VATP010 Public Clarification on bank interest and dividends
VATP010 addresses the VAT implications of bank deposit generated interest income and dividend income earned by VAT-registered persons.
The Public Clarification states that passively earned income from bank deposits and dividend income received by holding shares in a company do not constitute consideration for supply. Therefore, these forms of income are outside the scope of VAT and do not need to be reported on the VAT return.
A company holding a bank deposit is not considered to be making a supply to the bank, and as such the interest is earned ‘passively’ and is out of scope of VAT. This contrasts with interest earned from extending loans or credit, which are exempt supplies.
Dividend income received by shareholders of a company is out of scope of VAT as the shareholder is not making a supply to the company, and the dividend income is not consideration for a supply. However, management fees charged by a holding company to its subsidiaries would be subject to VAT.