Executive summary

The Swedish government on 9 June 2025 published a proposal to exempt foreign sovereign states and governments, as well as foreign entities equivalent to Swedish municipalities and regions, from withholding tax on dividends. The proposal follows the September 2024 judgment of the Court of Justice of the European Union (CJEU) in the Keva case (Keva, et al. v. Skatteverket, C-39/23), which held that Sweden's levying of withholding tax on dividends to foreign public pension funds was contrary to the free movement of capital. (For background, see Sweden | CJEU rules Swedish withholding tax on dividends to foreign public pension funds is contrary to free movement of capital, dated 13 September 2024.)

Although the proposed legislative changes are scheduled to enter into effect on 1 July 2026, an exemption is already expected to apply based on the application of European Union (EU) law. Accordingly, foreign public pension funds and state investors that have paid Swedish withholding tax on dividends should assess whether to file a reclaim.

Background

The new proposal aims to amend Swedish dividend withholding legislation referred to as the Coupon Tax Law (Swe: Kupongskattelagen, 1970:624). Under the proposal, foreign sovereign states and entities equivalent to Swedish municipalities and regions would be exempt from withholding tax on dividends from Swedish shares. The amendments are proposed to apply to dividends paid after 1 July 2026.

The proposal follows the CJEU's judgment in Keva and related Swedish Supreme Administrative Court (SAC) rulings issued on 19 December 2024, in which Sweden's levying of dividend withholding tax on dividends to foreign public pension funds was found to violate the free movement of capital as stipulated by EU law, because Swedish public pension funds are exempt from tax on dividends from Swedish companies (see HFD 2024 ref. 63, HFD 2024 not. 73 and HFD 2024 not. 74, available in Swedish only).

Previously, foreign states and entities equivalent to Swedish municipalities and regions were subject to withholding tax on dividends received from Swedish companies, which might be seen as a barrier to equitable treatment in the global investment landscape. The referenced CJEU and SAC rulings highlighted that imposing such taxes on foreign public entities could hinder the free movement of capital, a core principle in EU law.

Details of the new proposal

To qualify for the proposed exemption, foreign states and entities equivalent to Swedish municipalities and regions must either be located within the European Economic Area (EEA) or have entered into a tax treaty with Sweden that facilitates information exchange on tax matters.

The proposal states that the comparison between foreign authorities and municipalities and their (potential) Swedish counterparts must be made from both a Swedish and a foreign-state perspective. Although the entities are not required to be identical, the assessment should ensure that the similarities are significant enough to reasonably determine that the foreign entities correspond to Swedish (tax-exempt) entities.

The term "foreign state" in the new amendment would refer to public entities that are part of the foreign state, such as government authorities and public pension institutions. Publicly owned companies are explicitly not included in the term.

Implications

The proposed changes to the Swedish Coupon Tax Law mark a shift in Sweden's approach to taxing foreign states. By exempting state investors from withholding tax on dividends, the Swedish government adheres to the precedent set by the CJEU's ruling in the Keva case.

The proposed law changes could expedite processes for the Tax Agency by making it possible to rely on the legal framework for an exemption and not just on EU law. The proposal is therefore a welcome development and could make Swedish listed companies more appealing to certain foreign-state investors.

However, which foreign public entities will qualify for the exemption may not always be clear and will likely be decided on a case-by-case basis with appropriate documentation and support required. For example, it is possible that certain foreign state-owned companies may have a viable claim to be exempt from withholding tax under EU law and under the Keva precedent, despite not being included in the term "foreign state" in the proposed law changes.

Foreign states, public pension funds and entities similar to Swedish municipalities and regions can apply for withholding tax reclaims on dividends under EU law and recent rulings. The statute of limitations entails that such reclaims generally must be filed at the latest by the end of the fifth calendar year after the end of the calendar year in which the dividends were paid. Hence, reclaims for dividends paid in 2020 must be filed by 31 December 2025.