Withholding Tax

Tax  Deducted by Third Parties

Credit is allowed for tax deducted at source by third-party. The principal example is in the case of PAYE payments by employers. Indeed, the objective of the PAYE system is to tax the employee’s income by deduction.

An employee will generally not have to make a return, if all of his income is dealt with under PAYE.  See our chapters on PAYE income.

Other commonly encountered examples of deduction at sources include;

• dividends paid to Irish resident shareholders; the company must deduct tax at the standard rate;
• professional services paid by governmental bodies; tax is deducted at [    ]%;
• main contractors and others in building, construction,  agricultural and certain other sectors. They must deduct tax unless the sub-contractor produces as tax clearance certificate;
• DIRT (deposit interest retention tax) is deducted by financial institutions on interest  income at a rate of 25%; this deduction represent the full income tax liability and it is not necessary for an individual to pay additional tax. However  only some persons (e.g. individuals over 65 years of age) may reclaim a refund of the DIRT, if they do not have a tax liability (because of credits)

Professional Services Withholding Tax

Certain professional services provided to the State, are paid for, subject to withholding tax.  Professional services include

• medical, dental, pharmaceutical, optical aural and veterinary services;
• architectural, quantity surveying , engineering and related services;
• accounting, finance, audit and consultancy service;
• legal services;
• training services.

Fees paid by Government departments and agencies of the State specified in legislation, are paid net of withholding tax.  The entities concerned must account to the Revenue for the tax withheld.

Public Bodies

The list of persons and entities which must operate professional services withholding tax was amended by Finance Act 2011.  Six bodies were added in 2011, and two were removed.

Amendments were made to Professional Services Withholding Tax for 2016. Certain  bodies on the list are amended to reflect changes in their corporate structure. In particular the following were added

• Competition and Consumer Protection Commission,
• Regulator of the National Lottery,
• Shannon Group PLC,
• Charities Regulatory Authority,
• Irish Human Rights and Equality Commission.

The Revenue may assess accountable bodies.  They may carry out audits in order  to ensure that payments are made.

Tax is withheld at the standard rate of income tax (20%). The credit is available for tax in respect of payments made in the accounting period in which the income tax assessment is made. It need not necessarily have been yet recognised as income in those accounts.

The taxpayer who has provided the service obtains a tax credit in the amount of withholding tax.

Finance Act 2023 removes three entities from the list that are no longer accountable persons required to operate Professional Services Withholding Tax, by adding three entities that are now accountable persons and by repealing and replacing certain provisions in respect of adding the Royal Irish Academy and designated institutions of higher education within the meaning of section 53(1)(a) of Higher Education Authority Act 2022.

Refunds

There is a system of  refunds of withholding tax, in certain circumstances.  In the case of an ongoing business,

• the profits in the immediately preceding year must have been agreed with the Revenue
• the tax liability must have been paid and
• the individual must supply the Revenue with the payments of the relevant withholding.

An interim refund may be allowed of the excess of the amount withheld over the tax liability for the previous year.

A refund may be allowed to a business which is commencing to trade  on the basis of estimated tax liability based on the number of months concerned.

In case of  particular hardship, where the above conditions cannot be fulfilled, the Revenue may waive compliance at their discretion.

The claim must be made for an interim refund payment. It may be available where the tax payable is demonstrably higher than that withheld and there is no risk to Revenue in respect of ongoing tax obligations. It requires confirmation of certain particulars. All taxes including PAYE and VAT must be up-to-date.