Taxes Consolidation Act 1997 section 21B

Tax treatment of certain dividends

Section 21B sets out the tax treatment of foreign dividends derived from trading income, allowing certain dividends received from non-resident companies to be taxed at the 12.5% corporation tax rate instead of the standard 25% rate.

• Foreign dividends paid out of the trading profits of a company resident in an eligible territory (EU Member State, tax treaty country, or a country that has ratified the Convention on Mutual Assistance in Tax Matters) may be taxed at the 12.5% rate instead of 25%.
• A "safe harbour" provision applies where at least 75% of the paying company's profits are trading profits and at least 75% of the receiving company's (and its subsidiaries') assets are trading assets — in which case the full dividend qualifies for the 12.5% rate.
• Portfolio investors (holding 5% or less of the paying company) may treat foreign dividends as paid out of trading profits for the 12.5% rate; where such dividends form part of the investor's trading income, they are exempt from corporation tax entirely.
• To benefit from the 12.5% rate, a company must include a claim with its annual corporation tax return for the relevant accounting period.