If you are investing in Ireland then you are likely to have earned some dividend income from holding stocks in US companies such as Apple, Coca-Cola, IBM, McDonald, etc. I recently conducted a poll on my Instagram channel to see how many Irish people actually invest in Irish companies and the figures were pretty stark. Just 14% of 42 respondents admitted to owning any Irish stocks.
This means that the majority of you will be mostly concerned with how US dividends are taxed and that is what I am going to go through in this blog post. Any dividend distributions that you receive from US companies will be classified as foreign dividends by the Revenue Commissioner in Ireland.
How are Foreign Dividends Taxed in Ireland?
The Irish tax rate that you will pay on your US dividend distributions will depend on the size of your other sources of income. Dividends will be subject to PAYE, USC, and PRSI income taxes similar to the taxes you regularly pay if you are working a normal 9-5 job.
The tax rate on dividend income will be ultimately at your marginal tax rate. The marginal tax rate is the rate of tax you pay on any additional euro you earn.
For example, if you are earning above €70,044 per annum then your marginal tax rate on any additional income you earn above this level is 52%. And 52% is the highest possible tax rate you will pay on your dividend income.
If you compare this to someone who just has other sources of income (e.g salary from their employment) of €30,000, their marginal tax rate will be much lower at 28.5%. Basically, the more you earn the more tax you will be paying on your dividend income.
The tax will be paid on the gross amount of the dividend you receive. The dividend income that you receive in your brokerage account will likely have 15-30% WHT deducted already. This WHT can be used as a credit against any further tax you have to pay on your dividend income.
How to declare US dividend income in Ireland
How you declare your dividend income will depend on whether you are a chargeable or non-chargeable person.
You are a chargeable person if you have a PAYE source of income and, either:
- Net assessable non-PAYE income of €5,000 or more in a year or;
- Total gross income from non-PAYE sources, of €30,000 or more in a year.
Chargeable people are generally those who are self-employed or those with normal 9-5 with substantial rental income. If you earn US dividend income in this instance then it can be included in your annual tax return (Form 11). This may be completed by your accountant, so you should also inform them of how much dividend income you made.
Here is a screenshot of the relevant section to include US dividend income if you are completing it yourself.
You are not a chargeable person if you have a PAYE source of income and your net assessable non-PAYE income is less than €5,000.
Non-chargeable persons can declare income at anytime by logging into their ‘my account’ on Revenue.ie or else wait until the end of the year and complete an income tax return (Form 12).
Below is a screenshot from the paper version of this form but there is also a simplified online version that is available through your ‘my account’ on Revenue.ie.
Scrip Dividends (receiving additional shares instead of cash)
When companies issue SCRIP dividends, it means you may receive additional shares instead of a cash dividend.
In this instance. these dividends will be taxed the exact same way as cash dividends. You will need to record the gross value of the shares at the time the dividend is declared and then this amount will be your taxable income.
The world is a global place, you may be living in Ireland and it may not be your country of domicile. In certain circumstances, you will only have to pay Irish tax on income that is remitted to Ireland. I have a further blog post that will go through this in a bit more detail if you are interested:
Disclaimer: This blog post, is for informational and educational purposes only and should not be construed as financial advice.