New WHT rules are applied to dividends paid as of the beginning of 2021.
With the legislation change, amendments were made to the Act on the Taxation of Non-resident Income (Laki rajoitetusti verovelvollisen tulon verottamisesta, 627/1978).
Registration as an Authorised Intermediary – Register open as of 1 January 2021
With the legislative change, Finland implements the OECD TRACE model (Treaty Relief and Compliance Enhancement model) by including direct TRACE reporting to the Finnish Tax Administration as well as the adoption of the Investor Self Declaration procedure.
The public Register of Authorised Intermediaries started operating on 1 January 2021. The new register replaces the former Custodian Register. It is not mandatory to register into the new register, but Authorised Intermediaries have certain benefits in comparison to non-registered intermediaries. Registered intermediaries can for example directly report dividend beneficiary information to the Tax Administration without having to send client information through the custody chain to other intermediaries.
After the legislative change, the issuer is still considered as the WHT agent and the issuer is responsible for the withholding. However, after the change, the responsibilities of the issuer depend on the following:
- if there is an Authorised Intermediary in the custody chain, the issuer is allowed to rely on the information provided by the Authorised Intermediary concerning the applicability of the double tax treaty; and
- in case there is no Authorised Intermediary in the chain, the issuer has the sole responsibility to levy the correct amount of WHT and collect the necessary information concerning the beneficial owner.
A corporation that operates custodial activities can submit an application for entry in the Register of Authorised Intermediaries. Generally, entities that are considered to be engaged in custodial activities include credit institutions, investment service companies and central securities depositories.
Application for registration to the Register of Authorised Intermediaries has been possible since July 2020. The Registered Authorised Intermediaries can be found on the Tax Administration’s website: Public Register of Authorised Intermediaries.
Obligations related to the registration
The obligations of an Authorised Intermediary include e.g.:
- investigating and ascertaining the beneficiary’s right to tax treaty benefits, when tax treaty benefits are granted to the beneficiary;
- submitting an annual return on the information of the beneficial owners;
- the tax liability for (partly or fully) unpaid WHT on dividends for which it has assumed responsibility; and
- potential responsibility for providing necessary information and tax liability on behalf of unregistered custodians.
Amendments to WHT amounts
The tax treatment of nominee-registered shares was amended as of 1 January 2021. The statutory rates applicable to individuals and corporate entities remain the same. Identified corporate entities are still subject to 20% WHT at source and identified individuals are still subject to 30% WHT at source. The change will not affect tax rates agreed upon via double tax treaties.
However, there are certain changes regarding the tax rates applied to nominee-registered shares.
For nominee-registered shares the current applicable WHT at source rate has been 30%, if the dividend beneficiary was unidentified at the time of payment. As of 1 January 2021, unidentified dividend beneficiaries will be subject to 35% WHT at source, if there is no knowledge of the applicable country of tax residence. The 30% WHT at source rate can still be applied, if the dividend distributing entity is a listed company or a registered Authorised Intermediary that has duly investigated the state of residency of the dividend receiver and the applicability of a double tax treaty as meant in the Act on the Taxation of Non-residents’ Income. In addition, the dividend distributing listed company and the registered Authorised Intermediary must provide the Tax Administration with specific identification information on the dividend recipient.
If a double tax treaty is not applicable, but the dividend distributing listed company or the registered Authorised Intermediary has the necessary identification information, the dividend is taxed pursuant to the normal WHT at source rate of 30%. If sufficient identification information is not provided to the Tax Administration, the dividend paid to nominee-registered shares is subject to WHT at source at the rate of 35%. In this case, the recipient of the dividend can apply for a WHT refund from the Tax Administration, if entitled.
Further, dividends paid to nominee-registered shares held by a Finnish tax resident are subject to a 50% WHT, if information on the dividend beneficiary is not given to the Tax Administration.
If you wish to discuss these topics, please contact: Castrén & Snellmann Attorneys Ltd., Helsinki
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