Are Dividends Taxed? Dividend tax refers to the level of taxation charged on any form of income the shareholder obtains as dividends. Governments collect tax on profits made by companies as they share it. There are different rates of dividend tax depending on the country and the type of dividend and the income of the investor. There are governments whose tax rates or exemptions are lower in order to promote investment. Tax on dividend may decrease net rate on investments and therefore, tax matters are a major concern to investors who select dividend paying stocks. With good tax planning, dividend tax liability can be reduced and thus the overall returns of the investments made better.