Ireland - Withholding Taxes
Dividends
A general withholding tax of 20% on dividend payments. This is reduced to nil through the EU parent/subsidiary directive and through tax treaties.
Irish tax authority guideline on dividend withholding tax
Withholding tax at the standard rate of income tax applies to dividend payments and other distributions made by an Irish resident company, except where the person beneficially entitled to the dividend or distribution is:
- An Irish resident company
- An Irish resident pension fund or charity
- A person, other than a company, resident for tax purposes in another EU Member State or in a territory with which Ireland has a tax treaty
- A company resident in another EU Member State or a country with which Ireland has a tax treaty and which is not controlled by Irish residents
- A company which is ultimately controlled by persons who are resident in another EU Member State or in a country with which Ireland has a tax treaty
- A company the principal class of the shares of which is substantially and regularly traded on one or more recognised stock exchanges in another EU Member State or in a country with which Ireland has a tax treaty
- A company which is wholly owned by two or more companies each of whose principal class of shares is substantially and regularly traded on one or more recognised stock exchanges in another EU Member State (or a country with which Ireland has a tax treaty)
Irish individual shareholders are taxable on the gross dividend at their marginal rate, but are entitled to a credit for the tax withheld by the company paying the dividend. Repayments are made where the shareholder’s tax liability is less than the tax withheld.
In the case of those non-resident individuals whom are eligible for exemption from the withholding tax, entitlement to the exemption is established by the making of a declaration of non-residence which must be supported by a certification procedure (i.e. a certificate of tax residence from the tax authorities of the country in which the individual is resident for tax purposes). In the case of qualifying non-resident companies, entitlement to the exemption is also established by means of a declaration which must be supported by a certificate from the company's auditors of the company's status and in certain cases by a certificate of residence from the tax authorities of the country in which the company is resident for tax purposes.
Where a dividend payment or other distribution is made directly to an exempt shareholder by the company or by an authorised withholding agent, the shareholder is required to provide evidence of entitlement to the exemption to the company or the authorised withholding agent. If the dividend payment or other distribution is made through a qualifying intermediary, the evidence of entitlement to an exemption must be given to the intermediary.
Royalties
Ireland withholding tax only applies to royalties that constitute annual payments or that are in respect of the use of a patent. On the basis that most royalties do not constitute annual payments under Irish law, the new Interest and Royalties Directive primarily affects patent royalties. With effect from 1 January 2004 patent royalties paid to associated companies resident in other EU member states are no longer subject to 20% Irish withholding tax.
While existing tax treaties reduce the withholding tax to nil in most circumstances, this is not always the position. The Irish authorities have opted not to incorporate, for Directive purposes, any advance clearance procedures into Irish law. The Directive will have little impact on payments of interest by Irish companies, as most interest payments to EU resident companies should, under Irish domestic legislation, already be exempt from Irish withholding taxes. Several member states can impose withholding taxes on payments of interest and royalties to Irish associated companies. Although withholding taxes may eventually be eliminated, the lengthy transitional period for both interest and royalties is a disappointing feature of the Directive.