Dividend Tax Rate Between India and Denmark Under DTAA

Quick answer: Article 11 of the India-Denmark DTAA (signed 8 March 1989, effective in India from the financial year beginning 1 April 1990) splits the dividend rate in two: 15% of the gross dividend where the beneficial owner is a company holding at least 25% of the shares of the Indian payer (Article 11(2)(a)), and 25% in all other cases (Article 11(2)(b)). Because the general 25% treaty rate is higher than India's 20% domestic withholding rate under section 207(1) of the Income-tax Act, 2025, portfolio investors below the 25% threshold apply the lower 20% domestic rate instead, under section 159(4) of the Income-tax Act, 2025 (section 90(2) of the Income-tax Act, 1961). Only substantial (25%+) Danish corporate shareholders get an actual treaty saving, down to 15%.

Key takeaways:

• 15% for a corporate beneficial owner holding at least 25% of the payer's shares (Article 11(2)(a))
• 25% for all other Danish shareholders (Article 11(2)(b)) — higher than India's 20% domestic rate
• Because 25% > 20%, non-substantial holders apply the domestic 20% rate under section 159(4)
• Dividends connected with a Danish PE or fixed base in India are taxed as business profits under Article 7 or 15
• Treaty signed 8 March 1989; a 2013 Protocol (in force 2015) touched only exchange of information, not rates

Dividend Tax Rate Between India and Denmark

The Double Taxation Avoidance Agreement (DTAA) between India and the Kingdom of Denmark was signed at Copenhagen on 8 March 1989 and entered into force on 13 June 1989; under Article 30, its provisions took effect for income years beginning on or after 1 January 1990 — in India, the financial year commencing 1 April 1990. Dividends are governed by Article 11 of the treaty, not Article 10 as in the OECD Model — this treaty is a genuinely shifted-numbering instrument that also covers capital, not just income, and every article from dividends onward sits one number higher than the OECD template.

Unlike India's more recent Nordic treaties, which cap dividends at a flat rate regardless of shareholding, the India-Denmark DTAA keeps a two-tier structure last common in India's 1980s-era treaties: a lower rate for substantial corporate shareholders and a higher rate — actually above India's own domestic rate — for everyone else. This makes the India-Denmark treaty one of the few where the domestic withholding tax rate, not the treaty rate, is the operative figure for most Danish portfolio investors.

For a full walkthrough of the treaty's history, PE rules and dispute-resolution mechanism, see the India-Denmark DTAA complete guide; for the consolidated rate table across all income types, see the withholding tax rates page.

Treaty Rate vs Domestic Rate: Detailed Comparison

Article 11(2) of the India-Denmark DTAA does not set a single dividend rate — it sets two, and which one applies depends entirely on the size of the Danish shareholder's stake in the Indian company.

Domestic Rate (Without DTAA)

Under Indian domestic law, dividends paid by an Indian company to a non-resident shareholder are subject to withholding tax at 20% (plus applicable surcharge and health & education cess) under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961). This 20% rate applies to every non-resident shareholder, from any country, unless a lower treaty rate genuinely applies.

DTAA Rate (With Treaty)

Article 11(2)(a) of the India-Denmark DTAA caps the rate at 15% of the gross dividend where the beneficial owner is a company owning at least 25% of the shares of the Indian payer. Article 11(2)(b) sets the rate at 25% for every other beneficial owner — individuals, funds, and companies holding smaller stakes. The Contracting States' competent authorities are directed to settle by mutual agreement the mode of applying these limits, and the caps do not affect India's right to tax the paying company on the underlying profits.

Why the General Rate Offers No Benefit

The 25% general treaty rate is unusual: it is higher, not lower, than India's 20% domestic rate. Because section 159(4) of the Income-tax Act, 2025 (section 90(2) of the Income-tax Act, 1961) lets a taxpayer apply whichever of the treaty rate or the domestic rate is lower, a Danish shareholder holding less than 25% of an Indian company should never actually pay 25% — the Indian payer should withhold at the domestic 20% rate instead. The treaty's real function here is to cap any future increase in India's rate, not to reduce today's 20% burden.

Effective Tax Savings for Substantial Holdings

For a Danish parent company holding 25% or more of an Indian subsidiary and receiving INR 1 crore in dividends, the treaty saves INR 5 lakh in withholding tax — 15% (INR 15 lakh) instead of 20% (INR 20 lakh). For a Danish portfolio investor with a smaller stake receiving the same INR 1 crore, the applicable rate is the domestic 20% (INR 20 lakh), because the treaty's 25% rate is never used in practice.

Who Qualifies for the Reduced Rate

Claiming the 15% substantial-holding rate — or simply confirming that the 20% domestic rate (not the 25% treaty rate) applies to a smaller shareholding — requires meeting several conditions.

Beneficial Ownership Requirement

Article 11(2) limits the reduced rates to a Danish resident who is the beneficial owner of the dividend. A nominee, agent, or conduit company that receives the dividend on behalf of another party — without the right to use and enjoy the income independently — cannot claim either treaty rate.

The 25% Shareholding Test

The 15% rate under Article 11(2)(a) applies only where the beneficial owner is itself a company owning at least 25% of the shares of the Indian company paying the dividend. Individual shareholders, trusts, and funds — regardless of the size of their holding — fall into the 25% general-rate bracket under Article 11(2)(b), which in practice defers to the lower 20% domestic rate.

Tax Residency Certificate from Skattestyrelsen

The Danish recipient must obtain a Tax Residency Certificate (TRC) from Skattestyrelsen (the Danish Tax Agency) confirming residency for the relevant period, under section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961). If the TRC lacks any prescribed particular — name, status, nationality, tax ID, period of residence, address — the recipient must also file Form 41 (formerly Form 10F) electronically; PAN is not mandatory.

Anti-Abuse: PPT Applies, But Denmark's PE Reservations Do Not Touch Dividends

Both countries signed the Multilateral Instrument (MLI) on 7 June 2017; it is in force for India from 1 October 2019 and Denmark from 1 January 2020, making this treaty a matched Covered Tax Agreement (India is CTA #21 on Denmark's MLI list). The MLI's Principal Purpose Test (PPT) applies from FY 2020-21 and can deny the reduced rate to an arrangement whose principal purpose was obtaining that benefit. Denmark's separate reservations against MLI Articles 12-14 (agency PE, specific-activity exemptions, contract-splitting) only affect Article 5's PE definition, not the dividend rate. India's domestic GAAR is a further backstop against artificial routing structures.

No Permanent Establishment or Fixed Base Connection

Under Article 11(4), the 15%/25% caps do not apply if the Danish beneficial owner carries on business in India through a permanent establishment, or performs independent personal services from a fixed base in India, and the shareholding generating the dividend is effectively connected with that PE or fixed base. In that case the dividend is taxed as business profits under Article 7, or as income from independent personal services under Article 15.

Dividend-Specific Treaty Provisions Under Article 11

Article 11 of the India-Denmark DTAA runs to five paragraphs, each addressing a distinct aspect of dividend taxation.

Article 11(1): Residence-State Taxation

Dividends paid by a company resident in one Contracting State to a resident of the other State may be taxed in that other (residence) State. This establishes Denmark's primary right to tax dividends received by its residents.

Article 11(2): The Source-State Rate Caps

India, as the source State, may also tax the dividend, but the tax charged on the beneficial owner cannot exceed 15% (25%+ corporate holding) or 25% (all other cases) of the gross amount. This is the operative source-state ceiling discussed above.

Article 11(3): Definition of Dividends

The treaty defines "dividends" as income from shares or other rights, not being debt-claims, participating in profits, along with income from other corporate rights taxed the same way as share income under the law of the distributing company's State of residence.

Article 11(4): The PE/Fixed-Base Carve-Out

Where the shareholding is effectively connected with a PE or fixed base the Danish owner has in India, Article 11 steps aside for Article 7 (business profits) or Article 15 (independent personal services), and the dividend is taxed as ordinary business income rather than at the capped rate.

Article 11(5): Extra-Territorial Taxation Bar

Where an Indian company derives profits from Denmark, Denmark may not tax that company's dividends or undistributed profits merely because the underlying income arose in Denmark, except where the dividends are paid to a Danish resident or connected with a Danish PE. This mirrors India's equivalent obligation.

Documentation Required to Claim the Reduced Rate

An Indian company paying dividends to a Danish shareholder should collect the following before applying 15% or the domestic 20% rate instead of a higher default withholding:

Tax Residency Certificate (TRC)

A TRC issued by Skattestyrelsen for the financial year of payment, confirming the recipient's Danish tax residency, is the foundational document under section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961).

Form 41 (formerly Form 10F)

If the TRC omits any of the prescribed particulars, the Danish shareholder must electronically file Form 41 on the Indian income-tax e-filing portal, giving name, status, nationality, tax identification number, period of residence, and address. A non-resident without an Indian PAN can still register and file electronically.

Self-Declaration on Beneficial Ownership and No-PE Status

A written declaration that the Danish shareholder is the beneficial owner, and that the holding is not connected with a PE or fixed base in India, supports the Article 11(2) claim and rules out Article 11(4).

Evidence of the 25% Shareholding

To access the 15% rate rather than the 20% domestic rate, the Danish company should evidence its shareholding percentage in the Indian payer as of the relevant date, typically via the share register.

Withholding Procedure for Indian Payers

Section 393(2): The TDS Obligation

Under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), any person paying a non-resident deducts tax at source at payment or credit, whichever is earlier. A 25%+ Danish shareholder is deducted at 15% with complete documentation; every other Danish shareholder is deducted at the domestic 20% rate, never the higher 25% treaty figure.

Forms 145 and 146 (formerly Forms 15CA and 15CB)

Before remitting the dividend to Denmark, the Indian company must file Form 145 online. Where the remittance exceeds INR 5 lakh in a financial year, a Chartered Accountant must also certify Form 146, confirming the taxability of the payment, the rate applied, and that TDS has been correctly deducted.

Section 395(1): Lower or Nil Withholding Certificate

If the Danish shareholder's actual tax liability is expected to be lower than the amount that would otherwise be withheld, it may apply to the Indian Assessing Officer for a certificate under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961) authorising a lower or nil rate of deduction.

Common Disputes and Practical Considerations

Dividend Distribution Tax Is History

Before 1 April 2020, Indian companies paid Dividend Distribution Tax (DDT) instead of shareholders being taxed directly, which produced years of litigation over whether treaty rate caps could limit DDT. With DDT abolished from 1 April 2020, dividends are taxed directly in the shareholder's hands, and the Article 11(2) caps apply straightforwardly to the withholding.

Surcharge and Cess Over the Treaty Rate

A recurring point of friction is whether surcharge and health & education cess can be added on top of a DTAA rate. Multiple Income Tax Appellate Tribunal rulings have treated the treaty rate as an all-inclusive ceiling, with no surcharge or cess layered on top — though tax authorities do not always follow this position at the assessment stage, so it remains an active area of dispute for taxpayers applying the 15% rate.

Beneficial Ownership Scrutiny

Indian tax authorities have scrutinised beneficial-ownership claims where a Danish entity appears to be a conduit for a shareholder resident in a third country with a less favourable — or no — treaty with India. A Danish holding company with no independent commercial substance risks having its 15% claim denied under the beneficial-ownership test or India's domestic GAAR.

Practical Examples and Calculations

Example 1: Danish Parent Holding 100% of an Indian Subsidiary

Nordisk Holding ApS, a Danish company, owns 100% of Chennai Components Pvt Ltd, an Indian subsidiary. Chennai Components declares a dividend of INR 2 crore to Nordisk Holding.

• Without DTAA: TDS at 20% = INR 40 lakh. Nordisk Holding receives INR 1.60 crore.
• With DTAA (Article 11(2)(a), 100% > 25% threshold): TDS at 15% = INR 30 lakh. Nordisk Holding receives INR 1.70 crore.
• Tax saving: INR 10 lakh per distribution.

Nordisk Holding then claims a credit in Denmark under Article 23 for the 15% Indian tax paid.

Example 2: Danish Portfolio Investor Holding 4% of an Indian Listed Company

Anders Larsen, a Danish individual, holds a 4% stake in an Indian listed company and receives INR 8 lakh in dividends.

• Treaty rate (Article 11(2)(b)): 25% = INR 2 lakh — never actually applied.
• Domestic rate applied instead (section 159(4)): 20% = INR 1.60 lakh.
• Net dividend received: INR 6.40 lakh.

A 4% individual holding falls outside the 25% company test, so Mr Larsen never reaches 15% — but the treaty's 25% general rate is equally irrelevant, since the 20% domestic rate always governs.

Example 3: PE Attribution

A Danish company with a Mumbai branch (PE) separately holds an unconnected 30% stake in another Indian company. Those dividends are taxed under Article 11(2)(a) at 15%, since the holding is not effectively connected with the branch. If the same shares were instead booked as a branch asset, Article 11(4) would redirect the dividend to Article 7 as branch business profits at the applicable corporate rate.

Frequently Asked Questions

What is the dividend withholding tax rate under the India-Denmark DTAA?

Article 11(2) of the India-Denmark DTAA sets two rates: 15% where the beneficial owner is a company holding at least 25% of the shares of the Indian payer, and 25% in all other cases. Since 25% is higher than India's 20% domestic rate under section 207(1) of the Income-tax Act, 2025, the domestic 20% rate applies instead for smaller holdings, under section 159(4).

Why is the general dividend rate under this treaty higher than India's domestic rate?

The India-Denmark DTAA was signed in 1989, when treaty rates above India's later-lowered domestic rate were not unusual, and the treaty has not been renegotiated since to change these caps. Section 159(4) of the Income-tax Act, 2025 (section 90(2) of the Income-tax Act, 1961) ensures a taxpayer never actually pays more than the lower of the treaty or domestic rate, so the 25% figure never applies in practice.

Does a Danish individual shareholder ever get the 15% dividend rate?

No. Article 11(2)(a)'s 15% rate is available only where the beneficial owner is itself a company owning at least 25% of the Indian payer's shares. Individual shareholders fall under Article 11(2)(b)'s 25% rate, which in practice is superseded by India's lower 20% domestic rate.

Does the MLI's Principal Purpose Test apply to dividends under this treaty?

Yes. The MLI is in force for both India (from 1 October 2019) and Denmark (from 1 January 2020), making the India-Denmark DTAA a matched Covered Tax Agreement on which the Principal Purpose Test applies from FY 2020-21. Denmark's separate reservations against MLI Articles 12 to 14 affect only the treaty's permanent establishment definition, not the PPT or the dividend rate.

What happens if the Danish shareholder has a PE in India?

If the shareholding generating the dividend is effectively connected with a permanent establishment or fixed base the Danish resident has in India, Article 11(4) disapplies the 15%/25% caps, and the dividend is instead taxed as business profits under Article 7 (or as independent personal services income under Article 15) at the applicable corporate rate.

What documentation does a Danish shareholder need to claim the reduced rate?

A Tax Residency Certificate from Skattestyrelsen (the Danish Tax Agency), Form 41 (formerly Form 10F) filed electronically if the TRC lacks prescribed details, and a self-declaration of beneficial ownership and no-PE status. The Indian payer must also file Form 145, and Form 146 if the remittance exceeds INR 5 lakh.