Dividend Tax

When a company pays a dividend, the shareholder usually has to pay tax on it, either through withholding at source or by reporting it on a tax return. The rules depend on the country, the type of dividend and the shareholder's circumstances.

Many countries tax dividends at rates different from those on wages. Some offer a tax-free dividend allowance, reduced rates or credits that recognise the company has already paid corporate tax on the profits. This is meant to reduce double taxation, where the same profit is taxed once in the company and again in the hands of the shareholder.

For example, under a hypothetical system with a dividend tax rate of 10%, a shareholder receiving 2,000 of dividends would pay 200 of tax.

Dividends paid to foreign investors are often subject to withholding tax in the company's home country. Tax treaties may reduce this rate, and investors can sometimes claim credit for foreign tax paid against tax at home.

Dividends received within tax-advantaged accounts, such as certain retirement or savings accounts, may be partly or fully exempt. Because rules differ widely, investors should check how dividends are taxed where they live.