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Withholding tax for Irish Ltd. and US LLCs - What you need to know

Withholding tax for Irish Ltd. and US LLCs - What you need to know

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Withholding tax is a special form of tax levied in the country from which payments such as dividends, interest or profits originate before they are transferred to recipients in another country. Both Irish limited companies (Ltd.) as well as American Limited Liability Companies (LLCs) are affected by this tax, albeit with some differences.

Irish Limited Companies

In Ireland are subject to dividend and interest payments that are Ltd. to non-Irish resident shareholders is subject to a withholding tax of 20%. This tax is withheld directly at source before the payment leaves the country. However, if the income is not derived from Ireland, no Irish withholding tax is payable.

Example: An Irish Ltd. makes a profit of € 100,000 from activities in Germany and distributes € 50,000 of this as a dividend to its shareholders resident in Germany. As the income does not originate from Ireland, no withholding tax is withheld.

In addition, Irish Ltds. are required to file an annual corporation tax return and deduct 12.5% Corporate income tax pay.

Double taxation agreement (DTAs) between Ireland and other countries can reduce or eliminate withholding tax on Irish-sourced income.

American LLCs

US LLCs are not included in the USA resident members are generally exempt from US income tax.

Profit distributions of a LLC to their non-US members are potentially subject to a withholding tax of 30% if the income originates from the USA. There may be exceptions or reductions to this tax rate, for example through double taxation agreements between the USA and the LLC member's country of residence. However, if the income does not come from the USA, no US withholding tax is due.

Example: A Florida-based LLC generates $ 500,000 of taxable income from business in Mexico. It distributes $ 200,000 of this to its two German members. Since the income does not originate in the USA, no 30% US withholding tax is due.

However, LLC members must pay withholding tax on their share of the LLC's income regardless of the withholding tax. Income tax pay dividends, profit distributions or not.

Double taxation agreements are relevant for withholding tax

As the examples show, double taxation agreements (DTAs) between countries can have a significant impact on the amount of withholding tax. DTAs are intended to avoid double taxation of the same income in two countries. They often contain special regulations for withholding tax on dividends, interest and company profits.

Companies with cross-border activities should therefore always check whether a favorable DTA with withholding tax exemptions or reductions exists for them. The rules on withholding tax are complex, so individual tax advice is advisable.

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Disclaimer: Please note that the above dates, tax rates and regulations may change over time. Do not make any independent decisions without first consulting an expert for your individual situation. It is in your interest to always receive individual information from an experienced expert who knows your situation.

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