Plans were announced to introduce a withholding tax at the standard rate of income tax on dividends paid to individuals resident in the State and to certain non-residents from April 6th, 1999.
The tax will be deducted from dividends before they are paid out to ensure the tax due on dividends is paid to the Exchequer. Shareholders liable to tax at the higher rate will be required, as before, to declare their dividend income in their tax returns and to pay the balance due to the Exchequer.
In his Budget speech, Mr McCreevy said the extra yield from the operation of the withholding system would be £15 million in a full year. The system would be introduced to coincide with the abolition of tax credits on dividends from April 6th, a move announced in last year's budget. Mr McCreevy decided to abolish tax credits as shareholders will benefit from the phased lowering of corporation tax on profits to 12.5 per cent by 2003.