Taxation of Dividends
- Dividend Withholding Tax (DWT)
- Encashment Tax
- Scrip Dividends (Shares in lieu of dividends)
- Tax on Dividends Received
A withholding tax, at the standard rate of income tax i.e. 20% applies to dividend payments and other profit distributions, including cash and scrip dividends, made by an Irish resident company.
DWT does not apply where the distribution is made to a 51% Irish tax resident holding company.
Exemption from withholding tax is available where certain declarations are made in the case of payments to certain shareholders, including:
- An Irish tax resident company,
- Charities, pension funds, certain retirement funds and certain sporting bodies,
- Companies resident in EU member states or tax treaty countries, not under the control of Irish residents,
- Listed companies and their 75% subsidiaries,
- Non-resident companies ultimately controlled by residents of EU Member States or tax treaty countries,
- Certain individuals entitled to receive tax free income,
- Certain employee share ownership trusts,
- Approved Retirement Funds (ARF) and Approved Minimum Retirement Funds (AMRF),
- PRSAs and certain Exempt Unit Trusts,
- Brokers in receipt of dividends for special portfolio investment accounts,
- Collective investment funds.
DWT does not apply to distributions not subject to tax in the recipient’s hands (i.e. dividends from patent companies to qualifying shareholders).
Detailed conditions including the making of appropriate declarations, where necessary, must be met to avail of the above exemptions.
Irish individual shareholders will be taxable on the gross dividend at marginal rates, but will be entitled to a tax credit for the tax withheld by the company. The tax withheld by the company will be payable to Revenue by the 14th day of the month following the month in which a distribution is made, regardless of whether DWT applies to the distributions.
Withholding tax on intra-EU dividends, royalty payments and interest payments between associated companies is eliminated where a company owns 25% of another company or a third company owns 25% of each company.
Foreign dividends cashed by Irish Financial Institutions is subject to encashment tax @ 20%. This does not apply to non-resident individuals or charities. It also does not apply to cheques cashed in a retail branch of a bank.
When a scrip dividend is given to a shareholder, the amount of the dividend to be converted to shares will be reduced by the standard rate of income tax (currently 20%) and the company shall pay to Revenue an amount equal to the tax withheld. The recipient is assessed tor tax on the value received and that withheld (i.e. the gross dividend) and is given a credit for the amount withheld.
Tax on Dividends Received
Dividends received from Irish Companies are exempt from Corporation Tax.
Foreign Dividends (where >5% shareholding) are subject to tax at 25%.
A 12.5% rate applies where a Company receives dividends out of the trading profits of a Company which is tax resident in the EU or a country with which Ireland has a double Taxation Agreement, with a credit for the underlying foreign tax.
With effect from 1 January 2012 this relief is extended to parties to the OECD convention on Mutual Assistance in Tax matters.