How to Pay Dividends to Non Resident Shareholders
Anytime a Canadian corporation makes a dividend payment to its shareholders it is required to follow certain procedures. For Canadian shareholders, corporations must prepare a T5 slip for each shareholder that receives a dividend and submit the T5s to Revenue Canada. (Similarly Quebec Corporations must issue an RL1 ). The process for issuing dividends to Non resident (foreign) shareholders who own shares in Canadian companies is different and is discussed below:
Corporations that pay dividends to non Canadian shareholders are basically required to
Sign up for a Non Resident Account
Calculate and remit withholding taxes (Part XIII tax) on dividends paid
Complete an NR information return
How to sign up for a non resident account:
There are two options when registering for a non resident account:
Use CRA my business account (see link for details on how to register for my business account) to create an NR account. Once you have logged in, there is an option to “Open a non resident tax account” on the left hand side and follow the prompts. As a corporation that is issuing dividends you would select “Canadian payer (A Canadian resident who makes payments to a non-resident of Canada)” as the account owner’s role. Note this can also be done through “represent a client” by business’ accountant or other authorized representative.
Call CRA at 1-855-284-5946 and ask them to register the business for a non resident account. After confirming certain information they will provide you with an NR number
Once the application has been completed, the business will receive a letter from CRA indicating that the account has been created and provide an account number to be used on all ensuing documentation. They will also send you a remittance voucher that can be sent along with your payment (discussed below).
How to Calculate withholding taxes (Part XIII tax):
After the dividend allocation to shareholders has been determined, you can create a spreadsheet which reflects dividends to be paid to non resident shareholders (or ideally a schedule which shows dividends to all Canadian and Non Canadian shareholders that can be the master schedule for dividends paid, dates paid, withholding taxes, date of remittances etc). Once you have your master schedule, you can calculate the withholding tax. The general withholding tax on dividends from Canadian corporations paid to non resident shareholders is 25%. However, this might be lower if there is a tax treaty in place with the country that the non resident pays tax. The most common non resident country is the United States which has a tax withholding rate of 15% instead of the usual 25%. (note that this might be 5% if certain conditions are met). CRA has a non resident tax calculator that can be found at this link which indicates the withholding rate for all countries with whom Canada has a tax treaty. If the country in which the foreign shareholder resides is not on this list, then you would deduct 25% as a withholding amount.
How and When to Remit Withholding Taxes:
Once the non resident information has been compiled and withholding Part XIII taxes calculated, you must make a payment to CRA. The deadline for payment is 15 days following the month in which the dividend payment was made to the non resident. For example, if the non resident receives the dividend anytime in January, the deadline for payment of the withholding taxes would be February 15th.
Payment can be made using the following methods:
Online business banking services which are provided by most major banks. Once you have logged into your account, you would select “ Federal - Non-Resident Withholding Tax-Part XIII”, enter the account number issued by CRA and enter the total amount of withholding taxes calculated on dividends paid to non residents in the previous month. You only have to set up the payment type once after which you can select it from the list of payment types.
My Payment which uses debit or interac. You would click on the link for NR payments and follow the prompts. Remember to include your NR number issued by CRA.
Other payment types include setting up pre authorized debits through by My Business Account with CRA and payment by wire transfer for non residents who do not have a Canadian bank account
Using the remittance voucher for non resident withholding taxes which you would have received in the mail from CRA, you can pay directly at your financial institution/bank
You can also mail in the remittance using the instructions on the remittance slip. If you haven’t received a remittance voucher and are paying by mail, you can simply send it along with a letter that has the following information:
the corporation/business name under which your account was opened,
address and telephone number
the year and month your payment covers
your non-resident account number
How to complete the year end NR4 slips and NR4 return:
Every non resident that receives a dividend must be issued an NR slip, even if no withholding taxes are taken. The only exception is if the amount paid was under $50 AND no withholding tax was taken (if withholding tax was taken on an amount less than $50 this still has to be reported on an NR slip). Details on completing the NR Slips can be found here:
Some comments on complete the slips:
If you are planning to mail them in, the NR4 slips in PDF format can be downloaded from this link
All amounts on the NR slips should be reported in CAD dollars. If this is not possible then you can reflect the currency code on line 15/25. CRA will convert the amounts at the year end date to CAD$
There is a list of income codes that are reflected on Box 14/24. For dividends the income code is either 8 or 9
Gross income paid to the non resident for each recipient should be reflected on boxes 16 while withholding taxes should be on box 17/27 respectively
The first line including boxes 14 to 18 should be completed first. If there is additional income to report for the same recipient, or if some income is exempt from withholding tax, it would be reported on boxes 24 to 28.
If no withholding tax is deducted an exemption code must be reflected on Box 18/28
How to submit the NR4 to CRA:
CRA “strongly encourages” businesses to submit the NR4 electronically . This can be done:
Directly through CRA my business account
Directly through the web forms portal which allows businesses to file up to 100 information slips and also creates an information return/summary. It also validates the data and provides a confirmation that the submission has been received. To use web forms you require a web access code which is fairly easy to get (and can help with other online submissions). For more information on the web accesss code, please refer to this link
There are several third party software through which you can complete the NR4 and submit it directly through the software using an XML file format. Some of these include TaxCycle, DTMax, ProFile etc.
If you are unable to file electronically you can submit the NR4 slips along with the NR4 information return by mail to the address below:
NR4 Program
Jonquière Tax Centre
Post Office Box 1300 LCD Jonquière
Jonquière QC G7S 0L5
Canada
Once you have submitted the NR4 save an electronic (PDF) or paper copy for your files
If you submit your NR4 slips electronically, you are not required to prepare an NR4 summary as this is done automatically. However, if you are mailing your return, you are required to prepare and submit an NR4 summary along with NR4 slips which can be found here
The deadline for filing the NR4 slips and summary is March 31st of the year after the year in which the dividends were paid to non resident shareholders.
Penalties for Not deducting or remitting withholding tax and late filing of NR4s:
The penalties for not deducting withholding taxes, whether or not you are able to recover them, is 10% in the first year and 20% for years thereafter.
Penalties for late remittances start at 3% of the withholding tax up to 10% if the return is more than 7 days late
Late filing of the NR4 slips (and summary when the return is mailed) range from $250 for 5 slips to $7,500 for 10k or more returns.
Details on penalties can be found here
Although paying dividends to non resident shareholders creates an additional administrative burden, the process is fairly straightforward. It is important to ensure that the remittances and the forms are filed correctly and on time otherwise unnecessary penalties might apply.
