The income tax rate on dividends varies depending on several factors as outlined in the Inland Revenue Act, No. 10 of 2006. Here are the details based on the provided context:
- For dividends received by any company during the period for which the profits and income out of which such dividends are paid are taxable at the rate of fifteen per centum or within two years thereafter, the tax rate is specified in the Fifth Schedule to the Act. (Page 137)
- If the dividend is paid out of profits and income referred to in section 46, or out of such a dividend received directly from a company referred to in section 46 or through one or more intermediary companies within a specified time frame, the tax rate is also specified in the Fifth Schedule to the Act. (Page 135)
- For dividends out of export profits and income of a company which carries on any specified undertaking, the tax rate is ten per centum for any year of assessment commencing on or after April 1, 2003. (Page 136 and Page 313)
- For a dividend received from outside Sri Lanka, the tax rate is specified in the Fifth Schedule to the Act, subject to the provisions of any agreement for the avoidance of double taxation. (Page 138)
- Additionally, for the period from October 1, 2022, to December 31, 2022, the tax rate for dividend received or derived by residents was 15%. Moreover, during this period, dividend payments by a resident company to a member that are attributable to, or derived from, another dividend received by that resident company or another resident company, were exempt from Income Tax. (IR_PR_2022_E.pdf, Page 41)
Please note that these rates are subject to the specific conditions mentioned in the Act and may vary based on the type of dividend, the recipient, and any applicable amendments or special provisions.
Are dividends taxable?
Yes, dividends are generally taxable. According to the Inland Revenue Act, No. 10 of 2006, dividends received by a person from a resident company are included in the assessable income and are subject to income tax. However, there are certain exemptions and specific conditions under which dividends may not be taxable, such as dividends paid by a resident company to a member that are attributable to, or derived from, another dividend received by that resident company or another resident company during a specified period. It’s important to refer to the relevant sections of the Inland Revenue Act for the specific tax treatment of dividends.