When Brexit becomes reality, the UK will no longer benefit from the nil rate of withholding tax (WHT) that is applied on most EU dividends. This means that EU companies paying dividends will have to withhold tax at the treaty rate and then pay over the net amount from 1 January 2021. WHT rates will differ between EU countries so if your company has an EU subsidiary then it might be wise to consider paying dividends before 31 December 2020 so that WHT is not a cost – whatever the rate.

Most dividends received by UK companies are not taxable, so there will be no relief for the WHT suffered, resulting in the WHT being a cash cost to the company.

Example of EU Company Dividend tax treatment pre and post Brexit

Pre 31 December 2020 – a German subsidiary pays a £100 dividend to its UK parent. There is no WHT and the £100 dividend is not taxed in the UK, so the UK company ends up with £100.

Post 31 December 2020 – a German subsidiary pays a £100 dividend to its UK parent. There is 5% WHT so a dividend of £95 is received. This £95 dividend is not taxed in the UK and the WHT cannot be reclaimed, so the UK company ends up with £95.

The UK does not impose WHT on any dividends paid by UK companies to non-UK companies, so these dividend payments won’t be affected by Brexit. However, if a UK company pays interest or royalties to any overseas party it will need to consider the rate of WHT and whether it is required to deduct 20% WHT which is the standard rate before taking into account the appropriate tax treaty.

Get in touch with Kate Naylor to start a conversation about how taking action now could be beneficial, just email or call direct on 0113 297 6825.

Kate Naylor
Kate Naylor
Tax Partner

Kate works with businesses and their owners on tax strategies and mitigation, looking at business and personal tax structures to achieve long term goals.

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