What Is Your Dividend Tax Rate?
As you might imagine, the dividend tax rate will differ from country to country. There are two main geographical factors that influence this, they are:
- where is the company paying out the dividend based?- where are you legally resident?
Our dividend tax rate will mainly depend upon the top rate of income tax at which we pay our taxes. There are many different formulas and potential calculations, so this site shall not even try and do this.
Tax rates can vary amazingly. For example, there was a time once in the UK where a dividend payment was taxed at 98%. We would not have believed this if we had not been told and shown by a high level UK civil servant. It takes no skill to add that the rate at which taxes are charged to dividends will impact the total return on any stock investment.
Under such circumstances, there is barely any point in investing in a large (defensive) company. Governments started to realise that if they wanted their nation's economy to be stronger, they needed lots of investment capital available for companies and a population that had the ability to preserve and create wealth. Such high dividend tax rates acted as a brake to these goals.
Through the end of the 1990's and into the 2000's, the rate at which taxation was charged on a share dividend gently fell in many developed countries. The basic tax deducted at source on the payment of a dividend is now around 20% in lots of countries.
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It is worth pointing out though, that in most major nations, basic rates of income tax are deducted at source from the dividend. This means that the cheque you receive has probably had most or all of your tax liability already deducted. This does not mean that you have no responsibility to declare the income though.
There are some nations where an individual is not taxed on this form of income. However, our research leads us to believe that most of these locations are small and sunny islands rather than the major economic powers of the world. As such these payouts are not generally from companies listed on a major world stock exchange, but instead from privately owned businesses.
If you benefit from this situation, the chances are that you aready know this and established the business there for this very reason!
The rules on tax generally change if the person receiving the dividend is not resident in the same country as the company paying the money out. In these circumstances, a
is applied before payment to ensure that some tax is paid on the dividend somewhere. If the jurisdiction in which the receiver lives does not tax dividends, it is then up the receiver to deduct it - if possible - from other taxes paid that year.
As always, it is worth taking professional advice from an accountant or financial adviser to help with you individual situation. The tax inspector, Inland Revenue, IRS or whomever, is not generally the organisation that you want to fall foul of.
Other dividend related pages include:
To An Investor, A Dividend Is A Valuable Thing!
The Definition Of A Dividend
Dividend Policy And Dividend Cover
Understanding And Calculating A Dividend Yield
How High Is A High Dividend Yield?
What Are Dividend Reinvestment Schemes?
How Does A Scrip Dividend Work And What Is A Scrip Issue?
Building A Dividend Portfolio
How Does An Annual Dividend Payment Policy Alter A Company Stock Price?