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HMRC internal manual

International Manual

UK residents with foreign income or gains: dividends: Tax deducted

Some countries outside the UK operate a `company tax deducted’ system whereby, when a dividend is paid, tax is accounted for at the standard rate of tax on company profits. Where an agreement contained a provision allowing relief to direct investors for underlying tax, it was previously the practice in the UK to allow credit at the rate of company tax deducted or at the rate of tax paid by the non-resident company on its profits (the actual underlying rate), whichever was the greater. Dividends paid by companies resident in Belize, the Gambia, Malaysia and Singapore were treated in this way.

This meant that in some cases relief could be given for more foreign tax than had actually been paid.

Following the issue of SP12/93, however, in respect of dividends declared on or after 27 July 1993, relief should only be allowed up to the amount of the tax actually paid by the overseas company on the particular profits out of which the dividend is paid. Where those profits are not taxed in the other country, no tax credit relief will be available.

If advice is required an initial enquiry should be made to CSTD Business, Assets & International Base Protection Policy Team.