A company will be liable to deduct payroll taxes in Ireland if a director of the company takes a salary or directors fees from it.
If a shareholder takes a dividend from the company, the company may have to deduct dividend withholding tax (DWT) from the dividend depending on the residence status of the shareholder.
If the shareholder is Irish tax resident the company will have to deduct DWT at 20% from the gross dividend so the net dividend only is paid. The company remits the DWT to Revenue by the 14th of the month following the month in which the dividend was paid.
The gross dividend must be declared in the shareholder’s annual Irish income tax return and depending on other sources of income may have an additional income tax liability in Ireland (but will however receive credit for the DWT deducted).
If the shareholder is tax resident abroad then the company may not have to deduct DWT from the payment of the dividend if conditions are satisfied by the shareholder.
Exemption from DWT is not an automatic entitlement. To claim an exemption a qualifying non-resident person must complete relevant documentation which in some instances must be stamped by the Revenue authorities in their country of residence.
The dividend may also have to be declared in the annual income tax return in the country of residence.
Please note that before a company can pay a dividend it must first have sufficient reserves. Minutes of Meetings for declaration of dividends must also be drafted and signed.
Finally as dividends are paid out of after tax profits, the company’s profits would not be reduced by the payment of a dividend whereas if the company pays a salary it’s profits would be reduced by the salary and accordingly the company’s corporation tax liability would also be reduced.
Of course different tax issues arise if the shareholder is a limited company.