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Hi John
I wanted to know if the parent company needs to pay full tax or additional tax or no tax on the dividend received from a subsidiary in a foreign country.In this question, they have not calculated.
As I do explain in my free lectures on foreign investment appraisal, the parent company pays tax on the profits of the subsidiary (but gets credit for the foreign tax already paid and so just pays the extra tax). It is calculated on the profits, not on the dividends.
But full tax gets paid on royalty, and management charges. Why’s that and how receiving dividends would be any different?
Thanks in advance
Because dividends are being paid out of profits that have already been taxed – to tax them again would be taxing them twice. Royalties etc. reduced the taxable profit of the subsidiary and so taxing them as income of the parent is not taxing them twice.
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