TAX – May 2018 – L2 – Q6a – Tax Administration and Enforcement

Explain dividends exempted from Withholding Tax.

Question

Briefly explain THREE dividends exempted from Withholding Tax.

Answer

Dividends Paid Out of Pioneer Profit: These are dividends distributed from profits that arise during the pioneer period of a company, which is typically tax-exempt to encourage new investments.
Dividends Paid by Issue of Bonus Shares: Dividends distributed as bonus shares to shareholders do not attract withholding tax as they do not constitute cash payments.
Dividends from Small Companies in the Manufacturing Sector: Small companies in the manufacturing sector are exempted from withholding tax on dividends for the first five years of their operations to promote growth.