of the act on income tax.
No, when national tax benefits are granted, it is not necessary to determine whether the dividend beneficiary is a beneficial owner under the tax treaty.
Tax exemption based on national legislation
The dividend beneficiary may be entitled to an exemption from tax at source based on national legislation.
The requirement for granting tax exemption based on national legislation when paying the dividend is that the fulfilment of the criteria for granting the tax exemption in question has been verified.
The dividend beneficiary must present evidence of this to the payor or the Authorised Intermediary. The type of the evidence depends on the criteria for granting the tax benefit in question and usually the requirement is a decision from the Tax Administration on the matter, such as tax at source card or an advance ruling.