Sweden’s parliament has approved legislation introducing a withholding tax exemption on dividends paid to foreign states and equivalent subnational public entities, aligning domestic rules with EU free movement of capital requirements and extending the relief to qualifying EEA and non-EEA jurisdictions from 1 July 2026.
Sweden’s parliament (Riksdag) approved legislation on 20 May 2026 introducing a withholding tax exemption for dividends paid to foreign states and foreign entities equivalent to Swedish regions, municipalities, or municipal associations.
The exemption covers dividends distributed by Swedish limited liability companies, European companies with a registered office in Sweden, as well as Swedish investment funds and special funds. It applies to entities located in European Economic Area (EEA) states and in non-EEA jurisdictions that have an exchange of information agreement with Sweden.
The reform follows rulings by the Court of Justice of the European Union and Sweden’s Supreme Administrative Court concerning the taxation of foreign public pension funds. In Decision C-39/23, Keva, the CJEU found that Sweden’s existing rules restricted the free movement of capital because dividends paid to Swedish public pension funds were exempt from withholding tax, while equivalent non-resident public pension funds remained subject to tax.
The government subsequently expanded the exemption beyond pension institutions to include foreign states and comparable local government entities to align Swedish legislation with EU law.
The parliamentary Tax Committee had recommended approval of the proposal.
However, opposition parties, including the Social Democrats, the Left Party, and the Green Party, called for a future review of the reform’s fiscal impact and raised concerns over the scope and clarity of the definitions used in the legislation. The committee rejected the request, referring to a broader ongoing review of Sweden’s withholding tax framework.
The measure will apply from 1 July 2026.
