Thursday, September 27, 2012

Dividend income from subsidiary, and its withholding tax

We receive questions from a reader, who just started to learn the principle of consolidation.

"The question was will dividend income from subsidiary remain in the Group consolidation account"

The basis principle of consolidation is to prepare a consolidated account that captures the transactions of a Group with extrenal party. Any transaction within the Group will not be captured in the consolidation account.

To answer his/ her question: the dividend income received from a subsidiary by the holding company relates to a transaction within the Group. As such, this transaction will be eliminated during the consolidation process. Hence, the dividend income from a subsidiary will not be captured in consolidated account. However, we would like to highlight that, the holding company often suffer witholding tax while the subsidiary remit dividend to holding company, who might be at different country.

The with holding tax sufferred is not eliminated, as it represents the amonut payable to local tax authority of the subsidiary.

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