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Introduction
Are you eager to leave the country? If yes, you need to find out how dividends are taxed if you are on a one-way ticket to a foreign state. It doesn’t matter whether you set up a limited company in a foreign county or invest in other overseas businesses; the government requires you to pay taxes.
This article explores the tax implications of receiving dividends from overseas sources. It breaks down all the scenarios in which these dividends from overseas sources may be taxed, taking into account factors such as resident status and tax treaties.
On top of that, it offers insights for people living overseas, outlining how their tax obligation may differ depending on the tax laws of their home country and residency statuses. Let’s go through the following sections to find out more.
What’s Foreign Income and What Types Are Taxed?
Foreign income encompasses earnings obtained from jurisdictions beyond the borders of your country. In the UK, for example, it encompasses earnings obtained from territories beyond the physical borders of England, Northern Ireland, Wales and Scotland. Notably, the Isle of Man and the Channel Islands are categorised as foreign in this case.
How Are Dividends Taxed?
Citizens in the United Kingdom may need to pay taxes on their foreign incomes. You’ll need to pay income tax, which’s the most popular. Income tax includes:
- Foreign investment income like savings interest and dividends
- Rental income on foreign property
- Wages – if you work abroad
- Income from pensions held in foreign states
Paying tax depends on whether you’re a United Kingdom resident. If you aren’t a United Kingdom resident, you’ll only pay tax on the income you earn in the country. And if your income has been double-taxed by the foreign country as well as the UK Government, you can file a Foreign Tax Credit Relief (FTCR). The amount you can claim back varies from one country to another. Also, your income tax affects the amount you receive back when you claim Foreign Tax Credit Relief.
How Dividends Are Taxed
Yes, you can get dividends as long as you’ve shares in a foreign company. You can earn a dividend income on a yearly basis without having to pay taxes. Also, you don’t pay tax on a dividend revenue that’s within your Personal Allowance.
You only pay tax on dividend income above your dividend allowance. Also, you don’t pay tax on dividend income from stocks in an ISA. The amount of tax you pay on dividend amount above your dividend allowance depends on the income tax band, which includes higher rate, basic rate and additional rate. To know your tax band, just add your entire dividends to the other income. Remember, you may pay tax at over a single rate.
Do I Pay Taxes If I Live Abroad?
You still need to pay tax on the income you earn from the UK as long as you live overseas. This includes:
- Savings interest from bank accounts and dividends
- When you sell residential property
- Rental income
- Pension
- Salary/wages
If you haven’t paid tax on the overseas income, you need to apply for a certificate of residence. This certificate proves you are eligible for relief.
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