When one received foreign dividends where retention tax is deducted I know that one can claim a tax credit for the withholding tax provided there is a tax treaty with the country involved. my question is what about the corporation tax that the company pays on the profits ? Can one claim that back?
Tax on Dividends
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I assumed that the same money would not be taxed twice. First as Corporation tax and then as income tax.
If, as an example, the money is paid as wages it is only taxed once as income tax . Likewise if it is paid as fees it is only taxed once as income tax. Why should a shareholder suffer to have his money tax twice as corporation tax and again as income tax without setting one off against the other.
If you owned a company in a foreign country with a tax treaty and the company paid corporation tax on its profits and you received dividends of the remainder would you have to pay full income tax on the remainder in addition to the tax the company paid?
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If, as an example, the money is paid as wages it is only taxed once as income tax . Likewise if it is paid as fees it is only taxed once as income tax. Why should a shareholder suffer to have his money tax twice as corporation tax and again as income tax without setting one off against the other.
If you owned a company in a foreign country with a tax treaty and the company paid corporation tax on its profits and you received dividends of the remainder would you have to pay full income tax on the remainder in addition to the tax the company paid?
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Yes, that's exactly how corporation tax works. First the company is taxed on its profits. Then any dividends it distributes are taxed as income on the individuals. Both corporations and individuals are subject to tax. Wages and fees are paid by a company are not subject to corporation tax because they are costs, not profit.
Thank you.
Would it be possible to explain what the following means . It is taken from an accountant site. I am confused. What is meant by dividends are exempt from Corporation Tax.
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.
Would it be possible to explain what the following means . It is taken from an accountant site. I am confused. What is meant by dividends are exempt from Corporation Tax.
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.
Relates to companies, rather than private individuals. If a company receives dividends from another company, there is no corporation tax where the relevant criteria is met.
Before corporation tax was reduced down to 12.5% taxing the profits of companies and again taxing the same money as dividends was regarded as double taxation. It appears therefore Irish companies paid less tax but Irish shareholders paid more in that they suffered double taxation which they didn't suffer before.
Are you getting confused by the rules around an Irish Company receiving dividends from a foreign subsidiary, rather than a private individual receiving dividends?
I don't think so?. There was a time when 95% of Irish companies paid 50% corporation tax and at the same time, 100% of foreign companies ( IDA companies ) paid zero corporation tax. I am not an accountant. My belief is that when corporation tax was 50% you would get credit for that tax on your personal tax on dividends. When they reduced the corporation tax to 12.5% they removed the credit. They said since owners benefit from the reduction in Corp. tax the credit will be abolished from the 6/4/1999.
My understanding is that this only applies to Irish residents in respect of Irish companies. ?????
Ah, there used to be a concept both here and in the UK called "Advance corporation tax" up to 1999 in Ireland - I think it was reduced in the years prior?
It only applied to companies that paid dividends and was separate to 'normal' corporation tax. The shareholders then received a credit in relation to the ACT only, not the full corporation tax.
I'm too young to remember all the details.
Paul O Mahoney
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Were they referred to as Franked and UnFranked dividends or something like that. My taxation exam was passed in 1988 and I remember it but still can't remember how its treatment was a benefit to individuals and or companies escapes me.
But that's all gone now. And dividends no matter where they occur or held are taxable here at the marginal rate if one is paying that and is subject to PRSI/USC.
And tax deducted by say the US at 15% with a valid W-Ben 8 , 30% without is given by way of a tax credit and Revenue calculates that, well they do on our return.
Thank ,yuu.
if you have an account with a US firm they send you a 1042-S form at the end of the year and they show the dividends paid and also the withholding tax deducted. You can deduct from the dividends the costs incurred within the account in connection with the shares such as any interest paid on funds to purchase or there may be fees etc.
Paul O Mahoney
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Well our account doesn't have any costs associated, and I would not know how to account for those costs from a tax deduction on income. We do incur costs on conversations to Euro and do deduct them but that's generally for net shares held in the US.
Yes that form is sent in quadruple for some reason.
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If you borrow money to purchase shares and you pay interest on the borrowed money and if you receive dividends on the shares purchased with the borrowed money you can treat the interest as a cost and you can deduct it from dividends receive or alternatively you can include it as a cost to the initial purchase of the shares and when and if you sell the shares the cost of the shares will be the initial price paid plus the interest of the funds to purchase the shares. It is the same if you buy land. You can deduct any interest from rental income received or when you sell the interest can form part of the costs.
Income is (dividends less interest). Tax due to be paid is tax on income less withholding tax already paid.
Income is (dividends less interest). Tax due to be paid is tax on income less withholding tax already paid.
Do you mind sharing your source for that?
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Brendan Burgess
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Hi Nina
Red Onion is being too polite.
You cannot claim the interest paid on money borrowed to buy shares as a deduction from Income or Capital Gains.
Brendan