The withholding tax rate on dividends paid from an Irish company to a Maltese resident shareholder is generally zero, provided that certain conditions are met. This may arise from exemptions granted by Irish domestic law or the EU Parent-Subsidiary Directive, which eliminates withholding tax on dividends between associated companies within the EU. A reduced rate of withholding tax may also be available under the Ireland–Malta Double Taxation Agreement.
General Dividend Withholding Tax Rate in Ireland
In Ireland, the standard withholding tax rate on dividends is 25%. This applies to dividends paid by Irish companies to non-resident shareholders unless exemptions or reduced rates apply under domestic law, EU directives, or double taxation agreements.
Domestic Law Exemption in Ireland
A qualifying non-resident person (companies and/or individuals as the case may be) may be able to claim an exemption from Irish dividend withholding tax by providing a relevant exemption declaration form to the Irish company paying the dividend (or to an authorised withholding agent or qualifying intermediary). Any claim for an exemption may be subject to outbound payments defensive measures.
A qualifying non-resident individual must be beneficially entitled to the relevant distribution of the dividend and must neither be resident nor ordinarily resident for the purposes of tax in Ireland. Furthermore, the individual must be resident for the purposes of tax in a country (other than Ireland) which is a member of the EU/EAA or a country with which Ireland has a Double Taxation Agreement.
A qualifying non-resident company must be beneficially entitled to the relevant distribution of the dividend. The company must be resident (or ultimately controlled by residents) in a country other than Ireland, which is a member of the EU/EAA or a country with which Ireland has a Double Taxation Agreement. The company must not be under the control (directly or indirectly) of a person resident in Ireland for the purposes of tax. Exemptions for companies listed on a recognised stock exchange (or subsidiaries of companies listed on a recognised stock exchange) may also qualify for the exemption from Irish withholding tax on payments of dividends.
Practical Steps to Claim a Local Law Exemption
The shareholder must complete and send a relevant form (V2A for individuals, V2B for companies, V2C for other bodies of persons) to the Irish company paying the dividend (or to an authorised withholding agent or qualifying intermediary). Forms V2A (for individuals) and V2C (for other bodies of persons) must be certified by the Malta tax authorities.
An exemption is normally valid for 5 years and can be renewed.
EU Parent-Subsidiary Directive Exemption
The EU Parent-Subsidiary Directive may eliminate withholding tax on dividends between associated companies within the European Union. The exemption under the directive applies to dividends paid from an Irish company to a Maltese company, provided the following conditions are met:
Ownership Threshold: The Maltese company must hold at least 5% of the share capital of the Irish company.
Taxable Entities: Both the Irish and Maltese companies must be subject to corporate tax in their respective countries. This means they must not be exempt from tax or treated as tax-transparent entities.
Holding Period: The Maltese company must hold the shares in the Irish company for a minimum period of 2 years. If the 2-year holding period is not yet met at the time of the dividend payment, the exemption may still apply, provided there is an intention to meet this requirement.
If these conditions are satisfied, the Irish company may pay dividends to the Maltese company without applying any withholding tax.
Double Taxation Agreement (DTA) Between Ireland and Malta
Ireland and Malta have a Double Taxation Agreement (DTA) in place, which provides additional relief for withholding taxes on dividends. Under the DTA:
If the EU Parent-Subsidiary Directive does not apply (e.g., if the ownership threshold is not met), the Ireland–Malta DTA may reduce the withholding tax rate on dividends. The DTA limits the withholding tax rate to a reduced rate of 5% if the beneficial owner is a Maltese company holding at least 10% of the voting power in the Irish company or 15% in all other cases
Tax Treatment in Malta
In Malta, dividends received from an Irish company are generally subject to tax in the hands of a Maltese resident shareholder (company or individual). The income will be added to the chargeable income of the Maltese taxpayer and taxed at 35% (for companies) or the personal marginal tax rate (for individuals).
A participation exemption regime is available to Maltese resident companies whereby dividends from a participating holding (eg where the Maltese resident company holds at least 5% of the shares in the Irish company) may be exempted from tax in Malta.
Relief for double taxation (including relief for underlying tax paid by an Irish company) may also be available, resulting in very limited additional tax liability in the hands of the Malta resident shareholder.
To Sum Things Up
The standard withholding tax rate on dividends in Ireland is 25%. However, under Irish domestic law exemption rules or under the EU Parent-Subsidiary Directive, withholding tax can be reduced to 0% in certain circumstances, both for Maltese resident companies and individuals. The Ireland-Malta DTA may also reduce the withholding tax rate or provide relief if the directive does not apply. Proper documentation, such as a certificate of tax residence, may be required to claim exemptions or reduced rates. In Malta, dividends are subject to corporate tax, but exemptions and/or relief may be available.
It is always recommended to consult with a tax advisor to ensure compliance with all requirements and to handle the necessary paperwork for claiming exemptions or reduced rates. The provisions relating to the elimination and/or reduction of Irish withholding tax should be examined by a competent Irish advisor.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
