Tax Planning & Investment Opportunities In Ireland
By Damien Malone
Posted: 30th October 2012 09:09
The number of businesses locating in Ireland over the past decade has increased enormously with major multinationals basing their international operations here and foreign individuals starting their business – some helped by state aided international start-up funds to target investor ready overseas entrepreneurs – in Ireland.
Recent Tax Initiatives
In our most recent Budget, a range of measures were maintained and introduced to help International Business such as:
- The three year corporate tax exemption for new start up companies has been extended for the next three years which can help new companies setting up in Ireland earn profits of up to almost €1 million free of corporation tax
- Our R&D tax credit regime has been improved, particularly for SME’s.
- A"Special Assignee Relief Programme" was introduced to attract key people to Ireland, encouraging the expansion of businesses and the creation of jobs.
- A Foreign Earnings Deduction was also announced for individuals who travel abroad developing markets for Ireland.
Recent Property Based Tax Initiatives
To try and boost the crashed Irish property market, a number of measures were taken such as a relief from Capital Gains Tax for properties purchased after 6 December 2011 until the end of 2013. Where held for a period of at least seven years, the gain attributable to that seven year period will be exempt from Capital Gains Tax for both individuals and corporates in respect of both residential and commercial purchases. Indeed since its announcement, we have worked with and advised a number of overseas investors who are of the opinion that this relief, along with current market prices and further reductions in stamp duty, now is the time to invest in Irish property.
There are a number of features of the Irish tax regime that have been, and remain, critically important for Ireland in attracting and retaining international investment. These include the following:
Standard 12.5% tax rate for trading business profits.
There has been much discussion regarding Ireland’s 12.5% Corporation Tax rate in recent times, with endless articles and news discussions over whether Ireland will be able to keep the low rate now it has the EU / IMF bailout. Over the last number of weeks there has been renewed discussion as Ireland looks for more favourable interest rates on the EU / IMF loan. However in our most recent budget our Minister for finance reaffirmed the Irish Government’s commitment to this 12.5% rate.
A tax efficient Holding Company regime
When properly structured, such companies may pay little or no Irish tax on income and gains derived from their investments. Some of the main features under this favourable tax regime are discussed below:
1. Capital Gains Tax Exemption
Subsidiaries – Irish Holding Companies benefit from a full participation exemption from Irish capital gains tax in respect of gains arising on the disposal of shares in certain subsidiary companies.
Shareholders (profit repatriation) – Non-Irish resident investors (individuals and corporates) are generally exempt from Irish tax on any gains derived on the sale shares in Irish companies.
Therefore in practice, it is possible for foreign investors to establish an Irish Holding Company to invest in domestic and global companies and subsequently dispose of both these investments and the Holding Company itself all free from Irish capital gains tax.
2. Dividend Income
Irish subsidiaries – in general, dividends received by one Irish resident company from another Irish resident company are exempt from Irish tax. Such dividends are also received gross, exempt from any withholding tax.
Foreign subsidiaries – Ireland operates a credit system for providing relief for foreign tax suffered on dividend income. This unilateral credit relief is available for both foreign underlying and withholding tax suffered. The foreign tax credit is offset against any Irish tax payable on the income. Where the foreign tax exceeds the Irish tax payable on the dividend income, these excess credits can be set-off against Irish tax payable on other dividend income streams or carried forward indefinitely. In practice, this credit system often significantly reduces or eliminates entirely any Irish tax payable by a Holding Company on dividend income received from foreign subsidiaries. This is particularly the case for foreign ‘trading’ dividends which are taxable at the standard 12.5% corporation tax rate.
Foreign ‘trading’ dividends – dividends received by an Irish Holding Company from a foreign company which were paid out of “trading profits” may be taxable at the standard 12.5% corporation tax rate. Where the dividend paying company is resident in a country with a higher tax rate than Ireland’s low 12.5% rate (which is generally the case), the availability of foreign tax credit relief for the Holding Company often means no Irish tax should be payable on the dividend income.
3. Dividend Payments (Profit Repatriation)
Dividend Withholding Tax (DWT) – The general rule is that dividends paid by an Irish resident company are subject to DWT at the rate of 20%. However, there are a number of exceptions to this general rule which provide exemptions from the imposition of DWT and therefore, in practice Irish Holding Companies are often exempt from Irish DWT in respect of dividends paid to their non-Irish resident shareholders.
4. Debt Financing
In general, interest paid by an Irish Holding Company is not deductible for Irish tax purposes when arriving at taxable profits. However, where an Irish Holding Company borrows funds to acquire shares in, or lend money to, a third party company or certain related companies, interest paid on such loans may qualify for relief. The availability of this relief is very much dependant the exact facts of each case but once qualified for this relief can provide a very tax efficient funding option.
5. Interest Free Loans
The limited Irish Transfer Pricing rules do not apply to most Irish Holding Companies, therefore such companies may be able to lend money (borrowed or otherwise) interest free without adverse Irish tax implications.
Attractive R&D regime and Intellectual Property structures
It has always been recognised that encouraging innovation is an important strategic objective for improving Ireland’s competitiveness by developing a knowledge economy. Our government often markets the advantages that Ireland has to offer in this area. These advantages include a highly skilled and educated workforce, a strong technical infrastructure, significant grant incentives from domestic and EU funds and an R&D tax credit regime. Also, the introduction of generous tax allowances for intellectual property transferred to Ireland has further bolstered Ireland’s status as a favourable location for tax planning.
Finally, other factors such as no thin capitalisation or controlled foreign corporation provisions, an extensive tax treaty network and generally no outbound withholding taxes provisions further add to the attractiveness of Ireland as a holding company location.
When considering an international tax planning initiative, the use of Ireland is a key component. Ireland has consistently and continually let it be known on the international stage that it will steadfastly maintain low tax rates for international investors. Also, the OECD has also publicly backed the current Irish tax regime on many occasions and this highlights the stability of the Irish tax system which should give comfort to those looking to invest in Ireland.
Our firm have assisted many overseas businesses and individuals set up their operations in Ireland by providing advice on all business, taxation and financial matters as well as providing Accountancy/Audit & full support services. We promote ourselves by offering a cost effective solution to setting up in Ireland and by offering a more personalised and complete option to all Irish compliance needs and requirements.
For further information or assistance on any aspect of doing business or investing in Ireland, please contact Damien Malone.
Damien Malone can be contacted by phone on 00353 87 685 9474 or alternatively via email at firstname.lastname@example.org