MALONE & CO.
Dividend Withholding Tax
Withholding Taxes normally apply to payments of dividend and interest by an Irish corporation. There are certain ‘excluded’ persons where the payment is made within Ireland. If the payment is made to a ‘qualifying non-Irish resident person’ then exemption from the requirement to deduct withholding tax may be made. The recipient normally has to be located in an EU or double tax treaty country to qualify.
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.
Non-residence and exemption in the case of those non-resident individuals who 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.
This aids the repatriation of profits to overseas jurisdictions giving the foreign shareholder a significant cash flow benefit.
The current rate of withholding tax is at the standard rate in Ireland of 20% on dividends where applicable. 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.
Interest and Royalties
Under the Interest and Royalty Directive, Irish Withholding Tax should not arise on all types of interest and royalty payments made by an Irish tax resident company where certain conditions are satisfied. The main conditions are as follows:
- The Irish company and the receiving company are regarded as “associated companies”, i.e. for a continuous period of two years, one company controls 25% of the voting power of the other, or both are 25% controlled by a third company;
- The receiving company and, where applicable, the third company are tax resident in the EU.
Domestic and international tax laws allow Irish companies to make interest and royalty payments to recipients located outside of Ireland in a tax efficient manner. In the majority of cases, interest and royalties may be paid by Irish companies to recipients located in the EU or DTT countries, free of Irish WHT.
Relief for Withholding Taxes and Credit for Foreign Taxes
In general, Ireland imposes Withholding Tax on royalty payments paid to non-residents where it is a patent royalty or one where the royalty is regarded as “pure income profit”. Where Irish Withholding Tax applies, all of Ireland’s double taxation treaties either substantially reduce or entirely eliminate Irish Withholding Tax on royalties paid to a non-resident treaty jurisdiction. Furthermore, relief from withholding tax may also be available under the EU Interest and Royalties Directive in respect of intra-EU transactions.
In addition to the above, a recent Finance Act introduced unilateral relief for foreign tax suffered on royalties received from abroad. This generally results in no further liability to Irish tax arising as Ireland’s tax rates are normally lower than the payer’s jurisdiction.