Tax on Dividends from a foreign company

NINA88 said:

Brendan,

My understanding is if you have income in the U.S. and withholding tax is deducted at 15% in the U.S. that this is regarded by the Irish revenue as tax already paid.

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jpd said:

No, filing a W-8BEN allows the broker to only deduct 15% and not the usual 30%. It avoids having to reclaim the overpaid tax from the US Revenue

You declare the gross dividend and the Revenue here automatically credit you the 15%, or possible a lower amount if your Effective Irish Tax Rate is lower than 15%, allowed by the double taxation treaty between US and Ireland

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jpd said:

The amount of credit you get for foreign tax paid depends on the what the Revenue call your Effective Irish Tax Rate

If the percentage tax deducted by the foreign authority is higher than your Effective Irish Tax Rate, then the amount allowed as a Tax credit is limited to the Effective Irish Tax Rate

For example, suppose your Effective Irish Tax Rate is 10% and the US deducted 15%
Gross income 100
US tax 15
Net Income 85

The Revenue will re-calculate the gross income using the formula 85 / (100% - 10%) to get 94.44 rather than the 100
The tax credit is now 94.44 x 10% = 9.44 and not 15

Your Effective Irish Tax Rate is calculated based on the tax due on your total income, Irish and Foreign, using your normal tax credits and ignoring any foreign tax paid

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