Withholding Tax & RCT
In BrightBooks, references to withholding tax may relate to Relevant Contracts Tax (RCT)—a tax applied in Ireland on certain payments made by principal contractors to subcontractors.
What is Withholding Tax?
Withholding tax is a general term used to describe tax withheld at source on a payment before it is made to the payee. It reduces the amount received and is paid directly to the tax authority on behalf of the recipient.
In some countries, withholding tax applies to things like dividends or interest. However, in Ireland, withholding tax is commonly used to refer to Relevant Contracts Tax (RCT).
What is RCT?
Relevant Contracts Tax (RCT) is a withholding tax that applies when:
A principal contractor engages a subcontractor to carry out work in sectors such as construction, forestry, or meat processing.
A portion of the payment is withheld and remitted to Revenue, depending on the subcontractor’s tax compliance status.
Rates typically include:
| Subcontractor Status | RCT Deduction Rate |
|---|---|
| Fully tax compliant | 0% |
| Standard tax status | 20% |
| Non-compliant | 35% |
Example:
Subcontractor invoice: €1,000
RCT Withheld (20%): -€200
Amount paid to subcontractor: €800
Your supplier ledger and reports will show the full cost while reflecting the correct payment amount.