Dividend Distribution Tax

Lesson Summary-Withholding Tax on Dividend Distribution

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Withholding tax (WHT) on dividend distribution at 0%

If  dividend is received from another company/enterprise that paid tax on income /profit (TOI) at 20% or 30% ready, so It has no withholding tax on dividend distribution.

Example 1

Assume ABC Company earned taxable profit of $100 (before income /profit tax).

ABC Company is subject to tax on income at 20%.

Required:

1. Calculate tax on income ( profit)

2.Assume ABC Company declared and paid all net profit after income tax payment as dividends to investors. Calculate withholding tax (WHT) on dividend distribution if any.

Answer

1. Tax on income ( profit)

Tax on income = taxable profit x 20% = 100 x 20%=$20

2.Withholding tax (WHT) on dividend distribution

Net profit = 100-20=$80

There is no withholding tax (WHT) on dividend distribution ($80) to shareholders because ABC company paid tax on income (profit) at 20%.

Withholding tax (WHT) on dividend distribution at 20%

If dividends are paid out of earnings that have not been subject to Tax on Income (profit) 20% or 30%, when a dividend is paid out of income realized during income tax deferral
period (0% TOI), withholding tax on dividend distribution at 20% rate will be applied.

• WHT base = dividend payment
• WHT = dividend payment x 20%

Example 2

Assume ABC Company is granted qualified investment project (QIP) earned profit of $100 (without income tax payment because it is period of tax on income exemption 20% ).

Now ABC Company declared and paid all profit of $100 from previous period to investors.

Required:

Calculate withholding tax (WHT) on dividend distribution if any.

Answer

WHT base = dividend payment=$100

WHT = dividend payment x 20%=$100 x 20%=$20

There is withholding tax (WHT) of $20 on dividend distribution because ABC company  declared and paid dividends from income tax  exemption (0% TOI) profit.

Withholding tax (WHT) on dividend distribution at 11/91 

If there was a 9% tax on income (TOI) rate that existed previously for qualified investment project (QIP). Although QIPs are no longer taxed at the 9% rate, retained earnings that are subject to tax on profit at 9%, so dividends paid to investors will be subject to withholding tax on dividend distribution.

The Withholding tax (WHT) on dividend distribution is determined as the difference between what taxpayer actually paid and the amount the taxpayer should have paid.

• WHT base = dividend payment
• WHT = dividend payment x 11/91

Example 3

Assume ABC Company is granted qualified investment project (QIP) earned taxable profit of $100.

For  this year, ABC company will pay tax on income ( profit) at 9%.

Now ABC Company declared and paid all profit of $100 from previous period to investors.

Required:

1.Calculate tax on income ( profit)

2.Assume ABC Company declared and paid all net profit after income tax payment as dividends to investors. Calculate withholding tax (WHT) on dividend distribution if any.

Answer

1. Tax on income ( profit)

Tax on income = taxable profit x 20% = 100 x9%=$9

2.Withholding tax (WHT) on dividend distribution

Net profit = 100-9=$91

WHT base = dividend payment=$91

WHT = dividend payment x 11/91=$91 x 11/91=$11

There is withholding tax (WHT) of $11 on dividend distribution because ABC company  declared and paid dividends from income tax 9%.

In conclusion, we can summarize the example above as follows.

• -Example 1 : Income Tax paid to tax authority is $20, but withholding tax on dividend distribution is zero, so total payment is $20 ($20+$).
• -Example 2: Income Tax paid to tax authority is zero (exemption), but withholding tax on dividend distribution is $20, so total payment is $20 ($0+$20).
• -Example 3: Income Tax paid to tax authority is $9, but withholding tax on dividend distribution is $11, so total payment is $20 ( $9 +$11).