Revenue Note for Guidance

CHAPTER 8A

Dividend withholding tax

Overview

This Chapter, containing 14 sections numbered sections 172A to 172M (including section 172LA), provides for a scheme of dividend withholding tax (DWT for short) on distributions made by Irish resident companies on or after 6 April, 1999.

In general, DWT applies at the standard rate of income tax for the year in which the dividends are paid, and other distributions are made, by all companies resident in the State. DWT does not apply, however, where the resident company is also a collective investment undertaking but not an offshore fund.

DWT applies only to relevant distributions. The term “relevant distribution” includes all payments normally treated as a distribution for income tax and corporation tax purposes, namely—

• normal cash dividends and non-cash dividends;
• in the case of close companies, expenses incurred in providing benefits or facilities for a participator in the company, and excess interest paid by the company to directors; and
• scrip dividends of quoted companies, that is, additional share capital of a quoted company taken in place of a cash distribution.

It does not include, however, a distribution made to a Government Minister (in his or her capacity as such), to the National Pensions Reserve Fund Commission, to a Commission investment vehicle, to the National Asset Management Agency or to a company referred to in section 616(1)(g). It should be noted, though, that the term does include scrip dividends of unquoted companies, that is, any amount assessable and chargeable to tax under Case IV of Schedule D by virtue of section 816(2)(c). Such dividends, being assessable under Case IV of Schedule D, are not distributions for income tax purposes but are nonetheless within the scope of DWT.

DWT does not apply to a relevant distribution made by an Irish resident subsidiary company to its parent company resident in another EU Member State where the distribution is covered by section 831 which section implements the EU Parent Subsidiaries Directive. This exclusion extends to distributions made by an Irish unlimited company to its parent company in another EU Member State in the same circumstances as a limited company may do so.

Provision is made for an exemption from DWT for relevant distributions made to a person who is beneficially entitled to the distributions and who is within one of the following categories —

• an Irish resident company,
• a pension scheme,
• managers of approved retirement funds, approved minimum retirement funds and special savings incentive accounts,
• a qualifying employee share ownership trust,
• a collective investment undertaking,
• a charity,
• a sports body which is exempt from income tax by virtue of the income concerned being applied for the sole purpose of promoting athletic or amateur games or sports
• a designated stockbroker who is receiving relevant distributions as part of the income of a special portfolio investment account,
• a permanently incapacitated individual who is exempt from income tax in respect of income from the investment of compensation payments made by the courts or under an “out of court” settlement for personal injuries,
• the trustees of a trust fund raised by public subscriptions for an individual who is permanently incapacitated from maintaining him or her self where the trust is exempt from income tax in respect of income from the investment of trust funds,
• a permanently incapacitated individual who is exempt from income tax in respect of payments from a trust referred to in the preceding indent and in respect of income arising to such an individual from the investment of such payments, or
• a thalidomide victim who is exempt from income tax in respect of income arising from the investment of compensation payments made by the Minister for Health and Children or the “thalidomide victims foundation”.

To qualify for exemption, the person concerned must have made the appropriate declaration of entitlement to exemption as set out in Schedule 2A. However, an Irish resident company making a relevant distribution to its Irish resident parent company may make a distribution free of DWT without the need for a formal declaration by the parent company.

An exemption is also given in respect of relevant distributions which are not liable to income tax in the hands of the recipients (that is, certain patent dividends, dividends out of profits or gains from stallion fees, stud greyhound services or the occupation of woodlands and dividends out of the profits of certain mines). Paying companies are, however, obliged to continue to return details of such distributions in their DWT returns.

From 6 April, 2000 an exemption from DWT applies in the case of relevant distributions made to a non-resident person who is beneficially entitled to the distributions and who is within the following category —

• a person (other than a company) who is neither resident nor ordinarily resident in the State but is resident for tax purposes in a relevant territory and has made a relevant declaration and provided a current certificate to the relevant person.

Arrangements for non-resident companies (Distributions received on or after 3 April 2010):

• a non-resident company which by virtue of the law of a relevant territory is resident for the purposes of tax in the relevant territory and which is not controlled by Irish residents,
• a non-resident company which is controlled by a person or persons who by virtue of the law of a relevant territory is or are resident for the purposes of tax in the relevant territory who is or are not under the control of a person or persons not so resident,
• a non-resident company the principal class of shares of which, or of a company of which it is a 75 per cent subsidiary, or where the company is wholly owned by two or more companies each of whose principal class of shares, is substantially and regularly traded on a recognised stock exchange in a relevant territory or territories, in the State (in respect of distributions made on or after 1 February 2007), or on or on such other stock exchange as may be approved of by the Minister for Finance.

To qualify for exemption from 6 April, 2000, the person concerned must have made the appropriate declaration of entitlement to exemption as set out in Schedule 2A.

Special arrangements are provided to deal with the common situation whereby distributions are paid through intermediaries such as nominees or custodians, including cases where distributions are paid to depositary banks for the benefit of the holders of American depositary receipts. Likewise, special arrangements apply in the case of market claims (that is, where distributions are incorrectly paid to persons due to delays in updating share registers).

DWT deducted from distributions made in any month must be paid over to the Collector-General within 14 days of the end of the month and will have to be accompanied by a return giving details of the distributions and the recipients of the distributions.