AITI Chartered Tax Adviser

How is dividend income taxed?

The term distribution describes the following methods by which a company makes payment from its assets to its shareholders:

(a) A dividend, including a capital dividend.
(b) A distribution from company assets that is “bonus”, i.e., has not been fully paid for.
(c) A payment from company assets to redeem bonus shares.
(d) Excessive interest on securities of the company. This is to prevent withdrawal of company profits in the guise of “interest”. Such interest is not deductible in the profits computation of the company paying the interest.
(e) Any value received from the company.

In effect, any device to extract value from a company other than by way of salary or commercial rent can be caught as a distribution. The company must apply dividend withholding tax (DWT) to the extraction, and you, the recipient, are liable to income tax on the extraction.

An Irish resident company must deduct Dividend withholding tax (DWT) at the standard rate from distributions it makes. DWT need not be deducted from distributions made to:

(a) an Irish resident company, a pension scheme, an employee share ownership trust, a collective investment undertaking, or a charity,
(b) a non-resident who is resident in a tax treaty country, an EU resident, or a quoted company,
(c) a qualifying intermediary, provided the ultimate beneficiary is non-liable.

DWT need not be deducted where paid from commercial forestry income.
The recipient of the distribution is liable to income tax under Schedule F, but is entitled to a tax credit for the DWT withheld.