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New withholding tax rules

The Council of the EU has approved new rules on the application of withholding tax on dividends and interest (the FASTER Directive), but their effectiveness has been postponed until 2030. 

The Council of the EU has approved new procedures for collecting and refunding withholding tax. These apply to payments of interest and dividends on publicly traded securities where the domestic withholding tax rate differs from the tax rate to which the foreign investor is entitled under a relevant double taxation treaty. The new rules should introduce a unified and efficient system of applying withholding tax on income from investments in capital markets. The directive introduces an automated system for issuing digital tax residence certificates, usually within 14 days of filing the application, and the obligation of member states to apply at least one of the fast-track procedures for applying the correct amount of withholding tax. The fast-track procedures are
  • the application of the correct (lower) tax rate at the time the dividend/interest is paid (relief at source), or
  • a quick refund of overpaid withholding tax within a set time limit.
The new rules will also apply to indirect investments made through collective investment funds. The rules also include registration and information obligations for financial intermediaries (banks, investment platforms) vis-à-vis financial administrations. Member states with comprehensive relief at source systems and low market capitalisation of publicly traded securities should be able to choose whether to apply these procedures.   

As the Czech Republic already allows for the application of the lower withholding tax rate at source, and the market capitalisation of publicly traded securities is not very significant here, we will probably only be affected by the obligation to introduce a system for issuing digital tax residence certificates. Other requirements of the directive (such as the introduction of fast-track procedures for the application of withholding tax or the introduction of a register of investment intermediaries and their information obligation) would not necessarily apply to the Czech Republic. This has already been provisionally confirmed by the Ministry of Finance in its press release.

The adoption of this directive is thus likely to be of particular benefit to Czech entities investing in securities issued in other EU countries. 

The Directive on Faster and Safer Relief of Excess Withholding Taxes (FASTER) will be published in the Official Journal of the EU once the legislative process is complete. Member states will have to implement it in their legislations by the end of 2028, with effect from 2030.

More information can be found here