Dividend Tax in Ireland: What You Need to Know

Dividend tax is an important consideration for individuals receiving dividend income in Ireland. Understanding how dividend tax works, who is liable, and the applicable rates can help you manage your tax obligations more effectively. 

In this detailed guide, we will explain everything you need to know about dividend tax in Ireland, including the conditions, rates, and exemptions.

What is Dividend Tax?

A dividend tax is a tax imposed on the dividend income received by individuals Dividends are typically payments made by a corporation to its shareholders out of its profits. In Ireland, this income is subject to taxation to ensure that it contributes to the public revenue.

How Does Dividend Tax Work?

When you receive dividend income, it is considered part of your overall taxable income and must be reported on your tax return. The tax on dividends in Ireland is calculated based on your total income, including the dividends, and the applicable tax rates. The process involves a combination of income tax and Dividend Withholding Tax (DWT).

What is Dividend Withholding Tax (DWT)? 

Dividend Withholding Tax (DWT) is a tax deducted at source from dividend payments made by Irish companies. This means that when a company pays a dividend, a portion of the amount (25%) is withheld and paid directly to Revenue. The net dividend is then paid to the shareholder. The withheld tax can be used as a credit against the shareholder’s total income tax liability.

Who Has to Pay Dividend Tax?

Residents vs. Non-Residents 

Dividend tax applies to both residents and non-residents of Ireland. However, the tax treatment may differ based on residency status.

• Residents: Irish residents are liable to pay tax on their worldwide income, including dividends received from both Irish and foreign companies.
• Non-Residents: Non-residents are subject to DWT on dividends received from Irish companies but may be able to claim a refund or reduction in DWT under a double taxation agreement between Ireland and their country of residence.

Special Considerations for Non-Residents

For non-residents, the DWT rate may be reduced under double taxation treaties. These treaties aim to prevent double taxation of income and can provide significant tax relief. Non-residents should check the specific treaty between Ireland and their home country to determine the applicable DWT rate and procedures for claiming relief.

Conditions and Rates of Dividend Tax in Ireland (H2)

Income Tax on Dividends

The dividend income you receive is added to your total taxable income and taxed at your marginal income tax rate. Ireland has a progressive income tax system with rates of 20% and 40%, depending on your income level.

Who should withhold DWT?

DWT is deducted at a rate of 25% from all relevant distributions, including

• normal cash and non-cash dividends, 
• expenses incurred by close companies for a participator, 
• excess interest paid by close companies to directors, 
• scrip dividends of both quoted and unquoted companies. 

DWT is also deducted for distributions made to associated entities in zero or no-tax jurisdictions or in jurisdictions on the European Union (EU) list of non-cooperative jurisdictions, known as outbound payment defensive measures.

How Much is Dividend Tax in Ireland?

The amount of tax you pay on dividends depends on several factors, including your total income, the amount of dividend income received, and your residency status. If you are a resident of Ireland, DWT will be deducted at a standard rate of 25% before you receive the payments. Non-residents may benefit from reduced DWT rates under double taxation treaties.

Example Calculation

A taxpayer with a marginal tax rate of 52% (40% Income Tax + 4% PRSI + 8% USC) is set to receive a gross dividend payment of €5,000 for shares in an Irish company. 

The company will deduct €1,250 (25% dividend withholding tax) and remit it to Revenue on your behalf. Subsequently, the company will inform Revenue of the dividend payment. The following year, when filing the annual tax return, the individual should report the gross dividend amount and the amount withheld as dividend withholding tax (DWT). 

The individual will be taxed on the full €5,000 at 52%, resulting in a tax liability of €2,600. However, the individual will receive relief for the €1,250 already paid through DWT, resulting in a net liability of €1,350 (€2,600 – €1,250).

Tax on US Dividends in Ireland 

If you receive dividends from US companies, these are also subject to Irish taxation. The United States imposes a withholding tax on dividends paid to foreign investors, typically at a rate of 30%. However, under the Ireland-US double taxation treaty, this rate is reduced to 15% for Irish residents.

Overview of DWT Exemptions and Reliefs 

Certain dividends may qualify for exemptions or reduced rates of DWT under specific conditions. 

For instance, dividends paid by an Irish resident company to another Irish resident company may be exempt from DWT. Additionally, dividends paid to certain pension or retirement funds, charities, and trusts may also be exempt. 

Qualifying Non-residents can also claim an exemption from DWT. For further information, please see Revenue’s exemption criteria for non-residents.

How to Claim Exemptions 

Irish Residents:

Qualifying Irish resident persons can claim an exemption or reduced rate of DWT excluded individuals by filling out one of the following declaration forms to Revenue. 

• Form V3
• Form for an Irish Exempt Unit Trust
• Form for an Irish PRSA Administrator.

This exemption will stay valid until you are no longer an excluded person for DWT purposes.

Non-Residents:

To be eligible for an exemption, a non-resident person who meets the requirements must fill out the appropriate exemption declaration form:

• Form V2B for companies
• Form V2A for individuals
• Form V2C for bodies of persons (other than individuals or companies).

Forms V2A and V2C need to be certified by the tax authority of the non-resident person’s country of residence. The exemption remains valid until December 31 of the fifth year after the year in which it was issued. If the non-resident person wishes to continue the DWT exemption, they must renew it before this period ends.

Common Questions about Dividend Tax in Ireland

What is the DWT Rate in Ireland?

The current Dividend Withholding Tax rate in Ireland is 25%. This rate applies to dividends paid by Irish resident companies to both residents and non-residents. Dividend withholding tax is withheld from the distribution of the dividend, i.e., at source.

Is There a Tax-Free Dividend Allowance in Ireland?

No, Ireland does not offer a tax-free dividend allowance. All dividend income is subject to taxation at the applicable rates.

How Do I Calculate My Dividend Tax?

You can calculate your dividend tax by adding your dividend income to your total taxable income and applying the relevant income tax rates. The DWT withheld can be used as a credit against your total tax liability. Using a dividend tax calculator can help simplify this process.

When do I Pay & File a Return?

Taxpayers are obliged to declare both their Irish and foreign dividends each year in their tax return.  Any tax already deducted such as Dividend Withholding Tax (DWT) is included in the return which ensures you get relief for tax already paid.  The deadline to file and pay is the 31st of October in the year following receipt if the dividend payment.

Conclusion: Managing Dividend Tax in Ireland

Understanding dividend tax in Ireland is essential for managing your tax obligations effectively. Whether you are a resident or non-resident, knowing the applicable rates, conditions, and reliefs can help you minimise your tax liability and ensure compliance with Irish tax laws. Understanding the 2024 Budget Highlights and knowing which tax credits you can claim can significantly impact your financial planning and tax liability.

Navigating your tax returns doesn’t have to be complicated! Resources like our guides on How to File Your Tax Returns and Relevant Tax on Share Options (RTSO) are designed to support you through every step of the process.

For personalised advice and assistance with your tax returns, complete our short form now to receive a quote and find out how our team can help you with your Inheritance tax return this year.

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