In May 2020, the Irish Revenue announced a delay to the roll-out of a new real time reporting system for dividend withhold tax (DWT), originally due to be implemented on 1 January 2021. Here we provide an overview of the proposed changes, reasons for the delay, and how the tax authority intends to proceed.
The Proposed Changes
Under current rules, Irish resident companies must withhold tax on dividend payments and other distributions that they make to Irish resident individuals. These dividends are treated as income and are liable for income tax at the payee’s marginal rate, alongside Universal Social Charge, and, in some cases, Pay-Related Social Insurance.
The proposed two-step reform of the DWT regime was first announced in the Budget released on 8 October 2019. Under the first stage of these reforms, the rate of DWT rose from 20% to 25% on 1 January 2020.
From 1 January 2021, the Revenue was to use real-time data collected under the recently modernized Pay As You Earn (PAYE) system to administer the DWT regime.
Reasons for Change
According to the Government, the existing system is prone to error and fraud.
Finance Minister Paschal Donohoe put it in his Budget speech, there is:
“a potential gap between the dividend withholding tax remitted by companies and the income tax and USC that is ultimately payable by the individual Irish resident taxpayer."
Thanks to improvements in information technology, real-time reporting will therefore allow for much more accurate reporting and payment of DWT. Under this system, the Revenue will provide a personal withholding rate to allow companies who pay dividends directly to individuals to more precisely calculate the DWT that should be deducted for each individual.
The Government has insisted that this change will not increase the overall amount of tax due on dividends but will raise rates of compliance.
Reasons for the Delay
The Government has decided to postpone the introduction of the real-time reporting system for two main reasons: First, the transfer of the Irish equities market to a new settlement system, due to be completed by March 2021, and second due to disruptions caused by the COVID-19 epidemic.
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When Will The Scheme Begin?
The Revenue has not provided a specific date for the launch of the DWT real-time reporting system, and has announced that future plans will be the subject of further consultation with stakeholders.
It seems unlikely that the new system will go live before the stock exchange’s new settlement system has bedded in.