To avoid a dividend tax being levied, a corporation may distribute surplus funds to shareholders by way of a share buy-back.
Currently, in most jurisdictions, dividends from corporations are treated as a type of income and taxed accordingly at the individual level.
Here is a brief history of dividend taxation: In the United States, the Revenue Act of 1913, authorized via the 16th Amendment, created a federal personal income tax of 1% with additional surtaxes of 1–5%,[2] and exempted dividends from the general income tax but not the surtaxes which applied above the $20,000 level.
[6] Professor Confidence W. Amadi of West Georgia University has argued: The greatest advantage of the corporate form of business organization is the limited liability protection accorded its owners.
The benefits of limited liability independent of those enjoyed by shareholders, the flexibility of change in ownership, and the immense ability to raise capital are all derived from the legal entity status accorded corporations by the law.
[8] The study was retracted after several inconsistencies in the data were pointed out by other researchers, some arguing that the alterations affected the results of the paper.
[14] These parts can be realized and taxed at the shareholders level when dividends are paid or stock trade yields capital gains.
However, this also includes growth that reflects previously taxed corporate income, resulting in double taxation.
[16] Many remedies have been discussed to reduce misallocation of investment, disincentive for trading shares and taking dividends that chills capital movement, and other distortions mentioned above.
Some propose lower rates of taxes on dividends, capital gains, and corporate income or complete elimination of some of them.
In 2003, President George W. Bush proposed the elimination of the U.S. dividend tax saying that "double taxation is bad for our economy and falls especially hard on retired people".
"[18] Soon after, Congress passed the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), which included some of the cuts Bush requested and which he signed into law on May 28, 2003.
Under the new law, qualified dividends are taxed at the same rate as long-term capital gains, which is 15 percent for most individual taxpayers.
On December 17, 2010, President Barack Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.
The legislation extends for two additional years the changes enacted to the taxation of dividends in the JGTRRA and TIPRA.
[20] In addition, the Patient Protection and Affordable Care Act created a new Net Investment Income Tax (NIIT) of 3.8% that applies to dividends, capital gains, and several other forms of passive investment income, effective January 1, 2013.
8) was passed by the United States Congress and signed into law by President Barack Obama in the first days of 2013.
However, dividends from open-ended equity oriented funds distributed between 1 April 1999 and 31 March 2002 were not taxed.
[28] However the next year there were wide expectations for the budget to be friendlier to the markets[29] and the dividend distribution tax was reintroduced.
Hence the dividends received from domestic companies and mutual funds since 1 April 2003 were again made non-taxable at the hands of the recipients.
[30] However the new dividend distribution tax rate for companies was higher at 12.5%,[24] and was increased with effect from 1 April 2007 to 15%.
[32] The taxation rate for mutual funds was originally 12.5%[24] but was increased to 20%[24] for dividends distributed to entities other than individuals with effect from 9 July 2004.
In Belgium there is a tax of 30% on dividends, known as "roerende voorheffing" (in Dutch) or "précompte mobilier" (in French).
Since a new law was conducted in 01.01.2018, companies can pay dividends with a tax rate of 14% ONLY to resident and non-resident juridical persons.
In case of an individual person who has over 5% of total issued stocks (value or number), he/she can not apply the tax reduction rule, so after Jan 1st 2009, should pay 20%(15%+5%).
The size of the shelter deduction is based on the interest rate on short term government bonds and was 1.1% in 2013.
However, there is no provision for residents to reclaim tax on dividends withheld in other jurisdictions with which Slovakia has a double-taxation treaty.
Foreign resident owners of shares in Slovak companies may have to declare and pay tax in their local jurisdiction.
Beginning from January 2013, there will be an additional 2% "tax" on all dividends, serving as the supplemental premium for the second-generation National Health Insurance (NHI) of Taiwan.
In the United Kingdom, companies pay UK corporation tax on their profits and the remainder can be paid to shareholders as dividends.