Ireland as an Investment Opportunity
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Background
Ireland has been recognised as a major manufacturing and software centre in Europe and around the world. The International Financial Services Centre (IFSC), located in central Dublin and the Shannon region in the west of Ireland have attracted significant investment.
A major factor in attracting foreign business to Ireland has been a 10% corporation tax rate for manufacturing corporations and certain corporations locating in the IFSC and in the Shannon area. Historically corporations which could not avail of the 10% rate paid tax at rates up to 40%.
The Irish government has introduced new EU approved corporation tax rates which apply regardless of whether the company is manufacturing or is located at the IFSC or Shannon. A 12.5% rate applies to trading activities and a 25% rate applies to non-trading activities. For this purpose, non-trading income includes passive income (investment income, foreign dividends, rental income) and income from land dealing and oil, gas and mineral exploitations.
The 12.5% tax rate is significant in that it applies to all trading corporations. This makes Ireland extremely attractive for foreign corporations.
Examples of activities which will qualify for the 12.5% rate and which may be of interest to overseas corporations are:
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(a) Financial activities
Many corporations involved in investment activities and treasury operations, funds management, trading in financial products, insurance and asset financing have located in the IFSC or at Shannon in order to benefit from the 10% corporation tax rate. With the introduction of the 12.5% rate, it will no longer be necessary for such corporations to locate at those sites, or to meet certain regulatory requirements. There is scope for large multi-nationals to carry on intra-group financial activities (e.g. intra-group lending) to generate profits in Ireland at the 12.5% rate while facilitating a tax deduction at higher rates in the group.
(b) Headquarter activities
Ireland may be an ideal location to carry on headquarter operations. Such operations could include group management activities, back office operations and data processing. Management charges, administration fees etc can be charged to foreign affiliates facilitating a leverage between the low Irish tax rate and higher foreign tax rates.
(c) Manufacturing and distribution activities
All manufacturing and distribution activities should qualify for the 12.5% rate of corporation tax.
(d) Software development and sale
The skilled workforce in the IT area in Ireland combined with the country's excellent IT infrastructure makes Ireland an ideal location to carry out software development activities all of which will qualify for the 12.5% rate.
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Tax Residence
A company is tax resident in Ireland if its central management and control is located in Ireland. Broadly speaking, a company's central management and control is located where the major policy decisions of the company are taken. An Irish incorporated company is also treated as tax resident in Ireland unless it carries on a trade in Ireland and it is ultimately controlled by persons resident in another EU member state or in a country with which Ireland has a double taxation agreement. An Irish incorporated company may also be excluded from being Irish resident if, under the provisions of a double taxation agreement, it is tax resident in another country.
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Exemption from Transfer Tax/Stamp Duty on intellectual property rights
Transfer tax/stamp duty has been abolished on the sale of intellectual property rights. The exemption covers the transfer of patents, trade marks, copyright, domain names etc. The transfer of any goodwill inherent in the intellectual property rights will also be exempt from stamp duty. This will ensure that Ireland is a more attractive location for companies holding intellectual property rights and should |
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Other issues to be considered
A foreign corporation which considers locating in Ireland needs to consider whether it should operate in Ireland through an Irish corporation or as a branch of an existing non-Irish corporation. While the decision will normally be based primarily on commercial considerations, there are tax considerations to be borne in mind in relation to this matter. In particular US corporations need to be mindful of the Subpart F anti avoidance rules. A number of structures are used by US corporations investing in Ireland to minimise the impact of Subpart F rules. These include operating in Ireland through a branch of an active Bermuda company or via a Dutch holding company. The particular structure used will depend on the precise business and tax objectives of the US corporation.
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Other tax advantages of locating in Ireland
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 | Ireland has an extensive double taxation treaty network which provides for no withholding tax on interest or dividend payments. |
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| Ireland has no CFC (controlled foreign corporations) rules with respect to subsidiaries of Irish resident corporations. |
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| Ireland does not have specific transfer pricing rules; this enables maximum leverage between the Irish and foreign corporation tax rates. |
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Holding Company Regime
Ireland has a holding company regime which involves an exemption on capital gains and dividends from the profits of trading subsidiaries. There are certain conditions which must be met including a 5% shareholding test, a minimum 12 month holding period and the subsidiary must not be located in a tax haven. |
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Taxation Agreements
Ireland has double taxation agreements in place with the following countries:
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