How does ‘relief at source’ normally operate in relation to overseas dividend income?
A reduced rate of withholding tax is levied
A tax rebate is paid in cash
A credit is applied against a separate tax liability
A staggering of the tax levy is granted
Relief at source allows for a reduction in withholding tax on overseas dividend income, typically under Double Taxation Agreements (DTAs).
Why is Option A Correct?
Many countries reduce withholding tax rates on dividends for international investors under tax treaties.
Instead of reclaiming tax later, the lower rate is applied immediately.
Example:
A UK investor receives dividends from US stocks. Under the UK-US tax treaty, withholding tax is reduced from 30% to 15% at source.
Why Not Other Options?
B (Tax rebate in cash) → Relief is provided via lower withholding tax, not a rebate.
C (Credit against separate tax liability) → This applies to tax credits, not relief at source.
D (Staggering of tax levy) → Withholding tax is deducted at source, not staggered.
???? Reference: HMRC Double Taxation Agreements, CISI Wealth & Investment Management.
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