Corporate Income Tax on Dividends Received from Another Taxpayer

Tax Reduction on Received Dividends

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According to Section 6, Paragraph 1 of the Corporate Income Tax (CIT) Law, a taxpayer has the right to reduce the taxable base for the taxation period by the amount of dividends received from a dividend-paying entity, provided that:
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• The payer of the dividends is a CIT payer in its country of residence, or
• The dividends have been subject to withholding tax in the country of distribution.
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This exemption does not apply to dividends received from entities located, established, or incorporated in low-tax or tax-free jurisdictions.

Avoidance of Double Taxation

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The provision ensures that if dividends have already been subject to CIT, no additional CIT is imposed when distributing them further. This prevents double taxation on the same income.

CIT Return and Reporting Requirements

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To apply for this tax relief, the taxpayer must accordingly fill out the CIT Return. The relevant information must be reported as follows:

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• Line 2 of the CIT Return: Enter the total amount of dividends received in the taxation period that were subject to tax, as well as income received from a permanent establishment.
• Column 2 of Line 2: Indicate the reporting year in which the dividends were received (or dividend-equivalent payments were made). This year may be prior to the taxation period covered by the CIT Return.
• Column 8 of Line 2: Enter the amount of dividends or equivalent payments for which the taxable base has been reduced in the current taxation period.
• Column 9 of Line 2: Indicate the dividends or equivalent payments for which the taxable base reduction is planned for future taxation periods.

Taxpayer’s Discretion in Applying the Relief

The timing of applying the relief under Section 6, Paragraph 1 is at the taxpayer’s discretion. The tax reduction applies when the taxpayer includes the information about received dividends in Line 2 of the CIT Return.