Do you own shares in an Irish company? Are you thinking about receiving dividends as a way to pay yourself from your Limited Company? Navigating the best method to pay yourself as a business owner can be intricate.

In this article, we’ll explore the difference between a salary and dividends and provide you with an overview of dividend tax in Ireland, so you can stay informed and make smart financial decisions.

If you need help at any stage, reach out to our Client Services Team who is happy to help with any questions you may have.

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Dividend income

Companies can reward shareholders by distributing dividends, but it's important to note that dividend payments are taxable and need to be declared to the Irish Revenue Commissioners.
  • Dividends are paid from the after-tax profits

    The amount of dividend that can be paid will depend on the after-tax profits of the company and are therefore not a tax-deductible expense for the company. This means that the company can't pay out dividends if the company is making a loss.

  • 25% Dividend Withholding Tax (DWT)

    Companies need to deduct Dividend Withholding Tax (DWT) on the dividend and pay this amount to Revenue.

  • Non-resident shareholders

    Non-resident shareholders do not pay DWT in Ireland if they complete a form V2A and these individuals should also check how dividends are taxed in their country of residence.

  • Income Tax Return

    Dividends need to be declared on your Irish tax return and will also be subject to income tax (depending on whether you are in the 20% / 40% bracket).

  • Tax credit

    You get a 25% tax credit for the tax withheld against your tax liability. However, as the dividend is unearned income, it cannot be relieved by pension contributions.

Salary income

A salary is a regular, fixed income or compensation paid to you for your work performed. Salary payments are taxable as an employer and an employee and the company must remit the taxes to Revenue each time you are paid.
  • Shareholders are often directors

    In some companies, the shareholders are also directors so they usually opt for a salary instead of dividends, especially in the company's early stages.

  • Salary payments and taxes must be reported to Revenue

    The company needs to register as an employer and salaries are subject to taxes such as PAYE, PRSI, and USC.

  • Tax deductions, credits, and reliefs

    Gross salaries are allowable tax deductions for companies and will help reduce any Corporation Tax due. You can also save on your personal tax liability by claiming tax credits and reliefs on your salary.

  • Non-resident directors

    Non-resident directors can be paid a salary and there may be a double taxation agreement with your country of residence which means you may be entitled to a tax refund.

Paying dividends to directors

Dividends are paid with any profits that are left once the tax has been paid.

Normally, a company has to pay the employer’s PRSI tax when giving directors a salary. However, there is no employer’s PRSI tax if directors take a dividend. On the other hand, dividends cannot be deducted against a company’s tax liability whereas salaries are considered tax-deductible business expenses. Business expenses can reduce the amount of Corporation Tax the company pays at the end of the year.

Dividends are also subject to Dividend Withholding Tax (DWT) on any dividend payments made to shareholders living in Ireland, so it’s important that you are aware of the rules around paying out dividends.

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Example of dividends paid to shareholders living in Ireland

All income (including dividends) is taxed at either 20% or 40% depending on your standard tax bracket. This means that you could effectively pay the same amount of tax on your dividends as you would if you were to receive a salary. Shareholders receive a net dividend amount (i.e dividend after-tax) and a tax credit for DWT. This credit is deducted from the shareholder’s personal income tax liability.

Pay dividend to shareholder

The company pays the shareholder a gross dividend of €1,000 because the company had €10,000 profit at the end of the year. Dividends are taxed at 25%, therefore the shareholder receives €750 of the dividend.

Calculate Dividend Withholding Tax (DWT)

The company withholds €250 dividend tax and pays this to Revenue on behalf of the shareholder. The shareholder needs to declare the dividend income on their tax return.

Pay DWT to Revenue

The must pay all the dividend tax to Revenue on the 14th day of the month following when the dividend was paid. E.g if the shareholder received the dividend on 10/01, the company must pay the DWT amount by 14/02.

Shareholder not resident in Ireland receiving dividends

In general, there is no DWT for non-resident shareholders.

Non-resident shareholders need to file a form V2A to get an exemption from DWT. The form V2A needs to be completed by the shareholder and certified by a tax authority of the country in which the shareholder is resident.

Dividends and any other income from your Irish company will be taxed in the country you are resident. Therefore it is also important to speak to an accountant in your resident country.

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