Dividend Withholding Tax (DWT) must be deducted by any Irish Resident company making a dividend payment unless the shareholder makes a valid claim to exemption or is exempt by virtue of being owned by a company resident in a Member State of the European Union.
The administrative complexity of the tax is extraordinary and the scope of the tax is somewhat broader than its name suggests. It applies not only to conventional dividends but also to non-cash distributions and scrip dividends.
The rate of DWT is the standard rate of Income Tax. The onus to deduct DWT is placed firmly on the company making the distribution. Unless the company is presented with a valid declaration which permits it to exempt the distribution it has no option but to operate DWT.
Certain shareholders are eligible to have distributions payable to them exempted from DWT.
These include:
- Irish Resident Companies
- Companies resident in any Member State of the European Union
- Charities and Pension Funds
- Certain Collective Investment Funds and Employee Share Ownership Trusts
- Certain non resident individuals and companies. To receive a distribution without deduction of DWT the shareholder must make a declaration to the paying company. The declaration will vary depending on the basis of the claim for exemption. Generally speaking the declaration must contain the name, address and tax number of the shareholder. In the case of non-resident shareholders seeking exemption a declaration from the home country Tax Authority or an auditors certificate confirming residency may be required.
DWT deducted in a year of assessment can be offset against a shareholders income tax liability for the tax year in question. If the DWT exceeds the individuals tax liability a refund can be obtained.
The tax filing and reporting requirements of the DWT legislation are demanding. The company must give a statement to each shareholder indicating the amount of the distribution and the DWT deducted. This can be incorporated into the dividend warrant. The DWT withheld must be paid to the Revenue Commissioners by the 14th of the following month. A return must be submitted at the same time setting out full details of the distributions paid.
The DWT system is onerous from an administrative perspective. The system will be even more burdensome if shareholders fall into the exempt categories as the onus is on the company to satisfy itself that an exemption does indeed apply. Any company that proposes to make a distribution must ensure that it complies with the new DWT legislation.
Non compliance with the legislation is regarded as a Revenue offense subject to penalty. Consideration should not only be given to the exposure on conventional dividends but also to the issues associated with non-cash distributions, scrip dividends and stapled stock arrangements. Clients contemplating dividend payments should contact us prior to taking action in order to ensure that all the implications can be fully explored.
N.B.
This summary should not be treated as advice or a recommendation for your particular situation, please consult us privately or your own professional advisor for specific indepth advice.
If you require more information please consult your tax advisor or email us at tax@fixmytax.com. |
