Dividend tax refunds
When individuals and companies, based in other countries, pay taxes on dividends from Faroese companies in the Faroe Islands and their home country, they may apply for a dividend tax refund, provided that there is a valid double-taxation agreement in place with that country.
When individuals and companies, based in other countries, receive dividends from Faroese companies, they incur limited tax liability in the Faroe Islands. As they are based in other countries, they are also liable to pay tax on the dividends there. This may result in double-taxation. In order to resolve this issue, the Faroe Islands have entered into double-taxation agreements with various countries, stipulating how dividend tax should be divided (see outline below). The procedure is for the dividend paying company to retain the percentage rate valid in the Faroe Islands (normally 35%), after which the recipient may apply for a refund, down to the percentage rate outlined in the appropriate double-taxation agreement.
The chart below shows an outline of countries that have entered into a double-taxation agreement with the Faroe Islands regarding dividend tax. The chart shows the percentage rate that the Faroes should keep.
|Country||Companies hold at least 10%||Other|
|India||15% (own min. 25%)||25%|
An example could be the case of an individual based in Denmark, receiving dividends from a company based in the Faroe Islands. The dividend paying company would, in this example, be responsible for withholding the dividend tax rate valid in the Faroe Islands, usually 35%. In order to resolve the issue of double-taxation, the double-taxation agreement among the Nordic countries would be used. This agreement stipulates that the Faroe Islands are entitled to 15% of dividend tax, while the remaining tax shall be refunded. Were the recipient based in India, the tax percentage owed to the Faroe Islands would be 25%.
You must enclose the following with the application:
- Documentation detailing the received dividend and paid tax.
- Confirmation from the tax authorities where the applicant is based.
For companies that are based in the Nordic countries or Switzerland and hold 10% or more, the practice is that the distributing company can get a confirmation from TAKS which releases them from withholding dividend tax. The conditions are that the distribution goes to a foreign company which is based in the Nordic countries or Switzerland and that the company holds at least 10% of the distributing company.
The application must contain:
- The recipient of the distribution
- The amount
The following must also be enclosed:
- Documentation of tax liability in the home country
- Details about owner relations
TAKS must receive and approve the application before the dividends can be distributed. After this, the Faroese company may distribute dividends without withholding tax. Remember to enclose the confirmation with the dividend statement.
If the application has not been confirmed by the time of distribution, the Faroese company must withhold tax and pay it to TAKS. The foreign company may then apply for a dividend tax refund, in line with the practice mentioned above.
Apply for each distribution separately.
Find the application for a dividend tax refund in an English and a Danish version under forms to the right.