Budget 2020: changes expected to dividend withholding tax

Today’s budget is expected to include an increase in the rate of dividend withholding tax, which is paid directly by companies to the Revenue Commissioners when they make payments to shareholders. The move will not mean any overall additional cost to tax-compliant shareholders, though they will in future receive less of their dividend up front, having some impact on their cash flow.

The current 20 per cent rate of dividend withholding tax is expected to rise - perhaps to 25 per cent - giving a cash flow boost to the exchequer. The move will also mean more revenue for the State from shareholders who do not declare the dividend for tax at the higher 40 per cent rate, as they should do.

Dividend withholding tax must be paid by Irish companies on distributions made to shareholders , subject to certain exceptions . They must pay the tax by the middle of the month following the distribution, which can be an ordinary or scrip dividend.

The tax is currently payable at 20 per cent , the standard income tax rate. Shareholders thus receive the money net of this payment and can claim it as a credit against their own tax . In many cases they must pay more tax on their dividend , if they are taxable at the higher 40 per cent income tax rate .

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Increasing the rate , probably to 25 per cent , gives a tax flow boost to the exchequer as it will receive more of the payment up front . Thus it will give a once-off boost to revenues in 2020, It also collects more from shareholders who do not declare the income for payment at the higher tax. The move will come as a surprise to tax practitioners as it was not speculated as likely in advance of the budget and appears to be one a range of revenue raising measures for 2020 which emerged late in negotiations,

Separately, the Budget is also expected to include a range of anti-evasion measures relating to certain types of property funds investing here.