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Dividend witholding tax improved - Revenue Back  
Following consultations and lobbying, the Finance Bill 2000 proposes significant changes to dividend withholding tax, writes Philip Brennan.
Last year's Finance Act introduced a withholding tax on dividend payments. The tax, known as DWT, must be deducted at a rate of 24% (22% from 6 April) from all dividends paid by companies resident in the State to their shareholders unless the recipient is exempt from the tax. The following Irish recipients are eligible for exemption from the tax: companies; pension funds; qualifying employee share ownership trusts; collective investment undertakings and charities.

Relevant territory

In the case of non-residents, the position up to 5 April is that exemption automatically applies if the address of the shareholder is in a ‘relevant territory’, that is, another EU Member State or country with which Ireland has a double taxation treaty. From 6 April, eligibility for exemption is confined to certain categories of non-resident.

Persons eligible for exemption must make a declaration of entitlement to exemption in the form authorised by Revenue. The declaration must be accompanied by a certificate of tax residence from the tax authority of the country of residence where the eligible person is a non-resident individual or unincorporated entity. Where the eligible person is a company ultimately controlled by residents of a relevant territory, or a company (or a 75% subsidiary of a company) whose shares are quoted on a stock exchange in a relevant territory, the declaration must be accompanied by a certificate from the company's auditor confirming that fact.


In general declarations must be made to the company paying the dividends. However, if a shareholder holds shares in the company through a qualifying intermediary or an authorised withholding agent, the declaration must be made to that intermediary or agent. These would be custodian banks, stockbroking firms, etc who hold shares in companies on behalf of other persons and who have authorised by Revenue for the purposes of the DWT legislation. Revenue will advise any person as to whether a particular bank or stockbroking firm has been authorised as a qualifying intermediary or an authorised withholding agent. If the shares are held through an intermediary who has not been so authorised, the company paying the dividends must deduct DWT from the dividends. Persons who suffer DWT but who, had they made the necessary declaration in time, would have been entitled to exemption are entitled to a refund of the tax. In the case of Irish individuals, DWT deducted is creditable against their annual income tax liability. Such individuals should note that, unlike DIRT on bank deposit interest, DWT is not a final liability tax. Consequently, higher rate taxpayers are obliged to pay any additional income tax due on dividends received.


During 1999 Revenue engaged in a wide ranging series of consultations on DWT with representatives of Irish company registrars, stockbrokers and custodian banks. Revenue officials also met with representatives of UK and US banks. Concern was expressed by industry about the compliance obligations associated with obtaining DWT exemption from 6 April next in the case of non-residents and the administrative burden that compliance with the DWT record-keeping and reporting obligations will impose on banks and stockbroking firms who wish to become qualifying intermediaries.

Moreover, it was considered by industry that there should be automatic application of double taxation treaty benefits in operating the DWT scheme where the recipient of the dividend would not be entitled to exemption under the DWT legislation but would under a double taxation treaty be entitled to a full or partial refund of the tax deducted.

The consultations and representations led to a number of welcome changes to the DWT legislation which are proposed in the Finance Bill 2000 to apply from 6 April next.

Perhaps the most significant change is the proposal to grant full exemption from DWT to companies resident for tax purposes in a relevant territory and which are not controlled by Irish residents. In effect this will ensure that double taxation treaty benefits will apply at source; indeed it may go further in some cases as full exemption is being given whereas if one was to rely on a tax treaty for relief a reduced rate of withholding could apply. To qualify for exemption, the necessary declaration of exemption must be accompanied by a certificate of tax residence from the tax authority of the relevant territory concerned and a certificate from the company’s auditor confirming that it is not controlled by Irish residents.

Of importance too is the proposal to change their reporting obligations from a full and automatic annual return of all dividend payments to a requirement to make a return only on request from Revenue and only in relation to the particular class or classes of dividends specified by Revenue.

Other changes to note are the proposed extension of DWT exemption to amateur or athletic sports bodies, designated stockbrokers operating special portfolio investment accounts on behalf of individuals, and non-resident companies wholly-owned by two or more companies each of which is quoted on a stock exchange in a relevant territory. In the latter case the necessary declaration of exemption must be accompanied by a certificate from the company's auditor certifying that the company is so owned.

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