The Swedish Tax Agency released updated guidance on the application of the Most-Favoured-Nation (MFN) clause in the 1995 tax treaty with South Africa on 18 March 2025.
According to updated guidance, The Swedish Tax Agency has stated that the MFN clause in the tax treaty between Sweden and South Africa only applies to dividends that are taxable in the source country under Article 10, paragraph 2(a). Dividends taxable under Article 10, paragraph 2(b) are not covered by the MFN clause (Swedish Tax Agency’s statement on which dividends are covered by the MFN clause in the tax treaty with South Africa).
This means that the reduced withholding tax rate in Article 10, paragraph 2(a) of the Sweden-South Africa tax treaty does not apply. Instead, such dividends should only be taxed in the recipient’s country of residence during the period when the MFN clause is active.
Earlier guidance suggested that this exemption applied to all dividends under the Sweden-South Africa tax treaty. However, the new update clarifies that the MFN clause only applies to paragraph 2(a) of Article 10 (Dividends), meaning the exemption applies only when the beneficial owner holds at least 10% of the capital of the company paying the dividend. The MFN clause does not apply to paragraph 2(b) of Article 10, which stipulates a 15% withholding tax rate in other cases.
The MFN clause is currently in the process of being deactivated, but there is some uncertainty about when this change will take effect.
