Article 11 of the Uk/Is Double Taxation Agreement

Article 11 of the UK/IS Double Taxation Agreement: What You Need to Know

If you are doing business internationally, it’s important to understand the tax implications of your transactions. One key area to consider is double taxation, which occurs when two countries tax the same income or profit. The UK and Iceland have a double taxation agreement in place to prevent this from happening. In this article, we’ll focus on Article 11 of the UK/IS Double Taxation Agreement, which deals with dividends.

What are dividends?

First, let’s define dividends. Dividends are payments made by a company to its shareholders. They are typically a portion of the company’s profits and are distributed to shareholders as a reward for investing in the company. Dividends are usually paid in cash, but they can also be paid in the form of additional shares of stock.

Article 11 of the UK/IS Double Taxation Agreement

Article 11 of the UK/IS Double Taxation Agreement states that dividends paid by a company resident in Iceland to a resident of the UK may be taxed in both countries. However, the tax imposed in Iceland shall not exceed 15% of the gross amount of the dividend.

This means that if you are a UK resident receiving dividends from a company in Iceland, you may have to pay tax in both countries. However, the tax you pay in Iceland on the dividend should not exceed 15%. This is beneficial for UK residents, as the standard rate of tax on dividends in the UK is currently 20%.

Claiming relief from double taxation

To avoid being taxed twice on the same income or profit, you can claim relief from double taxation. This means that you can offset the tax paid in one country against the tax due in the other country. To claim relief, you will need to complete a tax return in both countries and provide evidence of the tax paid.

Conclusion

Article 11 of the UK/IS Double Taxation Agreement provides important guidance on how dividends paid by Icelandic companies to UK residents are taxed. While it’s possible to be taxed in both countries, the agreement sets a limit on the tax that can be imposed in Iceland. By understanding the implications of double taxation and claiming relief where possible, you can ensure that you are not paying more tax than necessary on your international transactions.