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HMRC internal manual

International Manual

UK residents with foreign income or gains: dividends: Foreign dividends - glossary

As a general rule the UK will give credit relief for direct tax paid on dividends to all persons resident in the UK. But in addition the UK will give relief for underlying tax (see below) where the recipient is a company which owns more than 10% of the voting power in the company paying the dividend.

In the following guidance:

a) Individual means any person other than a company.

b) Company means a body corporate or any entity treated as a body corporate for tax purposes.

c) Direct tax means foreign tax charged on a dividend by deduction at source or charged directly on the shareholder. It includes

i) tax which a foreign company or a withholding agent is required to deduct from dividends and pay over to the appropriate tax authority. It may be described as a withholding tax, a non-residents tax, a non-resident shareholders tax etc.,

ii) tax directly assessed on a shareholder on his dividends from a foreign company.

d) Underlying tax means foreign tax which is borne by the foreign company on the profits out of which a dividend is deemed to have been paid. See INTM164100 onwards for more detailed information on underlying tax. There is also further information contained on the following pages:

INTM164060 Dividends: direct investors - underlying tax

INTM164360 Dividends: unilateral relief - underlying tax

INTM164440 Dividends: determination of rates of underlying tax - procedure

e) The term `company tax deducted’ in this guidance means tax which is shown on a dividend voucher as having been deducted at a rate equal to the rate of company tax chargeable in the country of which the paying company is a resident. No tax is in fact normally deducted from the dividend and the description on the voucher merely indicates that the dividend has been paid from profits subjected to company tax at that rate. Tax credit relief is not available for such tax. The measure of the income for assessment purposes is the amount of the dividend paid.

f) ‘Portfolio shareholder’ means any individual or alternatively a company which controls less than a certain percentage (see INTM164060 and INTM164360) of the voting power in the company paying the dividend.

g) ‘Direct investor’ means a company which controls directly or indirectly not less than a certain percentage (see INTM164060 and INTM164360) of the voting power of the company paying the dividend.