Ireland: Domestic Corporate Taxation
Corporate Tax Rates
Until 1998 the standard rate of corporation tax in Ireland was 32%. Following the Irish Government's agreement with the EU for a general rate of 12.5% to apply from 1st January 2003, the rate to be applied to trading income fell in stages between 1999 and 2003:
- in the 1999 fiscal year the rate was 28%;
- in the 2000 fiscal year the rate was 24%;
- in the 2001 fiscal year the rate was 20%;
- in the 2002 fiscal year the rate was 16%;
- thereafter the rate has been 12.5%.
Although the 12.5% rate has come under fire from several quarters, most notably those within the European Commission intent on creating some form of harmonised European corporate tax base, it is viewed by the Irish government as a cornerstone of the Republic's economic success, and is unlikely to be surrendered without a long and bitter fight.
The rate to be applied to non-trading income is 25%, although the 2010 Finance Bill reduced this rate to 12.5% in many cases.Capital gains, other than gains from development land, are included in a company's profits for corporation tax purposes and are charged to tax under a formula that normally means that tax is paid at a rate equivalent to the standard rate of income tax.
Gains by companies from disposals of development land are chargeable to capital gains tax and are not, accordingly, included in profits chargeable to corporation tax.
There used to be a number of special lower-tax regimes in Ireland, including the Shannon Free Zone, the International Financial Services Centre in Dublin, and the 'Manufacturing Rate of Corporation Tax, all of which delivered a 10% rate of tax until varying dates between 2005 and 2010. Under the Irish Government's agreement with the EU that one rate of corporation tax of 12.5% applied to all Irish companies from 1st January 2003, transitional arrangements were put in place for existing companies under the 10% regime; see Offshore Legal and Tax Regimes for details.
'Close' companies in Ireland have historically attracted a 20% tax surcharge on undistributed investment income, and certain types of expense within the company are liable to be treated as distributions; there are other awkward rules as well. 'Close' means, under the control of five or fewer participators, or under the control of participators who are directors; if the foreign parent of an Irish company would be close under these rules, then so is the daughter. It is important to avoid close status; the new corporation tax regime has not changed the rules for close companies.
Announcing a new licensing round for oil and gas exploration in the ‘Porcupine Basin’ in the early autumn 2007, Ireland's Minister for Communications, Energy and Natural Resources, Eamon Ryan, said that companies were to be subject to a profit resource rent tax as part of their licensing terms.
This tax is be in addition to the 25% corporate tax rate currently employed. It operates on a graded basis of profitability as follows: an additional 15% tax in respect of fields where the profit ratio exceeds 4.5; an additional 10% where the profit ratio is between 3.0 and 4.5; an additional 5% where the profit ratio is between 1.5 and 3.0; and no change where the profit ratio is less than 1.5.
In Ireland's most profitable fields, this means that the return to the state has increased from 25% to 40%.
In the April 2009 interim budget, the special 20% rate which applied to the trading profits from dealing in or developing residential development land was abolished. The income is now charged at the person’s relevant marginal rates of income tax or the 25% rate of corporation tax. This change applied as regards Income Tax for the year of assessment 2009 and subsequent years and as regards Corporation Tax for accounting periods ending on or after January 1, 2009 (with accounting periods straddling that date being deemed for this purpose to be separate accounting periods).
Where trading losses were incurred from dealing in or developing residential development land in circumstances where, if trading profits had been made, they would have been eligible to be taxed at 20%, and a claim to use those losses was not made to and received by the Revenue Commissioners before April 7, 2009, the losses will generally only be relievable (on a value basis) up to a maximum of 20%. Where any such loss is a terminal loss, the restriction are implemented by “ring-fencing” the loss.
Relief for for capital expenditure on intangible assets is granted in the form of a capital allowances and is allowed against trading income, where the capital expenditure is incurred by the company for the purposes of the trade.
The 2009 Finance Bill also brought in the termination of capital allowances scheme for private hospitals and nursing homes. Transitional arrangements were put in place for projects that were at an advanced stage of development.
The 2010 Finance Bill ushered in a new carbon tax at a rate of EUR15 per tonne on fossil fuels. This applies to petrol and auto-diesel with effect from midnight December 9, 2009; and from May 1, 2010, to kerosene, marked gas oil, liquid petroleum gas (LPG), fuel oil and natural gas. The application of the tax to coal and commercial peat is subject to a Commencement Order.
A carbon tax on solid fuels applies from May 1, 2013. The tax for coal is EUR26.33, for peat briquettes it is EUR18.33, milled peat is subject to a tax of EUR8.99 and for other peat it is EUR13.62 per tonne.