Dividend Withholding Tax (DWT) - Real -Time Reporting

A significant reform of the Irish Dividend Withholding Tax (DWT) regime came into effect on 1 January 2020. Further changes effective from 1 January 2021 have also been announced. These changes represent significant reform of the DWT regime and will impact on those paying and receiving dividends from Irish companies.

Current regime

Budget 2020 announced changes to the DWT regime. With effect from 1 January 2020, Irish resident companies must withhold DWT at the rate of 25% (20% pre 1 January 2020) on dividend payments and other distributions,  

Given the number of exemptions available, DWT typically only tends to apply to distributions made to Irish tax resident individuals and residents in countries which do not have a double taxation treaty (“DTA”) with Ireland, or are not in the European Union.

All DWT deducted by companies must be paid to Revenue via Revenue’s Online Service (ROS) by the 14th of the month following that in which the distribution is made together with the DWT return. Where the withholding tax is not paid on a timely basis, interest will apply at 0.0274% a day for each day or part of a day from the date the DWT becomes payable.

The DWT return must be filed even if there was no DWT deduction from the distribution.

Proposed Real-Time Reporting

The second prong to DWT reform announced in Budget 2020, is a real-time reporting regime. With effect from 1 January 2021, real-time DWT reporting is being introduced in respect of distributions to be made by Irish resident companies, including Authorised Withholding Agents (AWAs), to individuals.

The DWT modernisation which Revenue proposes to implement will address the perceived “tax gap” which currently exists between the amount of DWT remitted by companies and the amount of tax ultimately payable on this income by investors. The new regime will ensure that individual investors in receipt of dividends are paying the right tax at the right time. The effect of the modernization programme will be to accelerate the payment of tax.

What does this mean for companies and AWA?

Under the new proposed system, Revenue will use real-time data collected under the Pay As You Earn (PAYE) system to administer the DWT regime. A “personal withholding rate” (based on an individual taxpayer’s marginal rate of tax, including USC and PRSI where applicable) will be provided to allow companies who pay dividends directly to individuals to calculate the DWT to be deducted from each individual.

The company or AWA that pays the relevant distribution must keep a record of the tax reference number or Personal Public Service Number (PPSN) of the person(s) beneficially entitled to the relevant distribution.

There is no current proposal to change the return dates or due dates for companies to pay over the DWT deducted.

What does this mean for Qualifying Intermediaries (QI) and Non-QI’s?

A QI is a person who can receive distributions on behalf of other persons, for example, a nominee or custodian. QIs under the new process will continue to notify the paying company in writing whether the distribution is for the benefit of non-liable or liable persons.

What does this mean for individuals?

This new process will ensure that individuals pay the correct amount of income tax, Universal Service Charge (USC) and PRSI on dividend payments at the right time. The dividend amount, as well as credit for the DWT paid, will be pre-populated onto the individual’s income tax return or End of Year Statement (for individuals taxed under the PAYE system).

Consultation process

Revenue are currently reviewing submissions as part of the public consultation process which closed on 12 December 2019. More details on the mechanics of the proposed new DWT regime is required, particularly around taxpayer confidentiality/GDPR and operational issues for companies ensuring IT systems can adapt to the new regime.

Cormac Kelleher

Tax Partner

ckelleher@mazars.ie

01 449 4456

Aisling Curran

Tax Manager

acurran@mazars.ie

01 449 4639

 

February 2020

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