Interest Withholding Tax
/ˈɪntrɪst wɪðˈhəʊldɪŋ tæks/
Are you paying IWT in Ireland? Discover how the 20% Interest Withholding Tax works, who qualifies for exemptions, and how to remit payments to Revenue today.
Are you paying IWT in Ireland? Discover how the 20% Interest Withholding Tax works, who qualifies for exemptions, and how to remit payments to Revenue today.
Interest Withholding Tax, commonly abbreviated as IWT, is a 20% tax that Irish resident companies and certain other payers must deduct at source from specific interest payments made to individuals or non-exempt entities. This tax is then remitted directly to the Revenue Commissioners on a monthly basis, ensuring the state collects tax on interest income at the point of payment.
Payers are responsible for determining whether IWT applies based on the recipient's status. Exemptions exist for payments to authorised banks, building societies, qualifying non-residents under double tax treaties, and certain intra-group interest. Failure to deduct and remit IWT correctly can result in the payer becoming liable for the tax, plus interest and penalties, making proper classification essential for tax compliance.
For startups providing director loans or earning deposit interest, understanding Interest Withholding Tax prevents unexpected liabilities during CT1 Return filings. It operates similarly to Dividend Withholding Tax but applies specifically to interest, forming a key part of Ireland's withholding tax regime.
When your company pays interest exceeding €20 in a year to an Irish resident individual without a collecting agent exemption, you must deduct 20% IWT before making the payment. The net interest is paid to the recipient, whilst you file Form 56-1 monthly via ROS and remit the tax by the 31st of the following month.
Recipients can claim refunds if over-withheld, such as non-residents under treaty relief or those with unused tax credits. Payers must obtain declarations from recipients to apply exemptions, retaining these for six years as evidence during Revenue audits, much like Benefit in Kind record-keeping.
Irish resident companies, partnerships, and certain unincorporated bodies paying 'yearly interest'—such as loan interest, deposit interest, or hire-purchase finance charges—must operate IWT. Exceptions apply to authorised credit institutions and payments to non-residents with proper declarations.
Deposit interest from banks to individuals is handled via Deposit Interest Retention Tax (DIRT), separate from corporate IWT obligations. Startups paying interest on shareholder loans or external borrowings must check payer status carefully to avoid personal liability.
Yearly interest subject to IWT includes recurring payments like loan interest to directors, shareholder advances, or long-term deposits. Short-term interest under one year or certain trade-related payments may be exempt. Always consult Revenue guidelines, as classification errors lead to tax interest charges.
Yes, key exemptions include payments to EU/EEA financial institutions with authorisation declarations, non-residents under double tax treaties with Form V2A declarations, and intra-group interest where group relief applies. Collecting agents like banks handle their own exemptions, simplifying payer obligations.
Certain government bodies and pension schemes also qualify. Obtaining and validating declarations prevents payer liability whilst enabling gross payments to exempt recipients.
Non-residents submit Form V2A to payers pre-payment, claiming treaty relief at reduced rates or exemption. Payers retain declarations without deducting IWT, filing details in annual returns. Recipients claim refunds directly from Revenue if over-withheld, similar to Dividend Withholding Tax processes.
Failing to deduct or remit IWT attracts the tax amount from the payer, plus tax interest at 0.0219% daily and penalties up to 100% for deliberate default. Audits scrutinise loan interest during CT1 Return reviews, emphasising robust declaration processes.
IWT deducted reduces the payer's corporation tax liability as a prepaid tax credit, claimed in CT1 computations. Proper operation enhances cash flow whilst ensuring compliance, aligning with broader tax relief strategies for efficient financial management.
