Dividend Tax

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Dividend Tax is type of an income tax which is levied on the payments made as the dividend to the shareholders of the company paying the tax. Dividends are the shares of the profit of the company which are the given to the shareholders.

The controversy arises here because dividend is nothing but the part of the profit of the company. The profit is the income of the company and a tax is paid on that income. Again, when the dividend is paid to the shareholders, a dividend tax is levied on them and so there is double taxation on the same income - once, tax is paid by the company and then the shareholder pays the tax on the same amount as well.

The dividend tax has become one of the major issues of debate in the financial market. Many of the countries are taking steps for abolishing the dividend tax as because the double taxation is not considered good for the economy. The dividend tax also poses a problem for the senior citizens and the retired personnel. Many financial experts are of the opinion that dividend tax should be abolished in order to develop the economy and a fair practice of taxation should be followed.

Dividend tax concept of different countries:

  • United States of America: With the Jobs and Growth Tax Relief Reconciliation Act of 2003, the dividend tax was lowered to 15% for individual tax payers and 5% for individuals with low income and plans are being formulated for abolishing the dividend tax totally by the year 2008.

  • Canada: The dividend tax in Canada is levied, but the policy pertaining to the taxation uses the Dividend Tax Credit in order to compensate the ill effect of the double taxation. The dividend tax is charged on a range of 3% to 30% based on the individual income level and the different rates used by different provinces.

  • Netherlands: The tax is charged yearly at a rate of 1.2% on the valuation of the shares as a part of the tax charged on investments and savings.

  • In Bulgaria there is a tax of 7% on dividends.

  • United Kingdom: The dividend tax in United Kingdom is charged at a basic tax rate of 10% but for the higher income group another 22.5% has to be added to the 10%.

  • Poland: The dividend tax is charged at a rate of 19%.

  • Romania: The dividend tax is charged at a rate of 16%.

  • Finland: The dividend tax has been introduced in the year 2005 in Finland. The tax rate levied on the income is 29% for a shareholder and the total tax rate would amount to nearly 50%.

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