Tax law provides that, subject to certain exceptions, companies are required to withhold tax at 20% from interest payments and persons other than companies are required to withhold tax at 20% from interest paid to non-residents. The requirement to withhold tax does not apply to interest paid to banks carrying on a banking business in the State and so generally Irish businesses may not be aware of the requirement to withhold tax from interest payments.
However, in recent times many loans have been sold on by Irish banks to entities which may not be carrying on a banking business in the State and in such cases tax must be withheld from interest paid on such loans, unless one of the other exceptions to the requirement to withhold tax applies.
Other Exceptions which May Apply
However, even though interest is being paid to someone who is not carrying on a banking business in the State, it does not automatically mean that tax must be withheld from interest payments made. In general terms, there should be no requirement to withhold tax from interest paid in the following circumstances:
• Where the loan is a short loan (i.e. generally not capable of extending for more than a year).
• Where the interest is paid by a company to a company carrying on a trade of lending money provided certain conditions are satisfied.
• Where the interest is paid to a S.110 company.
• Interest paid by a company to a company resident in the EU or a country with which Ireland has a Double Taxation Treaty and either the interest is taxed in that country or the interest is exempted from tax under the Treaty.
• Where a company has been authorised by Revenue to pay interest without deduction of tax.
The main point is that if interest is not being paid to an Irish bank, or to a bank carrying on business in the State, it does not necessarily mean that tax must be withheld from interest payments made. However, before interest is paid gross it is necessary to check and obtain advice if it qualifies for one of the exceptions from the requirement to withhold tax.
Income tax withheld from interest is due for payment with the payer’s corporation tax/income tax liability under the self-assessment system.