| DIVIDENDS |
| RULES UNDER THE INCOME
TAX ACT |
Dividends paid by a corporation resident in Canada to a
non-resident are generally subject to a 25% tax under Part
XIII.
This can apply to "deemed dividends" as well as actual
dividends, including deemed dividends arising in the following
types of situations:
- Capitalization of surplus,
- Purchase for cancellation or redemption by a corporation
of its shares to the extent that proceeds exceed the "paid-up
capital" of those shares,
- Amounts received on wind-up or liquidation of corporation
in excess of "paid-up capital",
- Loans to shareholders or related persons not repaid
within one year from the end of the year in which loan
made.
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RULES UNDER CANADA'S
TAX TREATIES
Jurisdiction To Tax
|
All of Canada's tax treaties allow Canada
to tax non-residents on dividends paid by corporations resident
in Canada.
Furthermore, those treaties generally provide, in effect,
that all amounts treated as dividends for the purposes of
the Income Tax Act are treated as dividends for that purpose.
|
| Rates Of Tax |
Virtually all of Canada's tax treaties provide
for only a 15% rate of tax on dividends, rather than the statutory
rate of 25% .
In addition, many of Canada's tax treaties provide for a
"two-tier" rate structure under which there is a special (further)
reduced rate of tax on "direct dividends" (i.e. dividends
paid to other corporations where a minimum ownership requirement
is met).
The application of these rules for a number of major countries
is outlined below.
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| COUNTRY |
GENERAL RATE |
DIRECT DIVIDEND RATE |
OWNERSHIP REQUIREMENT FOR DIRECT DIVIDEND TREATMENT
(N.B.-CORPORATE SHAREHOLDERS ONLY!) |
| France |
15% |
5% |
At least 10% of voting power (direct or indirect) |
| Germany |
15% |
5% |
At least 10% of voting power (direct or indirect) |
| Italy |
15% |
N/A
|
N/A-Note, once new treaty that was signed in 2002 comes
into force 5% rate will apply if controls directly or
indirectly at least 10% of voting power. |
| Japan |
15% |
5% |
At least 25% of voting stock during the 6 months period
immediately preceding the end of accounting period for
which dividend paid |
| Netherlands |
15% |
5% |
Holds directly or indirectly at least 25% of capital
or at least 10% of voting power |
| Switzerland |
15% |
5% |
At least 10% of voting shares |
| United Kingdom |
15% |
5% |
Controls directly or indirectly at least 10% of voting
power |
| United States |
15% |
5% |
At least 10% of voting shares |
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