As reported earlier, negotiations on a revised income tax treaty to replace the present treaty of 25 April 1975 between Sweden and Brazil were held in 1995. At the same time, the parties agreed to extend by 2 years the provisions of the present treaty (and protocol) concerning withholding tax limitations and matching credits for dividends, interest and royalties. Those provisions expired on 1 January 1996. By exchange of notes of 19 and 26 March 1996, Sweden and Brazil confirmed the extension agreement, effective only in 1996 and 1997.

The parties expected that a new treaty would be effective by the time this extension expired. Another round of negotiations took place in Brasilia in May 1997. The negotiations did not, however, lead to an agreement, and there is little prospect that the negotiations will recommence soon. Therefore, as of 1 January 1998, the domestic withholding tax rates will become applicable in most cases, and no tax sparing credits will be granted.

Accordingly, the Swedish tax rates will be:

  • 30% on dividends derived by companies (by withholding);
  • 25% on dividends in other cases (treaty limitation remaining effective) (by withholding);
  • 0% on interest;
  • 25% on (gross) royalties on trade marks (treaty limitation remaining effective) (by assessment); and
  • 28% on (net) other royalties (by assessment).

The Brazilian tax rates will be:

  • 0% on dividends; and
  • 15% on (gross) interest and royalties (by withholding).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For further information contact Carlos S Romero, Deloitte Touche Tohmatsu, Sao Paulo, Brazil on Tel: +55 11 257 0122, Fax: +55 11 258 8456.

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