I presume you are referring to the email sent yesterday to Irish resident account holders of Interactive Brokers Ireland Limited ("IBIE").
Up to now, on foreign dividends, IBIE has just been applying the
foreign withholding tax, which is payable to the treasury of the
foreign country.
So, for example, for a gross dividend of US$100 on a US share received by an Irish resident account holder to date, IBIE have only deducted 15%
US withholding tax (for those with the proper paperwork), and paid this 15% to the US Inland Revenue Service.
The Irish resident account holder declares the gross dividend of US$100 in their Irish tax return, receives a credit for the 15% deducted and paid to the USA, and pays the balance of their income tax liability to the Irish Revenue Commissioners.
IBIE I suspect are catching up on their
Irish tax obligations, hence the email you received.
IBIE should also have been applying
Encashment Tax. This is an
Irish withholding tax applied at a rate of 25%. IBIE should have been treating the above foreign dividend as follows:
| USD |
| Gross dividend | 100 |
| US withholding tax @15% | 15 |
| Net dividend | 85 |
| Encashment tax @ 25% | 21.25 |
| Net dividend payable to account holder | 63.75 |
IBIE were not collecting the $21.25 Encashment Tax in the example above and are now playing catch up.
So, IBIE must have done a reconciliation exercise to look back over the dividends received by Irish resident account holders in 2024, tallied up the Encashment Tax that should have been deducted on the specific dividend payment dates, and that is the sum they will be deducting from account holders on Jan 7th 2025. As IBIE said in the email, they have amended their practices so that going forward, the $15
and $21.25 (per the example above) will be deducted on the
dividend payment date. More info about Encashment Tax
here.
I received a similar email and they are taking a lump sum on Jan 7th which represents Irish Encashment Tax for all foreign dividends received prior to the receipt of the email. I did a reconciliation exercise myself and it's pretty accurate. I am also due to receive USD dividends with a pay date of next week but IBIE have said that Encashment Tax for those will be dealt with on the dividend payment date itself, and outside of the lump sum deduction on January 7th 2025.
The slight wrinkle is that I have already paid my preliminary tax in November 2024 based on the dividends I received up to the tax deadline and an estimate of the December dividends. As it has been the practice of IBIE to not deduct Encashment Tax, the preliminary tax that I paid is higher than it would have been had they been deducting Encashment Tax.
As a result, I'll be in a net repayment situation from Revenue in my 2024 income tax return next year.
You may have also received an email from IBIE earlier this year (or maybe it was late last year). IBIE were paying interest on cash balances to Irish resident account holders gross of any Irish tax. IBIE also had to do a reconciliation exercise there too and deduct a one off lump sum from Irish resident account holders representing the Irish interest withholding tax of 20% that they should have been applying. Thereafter, the 20% Irish interest withholding tax was applied on the monthly interest payment date.
As I said, I suspect IBIE are playing catch up with their Irish obligations. Previously, the counterparty for account holders was Interactive Brokers (UK) Limited - that's who I originally set up with. Accounts were migrated a few years ago to IBIE, which is an Irish resident and regulated entity, with ensuing Irish obligations.