The Irish Revenue has launched a consultation on a proposed new system for applying and collecting the dividend withholding tax, which will see the tax move to real-time reporting by 1 January 2021.
Currently, Irish resident companies are obligated to withhold dividend tax on dividend payments and other distributions that they make to Irish resident individuals. Dividends paid, as well as other such distributions, are treated as income and are liable to income at the individual's marginal rate of income tax. USC is also chargeable on the payments, along with Pay Related Social Insurance in certain instances.
In his Budget speech on 8 October, Finance Minister Paschal Donohoe said that Revenue:
"has identified a potential gap between the dividend withholding tax remitted by companies and the income tax and universal social charge (USC) that is ultimately payable by the individual Irish resident taxpayer."
Donohoe announced a two-stage approach to improving the DWT regime.
First, from 1 January 2020, the rate of DWT will rise from 20% to 25%. Second, from 1 January, 2021, Revenue will use real-time data collected under the recently modernised Pay As You Earn (PAYE) system to administer the DWT regime. This will allow
"a personalised rate of DWT to be applied to each individual taxpayer, based on the actual rates of tax that they pay."
Revenue explained that, under the current system:
"even though DWT has been paid on the dividend a further amount of tax may be due,"
This can lead to the underpayment of tax.
"We are now in an era where modern information and communications technologies present opportunities for real-time reporting. The modernisation which Revenue proposes to implement will better accommodate paying the right tax at the right time."
As of January this year, employers have been required to report payroll information each time they pay their employees, for each employee, including: payment date, amount of pay, and amount of income tax, USC, and Local Property Tax deducted.
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Under the new DWT system, Revenue:
"will make available a personal withholding rate to allow companies who pay dividends directly to individuals to calculate the dividend withholding tax to be deducted for each individual."
Companies will be required to report in real-time to Revenue for each individual the gross dividend paid and the associated dividend tax withheld. Revenue will inform the company of the amount of DWT to deduct.
Donohoe said that the changes:
"will not alter the underlying amounts of tax that are due to be paid by Irish residents and will increase compliance by facilitating taxpayers in paying the right amount of tax at the right time."
The consultation on the changes is to close on 12 December.
Disclaimer: The blog does not represent taxation or legal advice and that independent advice should always be sought in respect of such matters etc.