With effect from 1 January 2022, the set-off of withholding tax on dividends against corporation tax will no longer result in a refund. This is part of the tax plans for 2022, who is currently at the Upper House lie.
Dividend tax is creditable
Dividend tax must be withheld on profit distributions made by entities with share capital. However, dividend tax is a withholding tax. This means that the tax withheld may be set off against the corporation tax payable by the recipient entity.
Example
A company that makes a profit of €100,000 is liable for €15,000 (15%) in corporation tax. If this company has received dividends on which €1,000 in dividend tax has been withheld, the set-off of the dividend tax means that, on balance, €15,000 – €1,000 = €14,000 in corporation tax is payable.
Refund
Where the entity in the example makes a loss, no corporation tax is, of course, payable (15% of €0 = €0). The set-off of dividend tax will result in a corporation tax refund of €1,000 up to and including 2021.
However, with effect from 2022, the €1,000 dividend tax will no longer be offset insofar as there is no corresponding corporation tax.
The corporation tax payable is set at €0. The €1,000 in dividend tax that has not yet been offset may be set off against the corporation tax due in subsequent years. This is recorded in what is known as a withholding tax decision. Withholding tax that has not been set off may be set off at any time in the future.
In the context of forming or dissolving a corporate tax group, and in the context of mergers and demergers, unoffset withholding tax will, from 2022, give rise to the same problems as unoffset losses.