Ireland as a Location for International Companies

Corporation Tax in Ireland

Ireland’s 12.5% corporate tax rate on trading income is one of the lowest ‘onshore’

rates in the world. ‘Trading profits’ include a broad range of commercial activities

including Intellectual Property (IP) and Supply Chain Management.

The Irish Government is committed to retaining the 12.5% corporate tax rate on

trading income.

 

A tax rate of 25% applies to non-trading income (passive income) such as

investment income, foreign dividends, rental income, net profits from foreign

trades, and income from certain land dealings and oil, gas and mineral exploitations.

 

The Irish Corporate Tax System

A company’s liability to corporation tax in Ireland depends on its residency. Irish

resident companies are liable to corporation tax on all their worldwide income and

capital gains. A company is considered to be tax resident in Ireland if its central

management and control are located in the State. The location where major

policy decisions of a company are taken is often where the company’s central

management and control are situated.

 

Companies not resident in Ireland but with an Irish branch are liable to corporation

tax on (i) profits connected with the business of that branch and (ii) any capital

gains from the disposal of assets used for the purposes of the branch in the State.

 

Companies not resident in Ireland and who do not have any Irish branch are liable

to (i) income tax on any Irish-sourced income and (ii) capital gains tax on gains from

the disposal of specified Irish assets.

 

Calculating Tax Liability

In Ireland, companies are liable to corporation tax on their total profits, including

trading income, passive income and capital gains.

  • Irish resident company is liable to corporation tax on worldwide income
  • Irish branch or agency is liable to corporation tax on Irish branch income
  • Non Irish resident with no branch is liable to Irish tax on Irish source income

 

Internationalisation

Holding Companies Investing into Ireland

Holding Company legislation has put Ireland in a position to compete with established

European holding company locations. An Irish company can act as a European/Regional holding or Intermediate holding company.

The key benefits relate to the treatment of capital gains and foreign dividends.

Foreign Dividend Income:

Although foreign dividend income is liable to tax in Ireland it is possible to gain

relief so that no further Irish tax will apply.

Companies may gain tax relief through:

  1. Foreign tax credit pooling;
  2. EU Parent Subsidiary Directive;
  3. Double taxation agreements.

Dividends paid by a company located in the EU or in a country with which Ireland

has a double tax agreement (including agreements which are signed but not yet

ratified) are liable to corporation tax at the 12.5% rate provided the dividend is paid

out of ‘trading profits’.

If part of the dividend is paid from non trading profits and part from trading

profits, the non trading balance will be taxed at the 25% rate. However, in

accordance with EU legislation, Ireland follows the ‘de-minimis rule’, which states

that under certain conditions the whole of dividends are to be taxed at 12.5%,

regardless of whether a portion is derived from non trading profits.

 

Tax Credit Pooling

‘Onshore Pooling’ allows foreign dividends to be pooled together, before they are

offset against the Irish tax liability. However, excess tax on foreign dividends liable

at a rate of 12.5% cannot be used against those liable at the 25% rate.

The tax credits do not need to be utilised in the year in which the dividend is

received. They can be carried forward indefinitely or offset against Irish tax on

future foreign dividends.

 

The De–Mi nimIs Rule

In order to satisfy this rule, 75% or or more of the dividends must consist

of trading profits from the paying company or from dividends received by

it from trading profits of lower tier companies resident in the EU or in a tax

agreement country. In addition, the aggregate value of trading assets of the

dividend recipient company and of its subsidiaries must be greater than 75%

of the aggregate value of all their assets (within the accounting period in which

dividend is received).

 

Tax Credit Pooling

‘Onshore Pooling’ allows foreign dividends to be pooled together, before they are

offset against the Irish tax liability. However, excess tax on foreign dividends liable

at a rate of 12.5% cannot be used against those liable at the 25% rate.

The tax credits do not need to be utilised in the year in which the dividend is

received. They can be carried forward indefinitely or offset against Irish tax on

future foreign dividends.

 

EU Parent Subsidiary Directive

The European Union Directive requires that Member States eliminate double

taxation of dividends received by a parent company located in one Member State

from its subsidiary located in another.

 

At present, since a subsidiary company is taxed on the profits out of which it pays

dividends, the Member State of the parent company must either:

  1. Exempt profits distributed by the subsidiary from any taxation; or,
  2. Grant a credit against its own tax in relation to the tax already paid in the

Member State of the parent subsidiary.

 

Foreign Tax Credits

Irish tax resident companies are liable to pay Irish corporate tax on their worldwide

income. A foreign branch of such a company is simultaneously liable to both

foreign and Irish tax. In order to eliminate double taxation, Ireland offers a pooling

provision which enables companies offset the foreign tax as a credit against the

Irish corporation tax liability. The extent of the credit depends on the nature of

the profits, and hence whether they are taxed in Ireland at 12.5% or 25%, but in all

cases is limited to the Irish tax on the income item. This pooling provision allows for

the fact that foreign branch profits may be taxed at a variety of tax rates and looks

at the overall rate, not at the rates country by country.

 

Repatriation of profits and Irish withholding tax

A withholding tax of 20% applies to dividends and other profit distributions made

by an Irish resident company. However, extensive exemptions are available in cases

of certain payments to certain shareholders, including:

— Irish tax resident companies;

— Charities and pension funds;

— Certain collective investment funds;

— Certain employee share ownership trusts; and,

— Certain companies and individual residents in other EU Member States, or

countries with which Ireland has a tax treaty.

 

Dividends and other profit transfers from Ireland do not have to be in euro, any

currency can be used.

For the parent subsidiary directive to apply, a relationship of no less than a 10%

shareholding must exist.

 

Double Taxation Agreements

To facilitate international business, Ireland has signed comprehensive double

taxation agreements with 72 countries. These agreements allow the elimination or mitigation of

double taxation.

 

In addition, where a double taxation agreement does not exist with a particular

country, unilateral provisions within the Irish Taxes Acts allow credit relief against

Irish tax for foreign tax paid in respect of certain types of income.

 

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