Reading time : 27 minutes

Table of Contents

  1. Introduction: Overview of Withholding Taxes on Companies in Ireland
  2. Withholding Tax on Dividends
  3. Withholding Tax on Interest
  4. Withholding Tax on Royalties
  5. Withholding Tax on Capital Gains
  6. Professional Services Withholding Tax (PSWT)
  7. Relevant Contracts Tax (RCT)
  8. Other Considerations
  9. Conclusion: Summary of Key Withholding Tax Obligations and Importance of Professional Advice

Introduction: Overview of Withholding Taxes on Companies in Ireland

Withholding tax is a fundamental mechanism in the Irish tax system whereby the payer of certain income is required to deduct the tax due by the recipient at the time of payment and remit it directly to the tax authorities. This method ensures efficient tax collection and reduces the risk of tax evasion. In Ireland, resident companies have a primary obligation to withhold tax at source on specific categories of payments they make, whether to residents or non-residents. This obligation is a cornerstone of the Irish tax collection system, designed to ensure compliance right from the source of income distribution.

It is important to highlight that the landscape of Irish tax legislation, including the rules relating to withholding taxes, is dynamic and subject to regular amendments and updates, as evidenced by recent Finance Acts and guidelines from the Revenue Commissioners. Therefore, it is imperative for businesses to rely on current and accurate information to navigate this complex area. The last updated date of the information, such as 10 February 2025 , underscores the need for constant vigilance regarding evolving tax regulations.

Table 1: Withholding Tax Rates for Companies in Ireland (Standard Rates)

Type of Payment

Standard Withholding Tax Rate

Dividends

25%

Interest

20%

Royalties (Patents)

20%

Capital Gains (Certain Assets)

15%

Professional Services

20%

Note: This table presents the standard rates. Numerous exemptions and reduced rates may apply depending on the recipient’s status, residency, and the existence of tax treaties.

In summary, Irish resident companies are legally obliged to withhold tax at source on certain payments, and staying informed about the latest regulations is essential for ensuring compliance.

Withholding Tax on Dividends

General Application and Rates

In Ireland, a standard withholding tax rate of 25% applies to dividends and other distributions made by resident companies. This rate, which is consistently mentioned across various sources, has been in effect for distributions made on or after 1 January 2020, replacing a previous rate of 20% that was applicable before. It is important to note that the definition of “distributions” is broad and can include not only cash dividends but also the distribution or transfer of assets , extending the scope of this withholding tax beyond traditional dividend payments. The increase in the dividend withholding tax rate from 20% to 25% in 2020 indicates a deliberate policy shift by the Irish government, likely aimed at increasing revenue from dividend distributions. This trend of rate adjustments is something to monitor for potential future changes in tax policy. In summary, the default withholding tax rate on dividends is 25%, it applies to a wide range of distributions, and has been in effect since 2020.

Detailed Analysis of Exemption Criteria for Various Entities

Irish Companies

An exemption from dividend withholding tax may be available where the dividend recipient is an Irish company. This provision aims to avoid multiple layers of taxation within the domestic corporate structure. For Irish resident companies holding a 51% or greater shareholding in the distributing company, no declaration of exemption is required, simplifying the process for majority-owned subsidiaries. However, Irish resident companies holding less than a 51% shareholding but still eligible for the exemption generally need to make a declaration. Furthermore, distributions made by Irish resident subsidiaries to Irish resident parent companies are exempt from dividend withholding tax and the declaration requirement if a 50% subsidiary relationship exists, further streamlining tax obligations within closely-linked domestic groups. The different thresholds for declaration requirements (51% versus 50%) suggest a nuanced approach based on the level of control and the specific nature of the intercompany relationship. The 51% threshold for no declaration might be linked to a clear indication of consolidated economic activity. In conclusion, exemptions exist for dividends paid to Irish companies, with specific conditions based on shareholding percentages and the need for declarations.

Non-Irish Companies

A key exemption is available for non-Irish companies that are eligible for the Parent-Subsidiary Directive, which, in Ireland, requires a 5% or greater shareholding in the Irish distributing company. This directive aims to facilitate cross-border dividend flows within the EU by exempting them from withholding taxes. Exemptions from dividend withholding tax are also generally available where the recipient of the distribution falls into one of numerous categories, provided an appropriate declaration is made to the company paying the distribution in advance. This declaration is self-assessed and valid for up to six years, significantly easing the administrative burden. These categories include non-resident companies that are resident in a country with which Ireland has a tax treaty or in another EU member state, and are not controlled by Irish residents. The condition of “not controlled by Irish residents” is crucial to prevent potential abuse of the exemption. Also eligible are non-resident companies that are ultimately controlled by residents of a tax treaty country or another EU member state. An exemption is granted to 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 is a 75% subsidiary of such a listed company). This caters to publicly traded companies and their majority-owned subsidiaries, reflecting the global nature of financial markets. Finally, non-resident companies that are wholly owned by two or more companies, where the principal class of shares of each 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, are also exempt. This further supports dividend flows within groups of publicly traded companies. The detailed and varied exemption criteria for non-Irish companies reflect Ireland’s position as a significant hub for international business and its commitment to EU directives and tax treaties. The emphasis on residency, control, and stock exchange listing suggests a well-thought-out framework to balance attracting foreign investment with preventing tax avoidance. The self-assessment aspect of the declaration represents an effort to streamline compliance. In summary, numerous exemptions exist for dividends paid to non-Irish companies based on factors such as residency in the EU or a treaty country, control, and stock exchange listing, often requiring a declaration.

Ready to structure your wealth in France? Contact our team of specialized lawyers today for tailored and secure support.

Structure my Wealth

Individuals

Individuals who are resident in a country with which Ireland has a tax treaty or in another EU member state are exempt. This aligns with the principle of taxing individuals in their country of residence. Generally, non-Irish resident individuals who reside in an EU country or a country with a double taxation agreement can declare their eligibility not to be subject to dividend withholding tax. Qualifying non-resident persons, other than companies (which may include pension funds and charities), who are neither resident nor ordinarily resident in the State, may claim an exemption if they are resident for tax purposes in a relevant territory (EU/EEA excluding Ireland, or a DTA country), subject to outbound payment defensive measures. The exemptions for individuals mirror the approach taken for non-resident companies, highlighting the importance of tax residency in treaty countries or EU member states. The inclusion of pension funds and charities in this category highlights the broader application of these exemptions. The caveat regarding outbound payment defensive measures indicates that even individual exemptions are subject to anti-abuse rules. In conclusion, non-resident individuals residing in EU or treaty countries are generally exempt from dividend withholding tax, often requiring a declaration and subject to outbound payment rules.

Other Entities

Certain pension funds, retirement funds, sports bodies, collective investment schemes, and employee share ownership trusts are generally exempt. These exemptions often reflect the specific tax treatment afforded to these types of entities under Irish law. Charities that have been granted a tax exemption by Revenue are also exempt from DWT. Amateur or athletic sports bodies that have been granted a tax exemption by Revenue are eligible for the exemption. A designated broker receiving relevant distributions as all or part of the relevant income or gains of a special portfolio investment account (SPIA) is exempt. Permanently incapacitated individuals who, by virtue of section 189(2), are exempt from income tax in respect of income arising from the investment of compensation payments made by the courts, or under out-of-court settlements, in respect of personal injury claims, are exempt. Trustees of “qualifying trusts” are also exempt. PRSA’s and EUTs (within the meaning of Section 731(5) of the Taxes Consolidation Act 1997) can avail of exemption-at-source from DWT by completing the Composite Resident form V3. The diversity of other exempt entities suggests a targeted approach to support specific sectors and individuals based on policy objectives. For example, the exemption for pension funds and retirement funds encourages long-term savings, while exemptions for charities and sports bodies support non-profit activities. The specific inclusion of PRSAs and EUTs reflects the tax treatment of these investment vehicles. In conclusion, a wide range of specific entities, including pension funds, charities, and certain investment vehicles, may be exempt from dividend withholding tax.

Table 2: Summary of Dividend Withholding Tax Exemptions

Recipient Type

Key Exemption Conditions

Declaration Required

Irish Companies

51% or greater shareholding

No

Irish Companies

Less than 51% shareholding

Yes

50% Irish Subsidiaries of Irish Parent Companies

50% subsidiary relationship

No

Non-Resident Companies (Parent-Subsidiary Directive)

5% or greater shareholding

Yes

Non-Resident Companies (Treaty Country or EU Member)

Not controlled by Irish residents

Yes

Non-Resident Companies (Controlled by Residents of Treaty Country or EU Member)

Ultimate control by eligible residents

Yes

Non-Resident Companies (Stock Exchange Listed in Treaty Country or EU Member)

Shares traded on recognised exchange

Yes

Non-Resident Individuals (Treaty Country or EU Member)

Tax resident in relevant territory

Yes

Pension Funds, Retirement Funds, Sports Bodies, CIS, Employee Share Ownership Trusts

Specific status

Yes (generally)

Charities (Revenue Approved)

Tax exemption granted

Yes

Note: This table summarises general conditions. Additional conditions and documentation requirements may apply.

Conditions and Procedures for Claiming Exemption

Exemption from DWT is not an automatic entitlement and must be actively claimed by completing the appropriate exemption declaration form. The declaration is now self-assessed and valid for up to six years, simplifying the renewal process. Qualifying non-resident companies should complete Form V2B, while individuals use Form V2A, and other bodies use Form V2C. Forms V2A and V2C require certification by the tax authority of the country in which the qualifying non-resident person is resident, adding an element of verification for these categories. The exemption is valid until 31 December of the fifth year following the year that exemption was issued, requiring renewal thereafter if the qualifying non-resident person wants the DWT exemption to continue. An exempt shareholder must provide the completed exemption declaration form to either the Irish company, an Authorised Withholding Agent (AWA), or a Qualifying Intermediary (QI) that made the dividend payment, specifying the channels for submitting the required documentation. Companies paying dividends must ensure that the recipient is a non-liable person and is entitled to receive the distribution without deduction of DWT. The structured process for claiming exemption, involving specific forms and potential certification, ensures due diligence and proper documentation. The role of AWAs and QIs indicates a framework for efficiently managing dividend payments, particularly for large companies with numerous shareholders, including non-residents. The self-assessment aspect aims to reduce the administrative burden for both the payer and the recipient. In conclusion, claiming exemption from dividend withholding tax requires completing specific forms, potentially obtaining certification, and submitting them to the relevant entity before the dividend payment.

Need Personalized Guidance? Book a 30-minute consultation

Book My Consultation

Review of Outbound Payment Rules

It is crucial to note that the application of outbound payment rules, introduced by Finance (No. 2) Act 2023 and effective from 1 April 2024 (with a deferred application to 1 January 2025 for arrangements in place before 19 October 2023), may limit the operation of certain domestic DWT exemptions in respect of captured payments. These rules target payments made by Irish companies to associated entities (generally defined as entities where one directly or indirectly holds more than 50% of the other or exerts definite influence) that are resident in a “specified territory” (no-tax or zero-tax jurisdictions or jurisdictions on the EU list of non-cooperative jurisdictions). Exclusions from these rules are available where it is reasonable to consider that double non-taxation does not arise, for example, if the payment will be taxed in the recipient’s jurisdiction or if it is made out of income that has already been subject to foreign tax and was non-deductible. Specifically regarding distributions, withholding tax exemptions will be denied if the distribution is made to an associated entity resident in a specified territory or a permanent establishment of such an entity, unless the payment is an “excluded payment”. However, where distributions are made out of income, profits, or gains that have been chargeable, directly or indirectly, to domestic or foreign tax, the outbound payment rules do not apply. This provides a significant exclusion for distributions of taxed profits. The outbound payment rules represent a significant development in Irish tax policy, aimed at preventing the erosion of the tax base through payments to entities located in low or no-tax jurisdictions. The broad definition of “associated entities” and the specific targeting of “specified territories” require careful consideration by multinational companies with operations involving such jurisdictions. The exclusions based on the absence of double non-taxation and the origin of the distributed funds offer important exceptions to the general rule. The grandfathering clause for pre-existing arrangements recognises the need for businesses to adapt to these new rules. In conclusion, domestic dividend withholding tax exemptions may be overridden by the new outbound payment rules for distributions to associated entities located in low or no-tax jurisdictions, unless specific exclusions apply.

Reporting and Payment Obligations for Distributing Companies

Companies making a dividend distribution are required, within 14 days of the end of the month in which the distribution is made, to submit a return to the tax authorities. This return must contain details of the dividend recipient, the reason for any exemption from dividend withholding tax, and the amount of any tax withheld. They are also required to pay any withheld tax to the tax authorities within this timeframe. Irish resident companies (or intermediaries acting on their behalf) are required to take all reasonable steps to obtain and retain a record of the tax reference number for each person beneficially entitled to receive distributions, enhancing transparency and facilitating tax compliance for recipients. The failure to notify payments in advance by the principal contractor under the Relevant Contracts Tax (RCT) regime serves as an analogy, suggesting that similar penalties might apply for failure to properly report dividend distributions and exemptions. All DWT must be paid to Revenue no later than the 14th of the month following the month in which the distribution is made. The strict reporting and payment deadlines, coupled with the obligation to obtain and retain tax reference numbers, underscore the importance of robust administrative processes for companies distributing dividends. The analogy with RCT penalties gives an indication of the potential financial consequences of non-compliance. The 14-day period from the end of the month and the 14th of the following month essentially align, highlighting the monthly cycle for reporting and remitting withheld tax. In conclusion, companies must report dividend distributions and any claimed exemptions to the tax authorities within 14 days of the month’s end and remit any withheld tax within the same period, while also maintaining records of recipients’ tax reference numbers.

Withholding Tax on Interest

Deposit Interest Retention Tax (DIRT) for Irish Resident Companies

Financial institutions in Ireland are required to withhold Deposit Interest Retention Tax (DIRT) at a rate of 33% from interest paid or credited on deposit accounts beneficially owned by resident companies, unless authorised to pay gross interest. DIRT is considered a final tax, meaning no further income tax or Universal Social Charge (USC) is payable on this interest, although Pay Related Social Insurance (PRSI) may apply. DIRT represents a specific withholding tax regime for interest earned on deposits by Irish resident companies, with a higher rate than the standard income tax rate applied to other interest. Its status as a final tax simplifies further obligations, but the potential application of PRSI needs to be considered. In conclusion, DIRT is a 33% withholding tax on deposit interest for resident companies, considered the final tax on this income, although PRSI may also apply.

Exemptions for Non-Residents

No Deposit Interest Retention Tax (DIRT) is applied to interest paid to non-residents who complete a written declaration of non-residence. Furthermore, non-residents may obtain a refund of DIRT that has been withheld if Ireland has a double taxation agreement with their country of residence. The exemption for non-residents upon presentation of a declaration aligns with the general principle of taxing income in the country of residence. The possibility of a refund under tax treaties further supports this principle and encourages international investment. In summary, non-residents are exempt from DIRT upon declaration, and may even obtain a refund if a tax treaty applies.

Withholding Tax on Other Interest Payments

Certain yearly interest payments are subject to withholding tax at the standard income tax rate, which is currently 20%. This applies to yearly interest paid by companies or by any person to another person whose usual place of abode is outside the State. Interest paid on finance raised from peer-to-peer lending or crowdfunding also falls within these provisions. The application of the standard income tax rate to yearly interest payments signifies a broader withholding tax obligation than just deposit interest tax. The inclusion of peer-to-peer lending reflects the evolving financial landscape. In conclusion, beyond DIRT, certain yearly interest payments are subject to a 20% withholding tax.

Exemptions for Payments to EU/Treaty Country Resident Companies

Interest payments from companies to companies resident in other EU member states or treaty countries are generally exempt from withholding tax under domestic law. Furthermore, under domestic legislation, withholding tax will generally 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. An exemption also exists for interest paid by an Irish corporate borrower to a bank carrying on a bona fide banking business in the State. These exemptions aim to facilitate cross-border lending and reduce financing costs for businesses operating within the EU and with treaty country trading partners. The conditions related to the recipient’s tax residency and the nature of their business are important safeguards. In summary, exemptions from interest withholding tax exist for payments to EU or treaty country resident companies, subject to certain conditions.

Impact of the EU Interest and Royalties Directive

The EU Interest and Royalties Directive may also provide an exemption for payments between associated companies. Associated companies are defined as those where one directly controls at least 25% of the voting power of the other, or a third company directly controls at least 25% of the voting power of both, and all companies are EU residents. Ireland has transposed this directive, eliminating withholding tax on commercial interest and royalty payments between associated companies in different EU member states. The EU Interest and Royalties Directive plays a crucial role in removing tax obstacles within the EU for intragroup payments, fostering a more integrated European market. The definition of associated companies and the requirement for EU residency are key aspects of this directive. In conclusion, the EU Interest and Royalties Directive provides an exemption from withholding tax for payments between associated companies resident in different EU member states.

Role of Ireland's Double Tax Agreements

Ireland’s Double Tax Agreements (DTAs) may offer exemptions or reduced withholding tax rates on interest payments. A table indicating reduced withholding tax rates on interest for various countries with which Ireland has tax treaties is generally available. Interest arising in one contracting state and beneficially owned by a resident of the other contracting state is often exempt under treaties such as the US-Ireland treaty. Ireland’s extensive network of double tax agreements provides an important avenue for reducing or eliminating withholding tax on cross-border interest payments, further encouraging international investment and trade. Businesses should consult the specific treaty between Ireland and the other jurisdiction involved. In summary, tax treaties play a vital role in reducing or eliminating withholding tax on cross-border interest payments.

Table 3: Reduced Withholding Tax Rates under Irish Tax Treaties (Examples)

Country

Dividends (%)

Interest (%)

Royalties (%)

United States

5/15

0

0

United Kingdom

0/15

0

0

Germany

0/15

0

0

France

0/15

0

0

Note: These rates are examples and may vary depending on the specific provisions of each tax treaty. It is imperative to consult the full text of the applicable treaty.

Withholding Tax on Royalties

General Rule and Exemption for Most Royalties

Generally, royalties (excluding patent royalties) are not subject to withholding tax under domestic law. Similarly, payments of Irish source royalties in respect of copyrights, trademarks, designs or models, plans, secret formulae or processes are not generally subject to withholding tax under domestic law, but may be under the new outbound payment rules. The general exemption for most royalties under domestic law suggests a policy focused on encouraging the use and dissemination of intellectual property. However, the caveat regarding patent royalties and the new outbound payment rules indicates specific exceptions and an evolving landscape. In conclusion, most royalties are not subject to withholding tax in Ireland under domestic law, with the exception of patent royalties and subject to outbound payment rules.

Withholding Tax on Patent Royalties and Certain Annual Payments

Payments of patent royalties and certain other annual payments are subject to a 20% withholding tax. This also applies to other sums paid in respect of the user of a patent. The specific withholding tax on patent royalties might reflect a policy decision to tax income derived from legally protected intellectual property rights. In summary, patent royalties and certain annual payments are subject to a 20% withholding tax.

Possibility of Lower Rates under Tax Treaties

Lower withholding tax rates may be available under tax treaties, subject to specific documentation and reporting requirements. The US-Ireland tax treaty generally exempts royalties from tax in the source country. Similar to interest, tax treaties play a role in potentially reducing the burden of withholding tax on patent royalties, thereby encouraging cross-border licensing and technology transfer. In conclusion, tax treaties may provide for reduced withholding tax rates on royalties, including full exemption in some cases.

Exemption under the EU Interest and Royalties Directive

The EU Interest and Royalties Directive may exempt withholding tax on payments between associated companies. This applies to payments between associated companies (25% control threshold) resident in different EU member states. The directive’s aim to eliminate withholding taxes on cross-border royalty payments between associated EU companies further supports the integration of the European intellectual property market. In summary, the EU Interest and Royalties Directive may exempt withholding tax on royalty payments between associated companies resident in different EU member states.

Need Personalized Guidance? Book a 30-minute consultation

Book my Consultation

Withholding Tax on Capital Gains

Applicability to Certain Disposals of Assets

A 15% capital gains tax must be deducted by the purchaser from payments for the disposal of certain assets. These assets include land or minerals in Ireland, exploration rights in the Irish continental shelf, unquoted shares deriving more than 50% of their value from the aforementioned assets, and goodwill of a trade carried on in Ireland. This withholding also applies to unquoted shares issued in exchange for shares deriving their value from the specified assets. The targeted nature of this withholding tax on specific types of assets, particularly those linked to Irish land and unquoted shares deriving their value from it, suggests a measure aimed at ensuring the collection of capital gains tax on these potentially high-value and less liquid assets. In conclusion, a 15% withholding tax applies to capital gains from the disposal of certain specified assets.

Exemption Thresholds Based on Consideration

This withholding obligation does not apply if the consideration is EUR 500,000 or less, or EUR 1 million if the asset is a house or apartment as defined by law. The exemption thresholds offer relief for smaller transactions, particularly in the property sector, potentially reducing the administrative burden for these disposals. The higher threshold for houses and apartments recognises the more significant value of these assets. In summary, capital gains withholding tax does not apply if the consideration is below certain thresholds.

Importance of Obtaining Certificates of Clearance from the Revenue Commissioners

The withholding obligation does not apply if the seller provides a certificate from the Revenue Commissioners authorising full payment. A certificate of clearance can be obtained if the vendor is Irish resident, no capital gains tax is due, or the tax has been paid. Clearance must be obtained before payment to avoid withholding. The mechanism of the certificate of clearance allows sellers to avoid withholding tax if they can demonstrate compliance with Irish tax obligations, streamlining transactions where the tax liability is already settled or non-existent. In conclusion, obtaining a certificate of clearance from the Revenue Commissioners allows for the avoidance of capital gains withholding tax.

Non-Applicability to Trading Stock and Certain Intra-Group Transactions

No exemption applies if the asset is trading stock or if the transaction is intra-group and no capital gains tax liability arises. The exclusion of trading stock aligns with the treatment of gains from trading activities as income rather than capital gains. The non-exemption for certain intra-group transactions where no capital gain is realised might be a measure to prevent tax avoidance or ensure proper tracking of asset transfers within groups. In summary, capital gains withholding tax applies to trading stock and certain intra-group transactions without a capital gains tax liability.

Consequences of Failure to Obtain a Certificate

Failure to obtain a certificate may result in the purchaser being assessed for 15% of the consideration. This penalty underscores the purchaser’s responsibility to ensure that withholding tax is applied when necessary, acting as an enforcement mechanism for capital gains withholding tax. In conclusion, the purchaser may be held liable for 15% of the consideration in case of failure to obtain the certificate.

Professional Services Withholding Tax (PSWT)

Application to Payments by Government Departments, State Bodies, and Local Authorities

Individual income tax at the standard rate (currently 20%) is deducted from payments for professional services made by government departments, state bodies, and local authorities. PSWT applies to payments made to both Irish and foreign suppliers. PSWT is a specific withholding tax mechanism targeting providers of professional services contracting with public sector entities, ensuring the collection of income tax at source. Its application to both domestic and foreign suppliers indicates a broad scope. In conclusion, PSWT is a 20% withholding tax on payments for professional services by public entities.

Standard Income Tax Rate

The tax is deducted at the standard rate of income tax, which is currently 20%. The rate being aligned with the standard income tax rate simplifies calculation and reflects the nature of the income being taxed. In summary, the rate of PSWT is 20%.

Mechanism for Deduction from Corporation Tax Liability

A credit is granted for any PSWT withheld against the corporation tax (or income tax for an individual) liability of the accounting period in which the tax is withheld. The gross amount of tax withheld must be included in the tax return (Form 11 for individuals, Form CT1 for companies). Non-residents who are not liable to tax in Ireland can claim a refund of PSWT withheld by completing specific forms (Form IC10 for individuals, Form IC11 for companies). The credit mechanism ensures that the tax withheld is not an additional burden but rather a prepayment of the final tax liability. The procedure for non-residents to claim the tax recognises that they might not have a final tax liability in Ireland. In conclusion, PSWT withheld is creditable against corporation tax or income tax, and non-residents can claim a refund.

Relevant Contracts Tax (RCT)

Applicability to the Construction, Forestry, and Meat Processing Sectors

Relevant Contracts Tax (RCT) is a withholding tax applicable in the construction, forestry, and meat-processing industries when a principal contractor engages a subcontractor under a relevant contract for relevant operations carried out in Ireland. The residency or tax liability of the parties, the location of contract execution, or the place of payment are irrelevant if the operations take place in Ireland. RCT also applies to non-resident subcontractors if the work is carried out in Ireland. RCT is a sector-specific withholding tax designed to ensure tax compliance in industries where subcontracting is prevalent and the risk of non-compliance might be higher. Its broad applicability based on the location of operations, regardless of residency, underscores its aim to tax economic activity within Ireland. In conclusion, RCT is a withholding tax applicable in the construction, forestry, and meat-processing sectors for relevant operations carried out in Ireland, even if the parties are non-resident.

Obligations of Principal Contractors Engaging Subcontractors

Principal contractors must notify the contract and all payments to Irish Revenue via the eRCT system before payment. They must verify the rate of withholding tax to be applied before making any payment. They must obtain a Deduction Authorisation from Revenue in real-time before payment. Failure to notify contracts and payments will result in penalties. Principal contractors bear significant responsibility under the RCT system, acting as agents for tax collection. The mandatory use of the eRCT system highlights the digitalisation of tax compliance in this area. Penalties for non-compliance underscore the importance of adhering to notification and authorisation procedures. In conclusion, principal contractors have an obligation to notify contracts and payments via the eRCT system before payment and obtain a Deduction Authorisation from Revenue, subject to penalties for non-compliance.

RCT Rates Based on Subcontractor's Tax Compliance

Revenue will issue a Deduction Authorisation indicating the RCT rate (0%, 20%, or 35%) to be withheld based on the subcontractor’s Irish tax compliance. The 20% rate applies to registered subcontractors with good tax compliance; 35% applies otherwise (including unregistered or non-compliant subcontractors). A 0% rate applies if the subcontractor has a zero-rate authorisation from Revenue. Non-resident businesses will generally be subject to a deduction rate of 20% or 35%. The tiered rate system directly links the withholding tax rate to the subcontractor’s tax compliance history, incentivising compliance and providing a mechanism to address non-compliance at the source of payment. In conclusion, RCT rates vary from 0% to 35% depending on the subcontractor’s tax compliance.

Credit or Set-Off for RCT Withheld

Subcontractors can claim a credit or set-off for RCT withheld against their tax liability. Non-resident subcontractors can submit an application for a refund of RCT to the Revenue Commissioners. The credit and refund mechanisms ensure that RCT withheld is not an excessive tax burden for compliant subcontractors and allow non-resident subcontractors to recover any overpaid tax. In conclusion, RCT withheld can be set off or refunded to subcontractors.

Penalties for Failure to Notify Payments

Failure by the principal contractor to notify payments in advance will result in penalties, potentially up to 35% of the gross payment. Penalties also apply for incorrect operation of the eRCT system, varying depending on the applicable RCT rate. The significant penalties for non-compliance underscore Revenue’s commitment to enforcing the RCT system and ensuring proper withholding and reporting in these high-risk sectors. In conclusion, failure to notify payments under RCT can lead to significant penalties for the principal contractor.

Other Considerations

Financial Institutions Levy

The Financial Institutions Levy, initially intended for three years, expired on 31 December 2023. Finance Act 2024 extended it for 2025, payable by specific banks that previously received state assistance at a rate of 0.112% of relevant deposits. While not a traditional withholding tax on payments, the Financial Institutions Levy represents another tax obligation for certain financial institutions in Ireland, linked to their past state support. Its extension indicates a continued policy of recovering public funds provided during financial crises. In conclusion, the Financial Institutions Levy has been extended to 2025 and applies to certain banks.

Impact of Outbound Payment Rules on Domestic Exemptions

It is essential to recall that these rules, discussed earlier in the dividend withholding tax section, also impact exemptions for interest and royalties. The outbound payment rules have a general impact on various types of payments subject to withholding tax, not just dividends. In conclusion, the outbound payment rules can also affect withholding tax exemptions on interest and royalties.

Reductions and Exemptions from Withholding Tax Rates under Irish Tax Treaties

Exemptions and rate reductions may apply under domestic law and tax treaties. If a domestic exemption is unavailable, a reduced rate might be applicable under a relevant tax treaty. The document includes a table outlining reduced withholding tax rates on dividends, interest, and royalties for various countries with which Ireland has tax treaties. Ireland has an extensive network of double tax agreements. The availability of treaty relief underscores the importance of considering Ireland’s tax treaty network when analysing withholding tax obligations for cross-border payments. The mention of a table highlights a practical resource for businesses. In conclusion, tax treaties can offer exemptions or reduced withholding tax rates on various types of payments.

Need Personalized Guidance? Book a 30-minute consultation

Book My Consultation

Conclusion: Summary of Key Withholding Tax Obligations and Importance of Professional Advice

In conclusion, Ireland operates a complex system of withholding taxes on companies, covering dividends, interest, royalties, capital gains, professional services, and relevant contracts. Standard rates vary, and numerous exemptions are available depending on the recipient’s status, residency, and the existence of tax treaties. The recently introduced outbound payment rules have added a further layer of complexity, particularly for payments to low or no-tax jurisdictions. Similarly, the introduction of a participation exemption for foreign dividends from 1 January 2025 represents a significant development for companies holding foreign participations. Given the complexity of these rules, particularly regarding exemptions and the impact of recent legislation, it is strongly advised that businesses seek detailed professional advice for specific situations to ensure compliance and optimise their tax positions.

Disclaimer: The information contained in this article is provided for informational purposes only and should not be construed as legal or tax advice. As each situation is unique, we recommend consulting a professional for personalized advice.

Sources

  1. Ireland – Corporate – Withholding taxes,  https://taxsummaries.pwc.com/ireland/corporate/withholding-taxes
  2. Global tax guide to doing business in Ireland – Dentons,  https://www.dentons.com/en/services-and-solutions/global-tax-guide-to-doing-business-in/ireland
  3. Dividend Withholding Tax in Ireland – Taxology Global,  https://taxology-global.com/knowledge-hub/dividend-withholding-tax-in-ireland/
  4. Dividend Withholding Tax (DWT) – Revenue,  https://www.revenue.ie/en/companies-and-charities/dividend-withholding-tax/index.aspx
  5. Understanding Dividend Withholding Tax (DWT) for Irish Company Shareholders – Intax.ie,  https://intax.ie/understanding-dividend-withholding-tax-dwt-for-irish-company-shareholders/
  6. Part 06-08A-01 – Dividend Withholding Tax (DWT) – Details of Scheme – Revenue, https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-06/06-08a-01.pdf
  7. Withholding Taxes – Irish Legal Blog,  https://legalblog.ie/interest/
  8. Parent-Subsidiary Directive – European Commission – Taxation and Customs Union,  https://taxation-customs.ec.europa.eu/taxation/business-taxation/parent-subsidiary-directive_en
  9. Exemptions for non-residents – Revenue,  https://www.revenue.ie/en/companies-and-charities/dividend-withholding-tax/exemptions-for-non-residents.aspx
  10. Dividend Withholding Tax (DWT) – TaxFind, https://www.taxfind.ie/binaryDocument//pdfs/http___www_revenue_ie_en_practitioner_tech_guide_dwt_guide_pdf.pdf
  11. Changes to Ireland’s Withholding Tax Rules from 1 April 2024 – Matheson, https://www.matheson.com/insights/detail/changes-to-ireland’s-withholding-tax-rules-from-1-april-2024
  12. Irish Tax Law Change – Outbound Payments – EY Financial Services thought Gallery, https://eyfinancialservicesthoughtgallery.ie/outbound-payments-a-snapshot-of-what-you-need-to-know/
  13. Tax Legislation Changes Impacting Businesses in 2024 – Mason Hayes Curran, https://www.mhc.ie/latest/insights/tax-legislation-changes-impacting-businesses-in-2024
  14. Ireland’s New Outbound Payments Rules Now in Force – Mason Hayes Curran, https://www.mhc.ie/latest/insights/irelands-new-outbound-payments-rules-now-in-force
  15. Deposit Interest Retention Tax (DIRT) – Citizens Information, https://www.citizensinformation.ie/en/money-and-tax/tax/tax-on-savings-and-investments/deposit-interest-retention-tax/
  16. What DIRT rate is applicable? – Revenue, https://www.revenue.ie/en/additional-incomes/dirt/what-dirt-rate-is-applicable.aspx
  17. DIRT tax rate in Ireland: definition and guide (2025) – Raisin, https://www.raisin.ie/taxes/dirt/
  18. Deposit interest retention tax – Wikipedia, https://en.wikipedia.org/wiki/Deposit_interest_retention_tax
  19. Deposit Interest – Revenue, https://www.revenue.ie/en/additional-incomes/dirt/index.aspx
  20. Ireland – Individual – Income determination – PwC Tax Summaries, https://taxsummaries.pwc.com/ireland/individual/income-determination
  21. 5. Taxation of investment products | Department of Finance Consultation Portal, https://consult.finance.gov.ie/ga/consultation/funds-sector-2030-framework-open-resilient-developing-markets/chapter/5-taxation-investment-products
  22. Tax on savings and investments – Citizens Information, https://www.citizensinformation.ie/en/money-and-tax/tax/tax-on-savings-and-investments/
  23. AIB Savings & Deposits – Tax On Interest Earned, https://aib.ie/our-products/savings-and-deposits/tax-on-interest-earned
  24. Part 08-04-04 – Deposit Interest Retention Tax – Repayments to Individuals – TaxFind, https://www.taxfind.ie/binaryDocument//pdfs/http___www_revenue_ie_en_about_foi_s16_income_tax_capital_gains_tax_corporation_tax_part_08_08_04_04_pdf_20160929233011.pdf
  25. FAQs – Irish Withholding Tax – IBKR Guides, https://www.ibkrguides.com/kb/article-4740.htm
  26. [8.3.6] Payment and receipt of interest without deduction of income tax – TaxFind, https://www.taxfind.ie/binaryDocument//pdfs/http___www_revenue_ie_en_about_foi_s16_income_tax_capital_gains_tax_corporation_tax_part_08_08_03_06_pdf.pdf
  27. Withholding Tax on interest payments and royalty payments – Revenue, https://www.revenue.ie/en/companies-and-charities/financial-services/withholding-tax-interest-payments/index.aspx
  28. Corporate Tax 2025 – Ireland – Global Practice Guides, https://practiceguides.chambers.com/practice-guides/corporate-tax-2025/ireland
  29. Tax Facts 2025 – PwC Ireland, https://www.pwc.ie/publications/2025/tax-facts-2025.pdf
  30. Interest & Royalties [EU] – Irish Legal Blog, https://legalblog.ie/interest-royalties/
  31. Taxation of interest and royalty payments made between associated companies | EUR-Lex, https://eur-lex.europa.eu/EN/legal-content/summary/taxation-of-interest-and-royalty-payments-made-between-associated-companies.html
  32. Interest & Royalty Directive – European Commission – Taxation and Customs Union, https://taxation-customs.ec.europa.eu/taxation/business-taxation/interest-royalty-directive_en
  33. S.I. No. 644/2004 – European Communities (Exemption From Tax For Certain Interest and Royalties Payments) Regulations 2004 – Irish Statute Book, https://www.irishstatutebook.ie/eli/2004/si/644/made/en/print
  34. No 39 of 1997, Section 267G, Revenue Note for Guidance – Chartered Accountants Ireland, https://www.charteredaccountants.ie/taxsourcetotal/1997/en/act/pub/0039/nfg/sec0267G-nfg.html
  35. EU: Interest and Royalties Directive, – Chartered Accountants Ireland, https://www.charteredaccountants.ie/taxsourcetotal/taxpoint/newdev/2009/05/international/2009-05-international-10.html
  36. TAX CONVENTION WITH IRELAND GENERAL EFFECTIVE DATE UNDER ARTICLE 29 – IRS, https://www.irs.gov/pub/irs-trty/ireland.pdf
  37. Withholding tax (WHT) rates – PwC Tax Summaries, https://taxsummaries.pwc.com/quick-charts/withholding-tax-wht-rates
  38. International Tax Ireland Highlights 2024 – Deloitte, https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-irelandhighlights-2024.pdf
  39. Ex. Rept. 105-13 – TAX CONVENTION WITH IRELAND – Congress.gov, https://www.congress.gov/congressional-report/105th-congress/executive-report/13/1
  40. Capital Gains Tax (CGT) – The Law Society of Ireland, https://www.lawsociety.ie/Solicitors/knowledge-base/practice-areas/Taxation/tax-guide/capital-gains-tax/
  41. Professional Services Withholding Tax (PSWT) – Revenue, https://www.revenue.ie/en/self-assessment-and-self-employment/pswt/index.aspx
  42. Professional Services Withholding Tax (PSWT) – Mayo County Council, https://www.mayo.ie/finance/accounts-payable/professional-services-witholding-tax
  43. Professional Services Withholding Tax – PSWT – updated system 2021 | Deloitte Ireland, https://www.deloitte.com/ie/en/services/tax/research/professional-services-withholding-tax-pswt-updated-system-20210.html
  44. Professional Services Withholding Tax (PSWT) – SAP Help Portal, https://help.sap.com/docs/SAP_ERP/8ee8b4dcd1e14a37881b7a7dc6dd5d29/f91c45b8e1504d82817c0569d68dc54d.html?&version=6.05.latest
  45. Professional Services Withholding Tax (PSWT) – IPASS, https://ipass.ie/training/professional-services-withholding-tax/
  46. Professional Services Withholding Tax (PSWT) – University of Galway, https://www.universityofgalway.ie/financial-accounting/taxation/professionalserviceswithholdingtaxpswt/
  47. Professional Services Withholding Tax (PSWT) – Revenue, https://www.revenue.ie/en/self-assessment-and-self-employment/pswt/information-for-providers-of-professional-services.aspx
  48. A Revenue Guide to Professional Services Withholding Tax (PSWT) for Accountable Persons and Specified Persons – Maynooth University, https://www.maynoothuniversity.ie/sites/default/files/assets/document/2.%20Revenue%20Guidance%20PSWT.pdf
  49. Irish Tax Institute – TaxFind: 4.8 Professional Services Withholding Tax (PSWT), https://www.taxfind.ie/lookupLocal/TICT_XML_02032015/c4.t8
  50. Relevant Contracts Tax (RCT) 2024 – CavanaghKelly, https://www.cavanaghkelly.com/news/relevant-contracts-tax-rct-2024
  51. Relevant Contracts Tax (RCT) for non-Irish contractors – Nathan Trust, https://www.nathantrust.com/relevant-contracts-tax-rct-ireland
  52. Relevant Contracts Tax (RCT) – Deloitte, https://www.deloitte.com/ie/en/services/tax/services/relevant-contracts-tax.html
  53. Relevant Contracts Tax (RCT) – Revenue, https://www.revenue.ie/en/self-assessment-and-self-employment/rct/index.aspx
  54. RCT – Relevant Contracts Tax – FSSU, https://www.fssu.ie/post-primary/topics/rct-and-vat/rct-relevant-contracts-tax/
  55. Relevant Contracts Tax – BDO Ireland, https://www.bdo.ie/en-gb/services/tax/indirect-tax-vat/relevant-contracts-tax
  56. RCT for subcontractors – Revenue, https://www.revenue.ie/en/self-assessment-and-self-employment/rct/rct-subcontractors.aspx
  57. Relevant Contracts Tax Explained – TRA Professional Services, https://tra-professional.ie/relevant-contracts-tax-explained/
  58. Part 18-02-05 – Relevant Contracts Tax – RCT and Subcontractors – TaxFind, https://www.taxfind.ie/binaryDocument//pdfs/http___www_revenue_ie_en_about_foi_s16_income_tax_capital_gains_tax_corporation_tax_part_18_18_02_05_pdf_20160929233010.pdf
  59. Finance Bill 2024 – BDO Ireland, https://www.bdo.ie/en-gb/insights/bdo/irish-tax-monitor/finance-bill-2024
  60. BUDGET 2025 SUMMARY | Revenue, https://www.revenue.ie/en/corporate/press-office/budget-information/current-year/budget-summary.pdf
  61. Ireland introduces a participation exemption for foreign distributions – Arthur Cox LLP, https://www.arthurcox.com/knowledge/ireland-introduces-a-participation-exemption-for-foreign-distributions/
  62. Ireland Introduces Participation Exemption on Foreign Distributions – Azets, https://www.azets.com/en-ie/insights/introduction-of-participation-exemption-on-foreign-distributions
  63. Ireland’s New Participation Exemption | Mason Hayes Curran, https://www.mhc.ie/latest/insights/irelands-new-participation-exemption
  64. Ireland introduces a participation exemption for foreign distributions – European Tax Blog, https://www.europeantax.blog/post/102jm5p/ireland-introduces-a-participation-exemption-for-foreign-distributions
  65. Ireland – Corporate – Income determination – PwC Tax Summaries, https://taxsummaries.pwc.com/ireland/corporate/income-determination
  66. Irish Participation Exemption for Foreign Dividends: A Step Closer – Maples Group, https://maples.com/knowledge/irish-participation-exemption-for-foreign-dividends-a-step-closer
  67. Irish Dividend Participation Exemption | RSM Ireland, https://www.rsm.global/ireland/insights/irish-dividend-participation-exemption
  68. Europe: Ireland’s New Participation Exemption – An Opportunity for Private Markets Asset Managers – Global Investment Law Watch, https://www.investmentlawwatch.com/2024/11/07/europe-irelands-new-participation-exemption-an-opportunity-for-private-markets-asset-managers/
  69. Roadmap to the Introduction of a Participation Exemption – KPMG International, https://assets.kpmg.com/content/dam/kpmg/ie/pdf/2023/12/ie-participation-exemption.pdf
  70. Irish Government publishes roadmap for introducing dividend participation exemption to Ireland’s corporation tax system, https://taxnews.ey.com/news/2023-1543-irish-government-publishes-roadmap-for-introducing-dividend-participation-exemption-to-irelands-corporation-tax-system
  71. Finance Act 2024: New Participation Exemption for Certain Foreign Distributions, https://irishtaxreview.taxinstitute.ie/feature-articles/finance-act-2024-new-participation-exemption-for-certain-foreign-distributions/
  72. Finance Bill 2024 – Financial Services Thought Gallery, https://eyfinancialservicesthoughtgallery.ie/finance-bill-2024-tax-alert/
  73. Business tax – Taxing Times – Finance Bill 2024 – KPMG Ireland, https://kpmg.com/ie/en/home/insights/2024/10/finance-act-2024-tax/taxing-times/business-tax.html
  74. What will Finance Bill 2024’s participation exemption mean for businesses? – PwC Ireland, https://www.pwc.ie/issues/finance-act/participation-exemption.html
  75. Irish Finance Bill 2024 – Implications for International and Irish Business – Maples Group, https://maples.com/knowledge/irish-finance-bill-2024-implications-for-international-and-irish-business
  76. What will Budget 2025 mean for corporate tax? – PwC Ireland, https://www.pwc.ie/issues/budget/corporate-tax.html
  77. Ireland – Corporate – Significant developments – PwC Tax Summaries, https://taxsummaries.pwc.com/ireland/corporate/significant-developments
  78. Dividend Withholding Tax Information – Investor Relations | Medtronic, https://investorrelations.medtronic.com/opportunities-obtain-irish-dividend-withholding-tax-dwt-exemption