RDRM31160 - Remittance Basis: Introduction to the Remittance Basis: Foreign Income and Gains: Dividends from foreign companies - dividend tax credits and remittance basis
UK residents who receive dividends from foreign companies are entitled to a dividend tax credit equal to one ninth of the grossed up dividend in certain circumstances (ITTOIA05/s397A). This entitlement to a dividend tax credit commenced on 6 April 2008 but the circumstances in which the tax credit is due changed from 22 April 2009.
6 April 2008 - 21 April 2009
For dividends received before 22 April 2009, an individual qualified for the dividend tax credit only where the individual’s shareholding was less than 10% of the issued share capital of the company paying the dividend, (and the foreign company was not an offshore fund). An offshore fund is an offshore collective investment scheme that may take the form of a non-resident company.
After 22 April 2009
For dividends received on or after 22 April 2009 an individual qualifies for the dividend tax credit if they meet one of the following tests:
- They own less than 10% of the issued share capital, or any class of share, of the company paying the dividend,
- The company paying the dividend is an equity based offshore fund,
- The company paying the dividend is resident for tax purposes in a territory with which the UK has a double taxation agreement that includes a non-discrimination article.
The above is only a brief summary; for full details of the changes introduced see Schedule 19 to the Finance Act 2009.
This entitlement to the tax credit only applies so far as the dividend is brought into charge to tax. For a remittance basis user the tax credit is available in respect of relevant distributions from a non-UK resident company received in, or treated as received, in the UK.
Dividends paid prior to 6 April 2016 but remitted post 5 April 2016
If a remittance basis user receives a foriegn dividend before 6 April 2016 that qualified for a tax credit in the year it was paid, the individual will be entitled to a tax credit in the tax year the dividend is remitted to the UK. Dividends paid on or after 6 April 2016 do not qualify for a dividend tax credit when the dividend is remitted to the UK.
The position in relation to dividend allowance
The dividend allowance is not applicable on a remittance of foreign dividends as, without the nil rate, it is not subject to tax at the dividend ordinary rate, upper rate or additional rate as set out in ITA07 S13(A)(1).
Example
In June 2009 (tax year 2009-2010) Jacinda, a remittance basis user receives a dividend from a foreign company and qualifies for a tax credit under the rules to the extent that the dividend is brought into charge. The dividend is £25,000, inclusive of withholding tax of £3,750. The withholding tax rate that is provided for in the double taxation agreement between the UK and the country in which the company paying the dividend is established is 15%.
Jacinda pays UK tax at a higher rate of 40%.
Jacinda actually remits £6,885 of this dividend in cash to the UK. The calculation is as follows:
| Action | Amount |
|---|---|
| Dividend remitted as cash | £6,885 |
| *Including proportion of withholding tax | £1,215 |
| *(6,885/21,250 x 3,750) | - |
| Dividend taxed as remitted | £8,100 |
| Tax credit 1/9 | £900 |
| Gross income for tax | £9,000 |
| UK tax charged at 40% | £3,600 |
| Less withholding tax at 15% | (£1,215) |
| Tax credit | (£900) |
| Net UK liability | £1,485 |