Capital Gains and Income, Dividends

Isoaxe

Hi, a couple of questions regarding the treatment of capital gains tax and dividends derived from companies incorporated and listed in the US. I couldn't find any other threads addressing my questions specifically.

The first question I have has to do with the compounding of capital gains tax and income tax for an Irish resident investing mainly in US securities. I will use a simplified example for illustration purposes and clarity of query.

Investment capital: €100,000
20% gain after first fiscal year: €20,000
Allowance: €1,270
Taxable amount: €18,730
Capital gains tax @ 25%: €4,682.50
Net profit: €15,317.50

Deductibles such as transaction costs etc omitted for simplicity.

The question is whether the net profit is subject to any further taxes such as income tax.


The second question has to do with dividends received from North American companies. There is a dividend withholding tax of 30% (by the IRS) on all dividends from US corporations, which can be reduced to 15% on completion of form W-8BEN thanks to the treaty between the two countries. Is this 15% now deductible from my Irish tax bill (an accountant friend of mine said it was, but I would like a second opinion since he does not normally deal with US taxation issues). Also, is the balance of the dividends subject to capital gains and/or income taxes, or any other taxes for that matter?


I would greatly appreciate anyone that could help me with some or all of these questions, and thanks in advance.

SRASE

Your CGT calculation is correct. There is no liability to income tax on gain.

CGT is only payable when the gain is recognised (e.g. on disposal of shares). If the gain is not recognised no liability to tax arises.

On US dividends Irish tax is payable on gross amount with a credit for US tax paid.

Isoaxe

Hey SRASE, thanks for that.

When you say Irish tax is payable on net after deductions for dividends, is that CGT or Income tax? i.e. Are monies received from dividends treated as just income, and not as a capital gain?

Mr. Incognito

dividends- Income tax.

only when you sell the assets - capital gains tax.

they don't cross over.

Isoaxe

That's what I thought, but I wanted to make absolutely sure by confirming with someone that knows what they're talking about.

Again, cheers guys. Appreciated.