Dividend warrant from Malta and tax credit

Treatment of Maltese tax paid via the full imputation system

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A shareholder residing in the UK of a Maltese holding company (which in turn owns a trading company) received a dividend payment of 30,000 euro to his bank account in the UK.

The dividend warrant issued by the Maltese company to the shareholder states that the net dividend is 30,000 euro, while the tax at source is 16,154 euro, for a total gross dividend of 46,154 euro. The tax rate stated is 35%. 

Malta operates on a full imputation system whereby the company pays tax on behalf of the shareholder. The shareholder plans to benefit from the 6/7ths refund system in Malta whereby the holding company applied for a tax refund to the Maltese authorities and is waiting for a refund on the tax paid (I am told they take around a year to be issued and have thus far not been issued).

When it comes to declaring the shareholder's dividend income in the UK, does he have to pay tax on the 30,000 euro or can he use the tax credit of 16,154 euro that was taxed at source, effectively meaning that he does not need to pay further tax in the UK due to the double taxation agreement between the two countries?

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By Matrix
13th Sep 2019 11:51

He includes 46k dividend income and claims a tax credit for the net amount of tax suffered which I assume is the remaining 1/7. I also assume this is dividend withholding tax to be creditable. Also check the treaty.

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Replying to Matrix:
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By accweb09876
13th Sep 2019 12:05

I don't think it's that clear in this case, wouldn't the UK consider the 35% as being paid by the company and not the shareholder? And thus make him liable for tax on the next received of 15k?

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Replying to accweb09876:
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By Tax Dragon
13th Sep 2019 13:48

It might be even simpler than Matrix suggests. According to the note on page FN6, "You cannot claim FTCR for taxed dividends from Antigua, Australia (franked dividends only), Belize, Cayman Islands, Cyprus, Gambia, Guernsey, Isle of Man, Jersey, Kiribati, Malaysia, Malta, Monserrat and Singapore."

On the other hand it might be more complex. £30k is quite a decent chunk - combined with your description of the company, it's enough to make me think that you need to consider Ch2 of Pt13 ITA 2007.

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