Denmark exempts foreign charities from dividend withholding tax from 2023


Denmark exempts foreign charities from dividend withholding tax, starting 2023.

On 2 December 2021, the European Commission decided to close infringement proceedings against Denmark regarding the taxation of dividends paid to charitable organizations. Infringement proceedings were initiated by the Commission in May 2020, by asking Denmark to amend its legislation providing that dividends paid to domestic charities are exempt from tax, while dividends paid to charities established in other EU Member States or EEA States are taxed at a rate of 22% over gross dividend income. Or, at a reduced tax treaty rate of 15% if the competent authority in the state in which the charity is domiciled exchanges information with Danish authorities. This difference in treatment of domestic and cross-border dividend distributions was found to constitute a restriction on the free movement of capital as prohibited by article 63 of the Treaty on the Functioning of the EU (also known as the EU treaty). And while EU member states cannot be forced under EU law to recognize foreign institutions’ charitable status under foreign law, a foreign charity that satisfies the requirements for charitable status and promotes the same public interests as domestic charities must be granted equally beneficial tax treatment as domestic charities This follows from established case law of the European Court of Justice, such as the Persche case (C-318/078) and the Walter Stauffer case (C-386/04).

The decision to close infringement proceedings was made because Denmark has amended its legislation to resolve the issue. The amendments were made by Law No. 1179 of 8 June 2021. Among other things, the law introduced a specific exemption from tax liability on dividends received by associations, etc. that are domiciled abroad and whose funds according to the articles of association or the like may only be used exclusively for charitable or otherwise non-profit purposes. This applies from the 2023 income year.