No withholding tax on dividends paid to corporate shareholders: where a dividend is paid to a small UK company - after July 01, 2009, that dividend will be considered exempt from UK tax as per the provisions set out by CTA 2009 Part 9a. It may, however, be subject to withholding tax in the foreign country.
The provisions set out in CTA 2009 Part 9a detail that a dividend or 'distribution' is considered exempt in the following 4 circumstances:
1. Where the company paying the dividend is a UK resident or is resident in a so-called 'qualifying territory'
2. Where the dividend is not interest that is being treated as a distribution
3. Where no tax deduction is given for the dividend outside the UK
4. Where the distribution has not been made as part of a tax advantage scheme.
For larger companies, a dividend that has been paid since July 01, 2009 to a large or medium-sized company will be considered exempt if: -
1. It is included in one of the exempt classes listed in CTA 2009
2. If it is not interest that is being treated like a distribution
3. If no tax deduction has been given for the dividend outside of the UK.
In cases where the above is true, there will be no UK tax liability, and it will not be possible to offset the foreign withholding tax. That tax will be payable unless there is a reduction or elimination of this through a double taxation treaty. Usually, where a dividend is not taxed in the United Kingdom, the tax in the overseas country remains a cost to the company.
Where a dividend is paid to a foreign company by a UK company, the UK does not levy any withholding tax on residents of foreign countries; however, again, that payment may be subject to tax in the overseas country.
This is a highly complex and convoluted area of taxation, and here at Coddan Ltd we know that while many of our business clients are highly skilled and knowledgeable persons, they may not be fully conversant with the intricacies of UK taxation.