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Withholding tax on dividends
Extract from FRS102: Section 29.18-29.19.
29.18 When an entity pays dividends to its shareholders, it may be required to pay a portion of the dividends to taxation authorities on behalf of shareholders. Outgoing dividends and similar amounts payable shall be recognised at an amount that includes any withholding tax but excludes other taxes, such as attributable tax credits.
29.19 Incoming dividends and similar income receivable shall be recognised at an amount that includes any withholding tax but excludes other taxes, such as attributable tax credits. Any withholding tax suffered shall be shown as part of the tax charge.
OmniPro comment
Dividend should be accounted gross in the financial statements for the receiver and payer. Where dividend is paid by an Irish resident company to another one, then no element needs to be withheld. However where dividend is received by countries outside of Ireland then dividend tax may be withheld.
Example 20: Dividend received
Company A paid a dividend CU10,000 to Company B. Tax legislation in the country company A resides requires it to withhold tax of CU1,000 which is irrecoverable. In the books of company A the journals would be posted gross:
|
|
CU |
CU |
|
Dr Equity |
10,000 |
|
|
Cr Bank |
|
9,000 |
|
Cr Liability to Tax Authorities |
|
1,000 |
The journal that would be posted in Company B assuming it is paid out of post-acquisition profits would be:
|
|
CU |
CU |
|
Dr Bank |
9,000 |
|
|
Cr Dividend Received |
|
10,000 |
|
Cr Tax in Profit and Loss |
|
1,000 |
If in the above case the tax withheld was refundable, then instead of debiting the profit and loss with the CU1,000, a withhold tax asset account would be debited on the balance sheet.
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