Irish resident companies are required to withhold tax on certain types of payments as set out below (see sub-sections below for WHT exemptions and table at end of this section for WHT rate reductions).
|Non-resident companies and individuals||25||20||20|
Dividend WHT applies at 25% to dividends and other distributions. However, an exemption may be available where the recipient of the dividend is either an Irish company or a non-Irish company eligible for the Parent-Subsidiary Directive (which in Ireland requires a 5% or greater shareholding).
Exemptions from dividend WHT also are available where the recipient of the distribution falls into one of the categories listed below and provided an appropriate declaration is made to the company paying the distribution in advance of the distribution. In a move to significantly ease the administrative burden in applying for exemption for dividend WHT, this declaration is now self-assessed and valid for up to six years.
- Irish tax resident companies (a declaration is not required for Irish tax resident companies that hold a 51% or greater shareholding of the company).
- Non-resident companies that are resident in a country with which Ireland has a tax treaty or in another EU member state, where the company is not controlled by Irish residents.
- Non-resident companies that ultimately are controlled by residents of a tax treaty country or another EU member state.
- Non-resident companies whose principal class of shares are traded on a recognised stock exchange in a treaty country or another EU member state or on any other stock exchange approved by the Minister for Finance (or if the recipient of the dividend is a 75% subsidiary of such a listed company).
- Non-resident companies that are wholly owned by two or more companies the principal class of shares of each of which is traded on a recognised stock exchange in a treaty country or another EU member state or on any other stock exchange approved by the Minister for Finance.
- Individuals who are resident in a tax treaty country or in another EU member state.
- Certain pension funds, retirement funds, sports bodies, collective investment funds, and employee share ownership trusts.
Companies that make a dividend distribution are required, within 14 days of the end of the month in which the distribution is made, to make a return to the tax authorities containing details of the recipient of the dividend, the reason for any exemption from dividend WHT, and to pay over any tax withheld.
Financial institutions operating in Ireland are obligated to withhold tax (deposit interest retention tax or DIRT) out of interest paid or credited on deposit accounts in the beneficial ownership of resident companies, unless the financial institution is authorised to pay the interest gross. The rate is 33%. There is no DIRT on interest paid to non-residents where a written declaration of non-residence is completed. Certain annual interest payments are subject to WHT at 20%. Interest payments made by companies to companies resident in other EU member states or in treaty countries are generally not subject to WHT. The EU Interest and Royalties Directive may also provide an exemption from WHT for payments between associated companies.
Royalties, other than patent royalties, are not generally subject to WHT under domestic law. Patent royalty payments and certain other annual payments are subject to WHT at 20%. Lower WHT rates may be accessed under treaties, subject to certain documentation and reporting requirements. The EU Interest and Royalties Directive may also provide an exemption from WHT for payments between associated companies. Associated companies, for the purpose of this directive, are companies where one can directly control at least 25% of the voting power of the other or at least 25% of the voting power of both companies is directly controlled by a third company. In all cases, all companies must be resident in a member state of the European Union.
WHT on capital gains
Where any of the following assets is disposed of, the person by whom or through whom the consideration is paid (i.e. the purchaser) must deduct capital gains WHT at 15% from the payment:
- Land or minerals in Ireland or exploration rights in the Irish continental shelf.
- Unquoted (unlisted) shares deriving their value or the greater part of their value (more than 50%) from assets described in (1).
- Unquoted (unlisted) shares issued in exchange for shares deriving their value or the greater part of their value from assets as described in (1).
- Goodwill of a trade carried on in Ireland.
The requirement to withhold tax does not apply where the consideration does not exceed EUR 500,000 or where the person disposing of the asset produces a certificate from the Revenue Commissioners authorising payment in full. A clearance certificate may be obtained by making application on Form CG50 to the Revenue Commissioners supported by a copy of the agreement or contract for sale. The certificate may be obtained on the grounds that the vendor is Irish resident, no capital gains tax is due in respect of the disposal, or the capital gains tax has been paid. WHT is creditable against the capital gains tax liability of the vendor, and any excess is refundable.
To avoid the requirement to withhold, clearance must be obtained before the consideration is paid. There is no exemption from the withholding procedure where the asset is held as trading stock or where the transaction is intra-group and a capital gains tax liability does not arise. Failure to obtain the certificate will lead to the purchaser being assessed to capital gains tax for an amount of 15% of the consideration.
Professional services withholding tax (PSWT)
Individual income tax at the standard rate (currently 20%) is deducted from payments for professional services by government departments, state bodies, and local authorities. Credit is granted for any PSWT withheld against the corporation tax (or income tax for an individual) liability of the accounting period in which tax is withheld.
Relevant contracts tax (RCT)
RCT is a WHT that applies in the construction, forestry, and meat-processing industries in Ireland. It applies where a ‘principal contractor’ engages a subcontractor under a ‘relevant contract’ to carry out ‘relevant operations’.
The RCT system applies if the ‘relevant operations’ are carried out in Ireland, to include Irish territorial waters and any area over which Ireland has exploration and exploitation rights. Therefore, it is irrelevant whether or not the parties to the contract are resident in Ireland, the parties are liable to tax in Ireland, the contract is executed outside Ireland, or whether payments under the contract are made outside Ireland.
It is important to note that principal contractors who are liable to RCT may not necessarily operate in the above industries. In the case of construction, in particular, relevant contracts may be entered into by a variety of entity types. For example, companies involved in electricity generation, oil and gas exploration, and telecommunications undertakings are all classed as principal contractors. In addition, any person who undertakes relevant operations and is liable/answerable to another person (including group entities) for those works, will also be regarded as a Principal Contractor for RCT purposes. Relevant operations are also broadly defined. Examples are fit-out work in offices/buildings, repairs to buildings and structures, ground works, installation, alteration, and repairs to various systems in buildings (e.g. electrical, ventilation, water supply, telecommunications, burglar and fire protection systems); mining; exploration works; and also certain haulage contracts.
It is also important to note there is no group relief for RCT; consequently, any inter-group arrangements for carrying out relevant operations will give rise to RCT issues for both entities.
Where RCT applies, the principal contractor must notify the contract and all payments under the contract to Revenue on the eRCT system in advance of payment being made. Once the principal notifies Revenue that they intend on making a payment to the subcontractor, Revenue will then revert on a real-time basis and issue a Deduction Authorisation to the principal advising of the rate of RCT to be withheld from the gross payment. The current rates of RCT are 0%, 20% and 35% and the rate applied to a subcontractor depends on the Irish tax compliance position of the subcontractor. The 20% rate will apply to subcontractors that are registered with Revenue and have a good tax compliance record. The 35% rate will apply where the subcontractor is not registered for tax in Ireland or has an inadequate tax compliance record. The subcontractor is entitled to credit for, or offset of, the RCT withheld by the principal and paid to Revenue after year-end.
If, however, the subcontractor has applied for and received zero rate authorisation from Revenue, then 0% RCT rate applies and the subcontractor can receive payment gross without deduction of RCT.
If a principal does not notify payments to Revenue in advance of making payment to the sub-contractor, then penalties will apply. It should be noted that the cost of non-compliance with RCT procedures are severe and can range up to 35% of the gross payment; consequently, it is important that RCT is considered before undertaking any construction related activity, in addition to meat-processing and forestry activity.
Financial Institutions Levy
The Financial Institutions Levy was introduced for a three-year period with the express purpose of enabling the financial services sector to contribute to economic recovery. The levy applies to any Bank or Building Societies which was obliged to pay DIRT to the Revenue Commissioners in a specified year (the “base year”) in respect of interest paid on deposit accounts.
Finance Act 2016 extended the annual levy being imposed on certain financial institutions by a period of five years. The annual levy was due to expire at the end of 2016 but will now run until 2021. Prior to Finance Act 2016, the levy amounted to 35% of DIRT paid by the relevant financial institution based on the 2011 base year.
Finance Act 2016 also amended the rate at which the levy applies, and the base years on which it is calculated. For 2017/18, the base year was 2015 and the rate of the levy was 59% of the DIRT paid by the Institution in that year. For the levies due in 2019/20, the base year was 2017, and the rate of levy increased to 170% of the DIRT paid in the base year. The base year for the tax due in 2021 will be 2019. Finance Act 2020 increased the levy to 308% of the DIRT paid in the 2019 base year.
WHT rate reductions and exemptions
Exemptions and rate reductions apply under domestic law and under tax treaties. Where an exemption from WHT is not available (please see sections above for domestic law exemptions), a reduced rate of WHT may apply under an applicable tax treaty. The table below sets out the reduced rates of WHT that may be available to payments from Ireland of dividends, interest, and royalties under an applicable tax treaty.
|Dividends (1)||Interest||Patents, royalties (3, 4)|
|Bulgaria||5/10||0/5 (2)||10 (2)|
|Czech Republic||5/15||0||10 (2)|
|Estonia||5/15||0/10 (2)||5/10 (2)|
|Greece||5/15||5 (2)||5 (2)|
|Korea, Republic of||0||0||0|
|Latvia||5/15||0/10 (2)||5/10 (2)|
|Lithuania||5/15||0/10 (2)||5/10 (2)|
|Poland||0/15||0/10 (2)||10 (2)|
|Portugal||15||0/15 (2)||10 (2)|
|Romania||3||0/3 (2)||0/3 (2)|
|Slovak Republic||0/10||0||0/10 (2)|
|Slovenia||5/15||0/5 (2)||5 (2)|
|United Arab Emirates||0||0||0|
Irish tax legislation allows for favourable treatment in situations where a DTT has been signed but not yet ratified.
- Domestic legislation may also provide an exemption from the dividend WHT, subject to providing the necessary documentary evidence of qualification. An exemption may also be available under the EU Parent-Subsidiary Directive.
- The EU Interest and Royalties Directive may provide an exemption from WHT for payments between associated companies.
- In general, royalties WHT applies only in the case of patent royalties.
- Under domestic legislation, WHT will not apply if the loans or advances are for a period of less than one year or if the interest is paid in the course of a trade or business to a company resident in an EU or treaty country and that country imposes a tax that generally applies to foreign interest receivable.
- Treaty in effect from 1 January 2017.
- Treaty in effect from 1 January 2018.
- Rate applying to distributions made on or after 1 January 2020 (previously 20%).
Negotiations with Kenya, Kosovo, Oman and Uruguay have concluded, and the new agreements are expected to be signed shortly.
A new double tax agreement between Ireland and the Netherlands entered into force on 29 February 2020, and its provisions took effect on 1 January 2021. The new DTA replaced the existing DTA between Ireland and the Netherlands.
Ireland has signed a new tax treaty with Ghana. However this is not yet in effect.
Negotiations have concluded on Protocols to the existing double tax agreements with Guernsey, Isle of Man and Mexico.
In January 2021, Ireland and Germany signed a Protocol amending its existing tax treaty. The procedures to ratify the Protocol are underway.
Ireland is currently negotiating treaties with the following countries: