Income Tax Credits for Foreign Dividends: Draft Regulations

Clause 40 and Schedule 19 to Finance Bill 2009 will amend section 397A to 397C Income Tax (Trading and Other Income) Act 2005 and insert new legislation, so that shareholders in foreign companies with a holding that is 10 per cent or more of the issued share capital of the company are eligible for tax credits, provided that the territory of the dividend-paying company is a 'qualifying territory'.

A 'qualifying territory' is defined as any territory with which the UK has a double taxation treaty with a non-discrimination article. The Treasury has the power to make regulations to exclude territories even if the double taxation treaty in question does contain such an article.

The draft Tax Credits (Excluded Companies) Regulations 2009 are published today.

They will exclude companies which are excluded from the benefits of the double taxation agreement with the UK ('excluded companies'). A dividend from an 'excluded company' will be treated as a dividend from a 'non-qualifying' territory. The 'excluded companies' are:

Barbados – companies established under the International Business Companies Act(s)
Cyprus – companies entitled to any special tax benefits under various Cyprus enactments
Jamaica– companies established under enactments relating to International Business Companies and International Finance Companies
Luxembourg – holding companies established under the Luxembourg 1929 and 1937 Acts
Malaysia – companies carrying on offshore business activity under the Labuan Offshore Business Activity Act 1990
Malta – companies entitled to special tax benefits under various enactments.

If you have any comments on this, please contact Andrea Pierce on Tel 020 7147 2591 or email Andrea Pierce