Ireland: Offshore Legal and Tax Regimes
International Financial Services Centre
The International Financial Services Centre (IFSC) has been the successful centrepiece of the Irish Government's appeal to the international financial community in the last ten years. A wide range of financially-oriented companies, now including corporate financial service centres as well, have traditionally been able to obtain a 10% rate of corporation tax and a number of other fiscal advantages by locating themselves physically in the Customs House area of Dublin's dockland, which has been extensively fitted out to be a suitable home for state-of-the-art financial businesses.
To some extent the IFSC is history, since its purpose has mostly disappeared now that the overall 12.5% corporation tax rate is effective (2003), and new entrants were permitted for the last time in 1999, on a quota basis. However, it is probably still useful to give some basic details of the Centre. It was established for the following types of operation (abbreviated and summarised):
- Provision of foreign currency services for non-residents;
- Carrying on international financial activities for non-residents, including money-management, derivatives, securities dealing;
- Administrative and systems support for the above.
In order to take advantage of the fiscal advantages offered by the IFSC, a certificate had to be issued by the Minister for Finance, and application was made initially to the Industrial Development Agency (it should always be borne in mind that the IFSC was established - and got its EU acceptance - through its overt role as a job creation exercise). The main advantages were as follows:
- Corporation tax at 10% on trading profits;
- A 10-year exemption from municipal taxes;
- Double rent allowances for leased property;
- 100% depreciation allowances for commercial buildings, plant and machinery;
- no withholding taxes on dividends or interest.
The application process is of only academic interest by now, except perhaps in the event that an existing 10% certificate falls to be transferred to a new owner. It is not clear whether this is permitted under the agreement with the EU; perhaps, yes. There was no set format for an application, but it needed to address the business plan of the applicant, its funding, revenue and profit projections, and, importantly, the consequences for local employment. Existing IFSC companies retained their tax privileges until the end of 2004; but new IFSC companies receiving certificates after July 1998 paid 10% only until the end of 2002.
It is worth remarking that a number of permitted IFSC financial activities have come to be carried out by management companies, who take on the responsibilities for staffing etc that would normally have attached to the IFSC member; both parties benefit from the 10% tax rate, but the client does not have to open a separate office or even incorporate in Ireland.