Local and foreign citizens and investors making money in Ireland must pay various taxes in accordance with the type of income they generate. The Irish taxation system implies the levy of the income obtained from sources in and outside the country in the case of resident companies and individuals and only on the income obtained in Ireland in the case of non-residents.
From a taxation point of view, the dividend tax is one of the most important levies in Ireland and it applies under specific conditions because of several implications. Below, our Irish company formation officers explain how dividends are taxed in this country.
The Irish taxation system
Both individuals and companies must pay the income tax in Ireland. While companies are subject to this tax on their corporate income, natural persons are subject to it based on their personal income which can arise from various sources.
Dividends are subject to withholding taxes just like other types of incomes, such as interest payments and royalties.
The taxation system in Ireland implies the following:
- Irish resident companies must pay the corporate tax and other levies on their worldwide profit,
- their profits are made of income obtained from their activities but also from capital gains, such as disposal of shares and other properties,
- non-resident companies operating through branch offices will also pay the corporate tax,
- subsidiaries of non-resident companies will be treated as domestic companies in Ireland,
- in the case of natural persons, they will be taxed on the income they obtain from their activities, but also on capital gains.
Dividend payments can be considered liable for taxation under the Capital Gains Tax regulations.
Resident companies must pay the dividend tax on the payments they make, however, there also a few exceptions to this rule. These must be paid at the standard tax rate for the year they were distributed (slight variations can appear from year to year).
In order to establish tax responsibility, we recommend you use our accounting services in Ireland, including when it comes to the dividend withholding levy.
What is the Irish withholding tax on dividends?
The dividend withholding tax is applied at a standard rate of 20% for dividend payments and other distributions made by companies registered in Ireland. Most Irish companies will pay dividends twice a year and the withholding tax will apply at source on the gross dividend. Our team of specialists in company registration in Ireland can provide more information regarding the taxation of dividends.
Irish individual shareholders will be levied the tax on the gross dividend at the marginal rate, but they are entitled to a credit for the withholding tax and a refund if the withheld amount exceeding their tax liability. However, there are also exceptions when it comes to the Irish withholding tax on dividends.
The legislation stipulates a lower or 0% withholding tax for distribution of dividends if Irish double taxation agreements are enforced, and the dividend tax will not apply if the distribution is made to a holding company where the majority shareholder is an Irish tax resident company.
Corporate tax on dividends in Ireland
Besides the withholding tax on dividends, the dividends in Ireland are also imposed with the corporate tax, which can vary between 0-25% (the highest threshold is available for non-trading companies). As a general rule, the dividends are taxed at the standard rate of 12,5% and our team of consultants in company registration in Ireland can offer more information on this matter.
Companies operating in Ireland should also take into consideration that the dividends obtained from trading activities will be imposed with a tax applicable at the rate of 12,5%, and this regulation will be available in the situation in which the respective dividends derive from trading companies located in a country that is a member state of the European Union (EU).
At the same time, the regulation is available for trading companies with which Ireland has signed a double tax treaty or the Convention on Mutual Assistance in Tax Matters. The corporate tax (applicable at the rate of 12,5%) can be eliminated in the case of subsidiaries registered in a member state of the EU or the European Economic Area (EEA), which are entitled to a credit relief.
Distributions under the dividend tax in Ireland
In order to pay the withholding tax on dividends, all distributions of Irish companies must be considered. These also include payments deemed for the personal and corporate income taxes and are:
- – cash and non-cash dividends,
- – expenses of companies offering benefits and facilities to their shareholders,
- – excess interests paid to company directors,
- – scrip dividends which are issued as additional share capital instead of cash distribution.
There are situations under which the dividend tax can be deducted, such as those mentioned above, but also situations where these cannot be deducted. In the latter case enter the following:
- – dividends paid to ministers of the Irish government,
- – dividends payments made to the National Pensions Reserve Fund Commission,
- – dividend payments made from profits exempt from taxation and associated with various activities,
- – distributions made by Irish companies to an EU-based parent company which pays a withholding tax that does not fall under EU regulations,
- – dividend payments made between Irish resident companies in which one is a subsidiary holding more than 50% of the shares.
When it comes to shareholders in Ireland, these can be resident or non-resident and can benefit from various exemptions from the dividend tax.
Our company registration advisors in Ireland can offer detailed information on the regulations related to dividend payments and exemptions from taxation.
Share dividends in Ireland
The following types of dividends can be considered for taxation when it comes to their distribution as company shares:
- – dividends distributed by Irish companies,
- – dividends distributed by UK companies,
- – foreign-obtained dividends.
There are no restrictions related to the residency of a company in which an Irish resident (individual or company) can hold dividends.
From a taxation point of view, the taxation of these dividends can be influenced by the double tax agreement between Ireland and the country of origin of the company distributing them.
Irish residents exempt from paying the dividend tax
Certain citizens or Irish companies are exempt from paying the withholding tax on dividends, according to several sections in the Tax Consolidation Act. Among these are the pensions schemes, the employees qualifying in share ownership trusts (ESOTs), charitable organizations, as well as the following, which can be presented by our specialists in company formation in Ireland:
- • collective investment companies and Irish tax resident companies;
- • the brokers designated by the Special Portfolio Investment Account (SPIAs) and entities promoting games or sports;
- • fund managers qualifying for the Approved Retirement Funds or Approved Minimum Retirement Funds provisions;
- • individuals falling under the regulations of Schedule F of the Irish Income Tax Act.
The corporate tax applicable to dividends can also be exempted in the situation in which the dividends are received by an Irish resident company from another legal entity incorporated in this country. As a general rule, the dividends received from foreign companies are liable to the payment of the corporate tax, but, as mentioned above, such entities can qualify for a credit relief.
Are there any taxes for Irish scrip dividends?
Yes, according to the local taxation system,which also includes the VAT registration in Ireland, the scrip dividends are imposed with a tax applicable at a rate of 20%. The scrip dividend refers to a type of certificate, which allows its holder to obtain dividends and to issue additional shares within the company. In this case, the company is required to pay the relevant amount of withheld tax to the Irish Revenue; our team of Irish company formation agents can offer further information regarding the scrip dividend.
When to pay the withholding tax on dividends in Ireland
The companies that are required to pay the withholding tax on dividends have to submit the relevant documents on the 14th of each month, for the distributions registered in the respective period of time. To do so, they will have to use the online platform available at the Revenue Online Service (ROS). The documents have to be filed regardless if the company made any distributions or not in the respective month.
Foreigners exempt from paying the dividend tax in Ireland
Foreign individuals, residents of countries Ireland has double tax treaties with, but also non-resident charity organizations are exempt from paying the dividend tax. Foreign companies registered in a EU country that are not controlled by Irish citizens and non-resident companies that own 75% of the shares of an Irish subsidiary are also exempt from paying the dividend tax.
Tax rates applied to companies in Ireland
The following rates can be considered when it comes to the taxation of companies in Ireland:
- – the corporate income tax which is applied at a rate of 12.5% for trading activities,
- – the corporate tax which is levied at a rate of 25% for non-trading activities,
- – the capital gains tax which is applied at rates ranging between 33% and 40%,
- – the withholding taxes which can be reduced under Irish double tax treaties and benefit from rates ranging between 0% and 15%.
The most common type of company in Ireland is a private limited company, which is an excellent choice for small firms. One director can administer an LTD as long as it is still an EEA entity, and there is no minimum requirement for share capital. Contact us for support if you want to set up a company in Ireland and need advice or support.
Irish companies listed on the Stock Exchange of an EU country that have been approved by the Minister of Finance also qualify for exemption from paying the withholding tax on dividends.For complete details about the Irish tax system you can rely on our consultants in company formation in Ireland. You can also contact us for details about tax incentives available for foreign investors.