Ireland investment

The Irish tax regime

Ireland has been particularly successful in attracting companies to base their headquarters in Ireland. This has been due to the highly competitive tax environment in Ireland. IDA Ireland outlines the Irish tax structure 

Tax in Ireland  

The overall tax burden in Ireland is the lowest among all other EU member states. A focus of Ireland's strategy to attract investment is to create a favourable economic and fiscal environment which is supportive of industry. This is evidenced by various investment incentives which are in place, creating a unique business opportunity in Ireland.    

Ireland offers: 

·       One of the most beneficial corporate tax environments in the world. A corporation tax rate of 12.5% applies to all corporate trading profits.

·       Tax credits for incremental expenditure on research and development.

·       A favourable holding company regime.

·       Double taxation agreements with 44 countries.

The corporate tax regime in Ireland combined with competitive operating costs and availability of highly skilled labour continues to provide investors with a uniquely high return on their investment. The corporate tax rate in Ireland is 12.5%. Corporation tax is charged on the profits of a company. Profits for corporation tax purposes consist of income (business or trading income comprising active income, and investment income comprising passive income) and capital gains. Capital gains arise on the disposal of capital assets.

Ireland operates a classical system of company taxation. Under this system, tax payable on corporate dividends is independent of the tax paid by the company paying the dividend and no credit is available to shareholders for tax paid at the corporate level. A company resident in Ireland for tax purposes is subject to corporation tax on its worldwide income. With some exceptions, a company incorporated in Ireland is automatically considered to be Irish tax resident. A company is also considered to be Irish tax resident if it is managed and controlled in Ireland.

Source - Deloitte & Touche, 2008  

Research and Development (R&D) Tax Credit  

Ireland introduced the R&D Tax Credit scheme in 2004 which was designed to encourage both foreign and indigenous companies to undertake new and/or additional R&D activity in Ireland. The tax credit is available to Irish tax-resident companies engaged in in-house qualifying R&D undertaken within the European Economic Area (EEA), provided such expenditure is not otherwise eligible for tax benefit elsewhere within the EEA. The credit, as initially legislated, provided that up to 5% of R&D expenditure could be outsourced to European universities.

The R&D tax credit scheme was enhanced by both the 2007 and 2008 Finance Acts. The 2007 Finance Act fixed the base year, against which qualifying incremental expenditure on R&D is measured, at 2003 for a further three years to 2009. This provided an additional incentive for increased expenditure on R&D in 2007, 2008 and 02009. The 2003 base year had originally been fixed for the first three years of the scheme (2004-2006) and was due to roll forward to 2004 for the purpose of calculating the tax credit for 2007. The 2008 Finance Act has further improved the scheme by retaining the base year at 2003 until 2013. This measure provides additional incentive for any company performing R&D activities.

Companies that sub-contract R&D work to unconnected parties also qualify up to a maximum of 10% of the qualifying R&D expenditure in any one year. In order to qualify for the tax credit, it is necessary to seek to achieve scientific or technical advancement and involve the resolution of scientific or technological uncertainty.

For more information read the IDA Tax Brochure 2008 PDF (758kb)  
 

Holding companies

Recent legislation has put Ireland in a position to compete with existing holding company locations within Europe. Until now, investment in Ireland was likely to be routed through a holding company in another European location. With these new changes, an Irish company can now act as a European/Regional holding or intermediate holding company. The changes relate to the treatment of capital gains and foreign dividends:  

·       Capital Gains Tax (CGT) on share disposals
Irish holding companies are allowed an exemption from capital gains tax on the disposal of shares in their subsidiaries. The exemption is subject to a number
of conditions. To be regarded as a holding company, the company must hold at least 5% of the shares of another company. 

·       Foreign Dividend Income
The Irish tax system taxes the receipt of foreign dividends at a rate of 25%, but allows this liability to be reduced, in certain circumstances, by the foreign underlying tax already paid on this income. There is a unilateral tax credit for underlying foreign tax provided there is a 5% shareholding relationship between the companies. In addition, onshore pooling, allows the foreign dividends to be pooled together, before they are offset against the Irish tax liability. The tax credits do not need to be utilised in the year that the dividend is received. They can be carried forward indefinitely or offset against Irish tax on future foreign dividends.