DIVIDEND TAX SHAKE-UP

Irish quoted companies will find themselves withholding a higher proportion of dividends due to shareholders, following a major shakeup in the Budget.

Until the Budget, Irish companies automatically deducted 20pc of the dividends which they paid their shareholders in dividend withholding tax.

The taxpayer could then miss either some or all of this withholding tax if they could show that they had overpaid tax.

As part of a two-stage process, the dividend withholding tax goes up to 25pc on January 1.

While Paschal Donohoe stated in his Budget speech that the change in the withholding tax rate “will not alter the underlying amounts of tax that are due to be paid by Irish residents”, the Budget documentation shows that the Government is predicting that the change will yield an extra €80m of revenue every year.

The increase in the withholding tax rate next year will give way to a system using real-time data, collected under the modernised PAYE system, from the beginning of 2021.

This will generate a personalised rate of dividend withholding tax for each individual taxpayer.

“The increase of the rate of dividend withholding tax, on distributions paid by Irish-resident companies, from 20pc to 25pc is a measure in the main to tackle tax compliance failures. This will see Irish-resident companies withhold more tax at source, thereby closing the gap on what Irish individuals (subject to marginal tax rates) should be paying under the self-assessment system,” said Peadar Andrews, tax partner at EY.