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.
Let’s 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.
Dividend income
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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. The company can't pay out dividends if the company is making a loss.
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25% Dividend Withholding Tax (DWT)
Companies need to deduct Dividend Withholding Tax (DWT) on the dividend and pay this amount to Revenue.
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Non-resident shareholders
Non-resident shareholders do not pay DWT in Ireland if they complete a form V2A. They should also check how dividends are taxed in their country of residence.
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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).
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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
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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.
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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.
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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.
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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.
Example of dividends paid to shareholders living in Ireland
Pay dividend to shareholder
Calculate Dividend Withholding Tax (DWT)
Pay DWT to Revenue
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.
Tom is a Fellow Chartered Certified Accountant (FCCA) and Chartered Tax Advisor (CTA) and is the Head of Accounting at Kinore. Areas of expertise include Accounting, Compliance, Taxation relating to small business and company directors.