Ireland provides for foreign tax relief via unilateral provisions within the Irish Taxes Consolidation Act, and through double taxation agreements (DTA's) concluded with foreign jurisdictions. Tax credits can be obtained by Ireland resident enterprises as well as by branches in Ireland of European Economic Area enterprises.
Under Ireland's unilateral relief provisions, foreign tax credits are allowed for the following types:
- Withholding taxes and taxes on underlying profits of dividend distributions by foreign subsidiaries (a credit may also be obtained for underlying tax paid by lower-tier subsidiaries in the participation chain)
- Foreign tax paid on the profits of a foreign branch of an Ireland resident enterprise
- Foreign tax paid on interest that is treated as trading income
- Foreign tax deducted from royalties
- Taxes paid on capital gains on foreign assets in countries with which Ireland has a DTA, but the DTA does not include capital gains tax provisions
In general, a foreign tax credit will be available for the lower of the actual tax amount paid in the foreign country or the amount of tax payable in Ireland on the same income. In various instances, it is possible to pool credits relating to the same income stream.
When usable credits on foreign taxes paid are limited by differences in tax rates, the unutilized credits for foreign tax can be carried forward and used to offset foreign tax paid on income of the same type. Although, this does not apply to capital gains tax.
In addition, if an Irish resident enterprise has foreign branches in more than one country, any unutilized foreign tax credits can be pooled. Foreign dividend tax can be pooled in a similar manner if the subsidiaries distributing the dividends are at least 5% held. Note, however, that tax credits for dividends which would be subject to 12.5% Ireland corporate income tax, cannot be used to offset foreign tax on dividends that would be subject to the 25% tax rate. Although the opposite is allowed.
When foreign taxes are payable in a jurisdiction with which Ireland has a DTA, foreign tax paid may be credited against Ireland income tax on the same income. The amount of the credit is the lower of the actual tax amount paid in the foreign country or the amount of tax payable in Ireland on the same income.