IRELAND: COUNTRY AND FOREIGN INVESTMENT REGIMES

Ireland Population, Language and Culture

Ireland has a population of 4,156,000 (July 2008 est.); the capital, Dublin, has a population of more than a million. Irish is the official language, but in practice English is the everyday language. The history and culture of the Irish are too well-known to need description, but it is worth remarking that Dublin has evolved over recent years into a lively and cosmopolitan city with a thriving cultural life.

Apart from Dublin, the main cities are Cork, Galway and Limerick. There are international airports at Dublin, Shannon and Cork. Dublin serves more than sixty foreign destinations, the vast majority of which are in the EU.

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Ireland Government

The Republic of Ireland is a democratic republic, and a member of the European Union (since 1973). The Constitution of 1937 established a bi-cameral legislature consisting of a lower house (the Dail, 100% elected) and an upper house (the Seanad, part-elected and part-nominated). The Head of State, with a largely ceremonial role, is the President, elected by popular suffrage for a period of 7 years. The model of executive government is quite similar to that of the UK, with a party system, a Prime Minister (Taioseach), a cabinet of ministers appointed from elected politicians, and an independent civil service. The most recent elections for the House of Representatives, in May, 2007, returned Fianna Fail to power with 41.6% of the vote. Other parties are: Fine Gael 27.3%, Labor Party 10.1%, Sinn Fein 6.9%, Green Party 4.7%, Progressive Democrats 2.7%, others 6.7%.

In a referendum in June, 2008, Ireland (the only EU country to hold such a plebiscite) rejected the new EU Lisbon Treaty due largely to fears about its tax sovereignty; as of early 2009, it seemed that a further vote would take place.

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Ireland Economy and Currency

The Irish economy has been prosperous in recent years, due at least in part to the energetic pro-business stance of successive governments, but did not escape the global downturn in 2008.

Year	real GDP growth
1996	7.4%
1997	9.8%
1998	9.1%
1999	12.0%
2000	10.4%
2001	6.6%
2002	6.9%
2003	2.4%
2004	4.5%
2005	4.7%
2006	5.7%
2007	6.0%
2006	-0.7%

In its Article IV Consultation for 2007, the IMF Executive Directors commended Ireland's continued impressive economic performance, characterized by one of the highest growth rates of GNP per capita among advanced countries and one of the lowest unemployment rates. They observed that this performance has been underpinned by outward-oriented policies, prudent fiscal policy, low taxes, and labour market flexibility.

Unemployment in 2008 was 6.2%, with inflation at 4%. GDP per head in that year was US$47,800, second highest in Europe behind Luxembourg.

The Irish currency is now of course the euro, but its 'legacy' currency is the Irish Pound, managed until 1999 by the Irish Central Bank.

Ireland has no exchange controls.

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Irish Stock Exchange

The Irish Stock Exchange dates back to 1793 when trading first began in Dublin. The Irish Stock Exchange is a key element of the financial infrastructure of Ireland. Currently over 1,450 securities are listed on the Exchange with the most significant volumes of trading in the equities and Government bond markets.

The Exchange operates in the Euro zone, the single currency block comprised of eleven European states resulting from European Monetary Union. Since 4 January 1999 all trading in equities, bonds and other securities on the Irish Stock Exchange, which was previously conducted in Irish pounds, is now in Euros. Securities denominated in US dollars and sterling are also traded on the Exchange.

The Irish Stock Exchange Limited is a company limited by guarantee under the Irish Companies Acts. The Exchange has a board of eleven directors, comprised of an independent chairman, three co-opted directors representative of wider market interests, and seven directors elected by member firms.

The Irish Stock Exchange operated as a branch of the London Stock Exchange until 8th December 1995, when the EU Investment Services Directive compelled a change; the Irish Stock Exchange is now regulated by the Central Bank of Ireland and has developed a strong specialisation in the listing of mutual and investment funds.

The Irish Stock Exchange has three markets: the main market, the Official List; the Developing Companies Market (DCM); and the Exploration Securities Market (ESM).

The market in Irish Government bonds is also regulated by the Exchange. The National Treasury Management Agency is the body responsible for issuing new Government debt instruments and for managing the existing portfolio of such debt.

In September 2000, The Irish Stock Exchange launched ITEQ, a new dedicated market for technology stocks. ITEQ accommodates dual listings of Nasdaq stocks and transactions of dual-listed stocks are free of 1% stamp duty. But ITEQ's progress was dented by the tech-stock implosion.

The Irish equity market performed exceptionally well in comparison with global markets in 2006, the ISE reported in its year-end review, and the 28% increase in the ISEQ Overall index outperformed indices such as the Eurostoxx 50, FTSE, NASDAQ and the Dow Jones Industrial Average. The index reached a lifetime high of 9,453 on 28th December 2006.

Trading volumes in equities quoted on the Exchange reached a record level in 2008, with the number of individual trades increasing by some 46% to more than 2.5 million. The sharp rise in trading volumes is reflected in the average daily trading figures which show an increase from 6,795 per day in 2007 to just under 10,000 in 2008. Key factors behind the increase include increased volatility on equity markets generally together with the Exchange’s competitive pricing structure and the increasing internationalization of the Exchange’s member firms.

However as the market capitalisation of many companies listed on the Exchange declined from EUR93.5bn in 2007 to EUR32.4bn at the end of 2008, the value of trading on the equity market fell by just over 43% to EUR112bn.

The bond market however improved markedly, turnover on the government bond market fell slightly from EUR52bn to EUR50.1bn while the value of bonds issued by the National Treasury Management Agency increased from EUR6bn to EUR11bn, increasing the market capitalization of government bonds from EUR31bn to EUR42.5bn.

While the global credit crisis has resulted in a downturn in demand for new debt and fund listings in 2008, the Exchange has performed comparatively well against its competitors. New fund and sub fund listings in 2008 were 429 bringing the total number of funds listed on the Exchange to 3,814. New debt listings amounted to 4,381 during the year and the total of debt tranches now listed on the Exchange has grown to 24,698 at December 31, 2008.

Four new member firms joined the Exchange in 2008, increasing the total number of Exchange member firms to 36. Collins Stewart Europe, a London based investment bank and securities house, joined in May and Amsterdam based Flow Traders, a leading liquidity provider, joined in September. In addition two new primary dealers in Irish government bonds were admitted, BNP Paribas and Dresdner Kleinwort.

The ISE admitted the first Exchange Traded Fund over Irish equities in 2005. The ISEQ 20 Exchange Traded Fund provides investors with the opportunity to invest easily, at low cost and via a single security in a portfolio of twenty of the most liquid and largest Irish equities. It performed well in 2006: assets under management in the ISEQ 20 ETF increased 72% from EUR29.4 million to EUR50.6 million, and the trading price increased 28% from EUR14.68 to EUR18.74 over the year. In 2006, 18.1 million shares were traded with an aggregate value of EUR285 million.

The Irish Stock Exchange is regulated by the Central Bank of Ireland. However, in April 2001 the Irish government announced the formation of an Irish Financial Services Regulator (IFSR), following recommendations made in the McDowell Group Report which called for the integration of financial services regulation in Ireland.

The IFSR governs financial sectors including funds, banking and insurance as well as consumer protection. A financial service ombudsman has been created to manage customer complaints. But since the new regulator effectively operates within the Central Bank, many commentators feel that little has changed.

In September, 2004, it was announced that authorities planned to introduce tough new legislation to counter stock market abuse. As part of an EU drive to clamp down on such offences, the Republic's government wrote new offences such as 'market abuse', 'disseminating false information', and 'market manipulation' into the new laws.

Insider trading and situations in which conflicts of interest can arise as a result of stockbrokers receiving fees from companies which their analysts also research and make recommendations on were also scrutinised.

The settlement system used for Irish equities is Crest. The Crest settlement system has been in operation since July 1996 and is managed by CrestCo, an independent company. Member firms are directly linked to Crest which operates rolling settlement on the underlying principle of guaranteed 'Delivery versus Payment' (DVP) this means that settlement only happens when a security's delivery is matched with payment. Crest is also used to settle deals done on the London Exchange in United Kingdom securities. Irish Government bonds are settled by the Central Bank of Ireland Securities Settlement Office (CBISSO).

There were developments in the Investment Fund area, with the introduction of a new regime for the listing of funds with private equity investments as well as the finalisation of new derivative rules, effective from 1st July 2006.

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Ireland Employment and Residence

Nationals of European Union member states have free right of movement in Ireland. Nationals of other states wishing to work in Ireland require a work permit from the Department of Enterprise, Trade and Employment. The Department is obliged to issue permits when the employee has a key role, or is transferring from an international company which has or intends to have a presence in Ireland. However, the rules have recently been relaxed for certain clases of foreign national, including inter-corporate transferees, the spouses of EU nationals, and non-EU nationals who have had a child born in Ireland. In these cases letters from the employee's foreign employer, and the prospective Irish employer are now sufficient to immigrate for one year. However it is advised to check the current situation before attempting to immigrate.

New economic migration and employment permit arrangements for workers outside of the European Economic Area came into effect in Ireland from February 1, 2007.

The four categories of permits that have been introduced include: the Green Card Scheme; the Work Permit; the Intra Company Transfer Permit; and Spousal and Dependant Permits. The Employment Permits Act passed by the Oireachtas last year, together with the Employment Permits Act 2003, provide the statutory basis for the new schemes.

The Green Card scheme, introduced for the first time in Ireland, is aimed at occupations where the country has "strategically important high level skills shortages," such as in the Information and Communications Technology, Health Care, Construction, Engineering, Financial Services and Research sectors. The scheme is available for an extensive list of occupations with annual salaries of EUR60,000 (US$77,630) and above, and for a specified list of occupations with salaries between EUR30,000 and EUR60,000.

No labour market test is required for the Green Card applications, so advertising with FAS/EURES and newspapers is not necessary. Green Cards are issued for two years initially and normally lead to the granting of permanent or long-term residence after that. Green Card holders are also permitted to bring their spouses and families to join them immediately. The Green Card Scheme replaces the previous Work Visa/Work Authorisation scheme, which has been discontinued.

The new Work Permit is mainly for non-Green Card occupations in the EUR30,000 to EUR60,000 annual salary range. It is only granted in exceptional circumstances for occupations with salaries below EUR30,000. In order to establish that vacancies which are the subject of Work Permit applications cannot be filled by Irish or other European nationals, as required by our EU `Community preference’ obligations, they are the subject of a "rigorous" labour market needs test. This test includes both advertising with FAS and the European Employment Services, or EURES, and in local and national newspapers. Work permits are granted initially for a period of 2 years, and then for a further period of up to 3 years.

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Ireland Business Environment

Ireland offers an excellent business infrastructure with good telecommunications; this coupled with the widespread use of the English language, membership of the EU, and a legal system largely based on English law makes the country a very convenient and effective business base.

Dublin, the administrative capital, is also the chief business centre and has the main international airport, although Cork, with its port, and Shannon, with another international airport and the Shannon Free Zone, are also significant in business terms.

There was already a reasonably strong domestic financial sector when the International Financial Services Centre was launched in 1987 as a quasi-'offshore' development zone. The IFSC has been extremely successful, and now hosts large numbers of banks, insurance companies, securities firms and investment funds. With the IFSC, Ireland has challenged Luxembourg as an 'offshore' financial centre within the EU.

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Ireland Investments by Foreigners

Ireland has been extremely welcoming to foreign investment for a long time; the primary agency concerned, the Industrial Development Agency, began operations in 1949. The IDA offers practical assistance for incoming investors, and depending on circumstances can put together very favourable support packages including some or all of the following elements:

• non-repayable capital grants;
• training and research and development grants;
• loan guarantees;
• subsidised rentals;
• subsidised interest charges; and, occasionally,
• equity stakes.

Most incoming investors to Ireland will be able to take advantage of one or other of the Government's low-tax schemes. See Offshore Legal and Tax Regimes for details of the Shannon Free Zone, the International Financial Services Centre in Dublin, and the '10% Manufacturing Rate of Tax'. These have been replaced by a uniform 12.5% rate of corporation tax as from 2003, although there are some transitional arrangements.

In November 2004, Ireland’s Minister for Finance, Brian Cowen, had announced that state aid approval has been received from the European Commission for two schemes aimed at helping new firms gain access to start-up capital.

Welcoming the EU’s approval of the Business Expansion Scheme (BES) and the Seed Capital Scheme (SCS), Cowen commented: “There is a strong business case for these schemes. Businesses, particularly small and start-up companies, often experience difficulty in accessing early stage development capital.”

He added: “It is clear that there is a shortage of such finance in the pre and early start up phases of new enterprises. The BES and the SCS will continue to play an important role in helping bridge this financial gap for such businesses”.

However, the European Commission directed that Ireland make a small number of amendments to the legislation governing the schemes, and these changes mean:

• Qualifying companies must be Small and Medium Sized Enterprises (SMEs) within the European Commission definition in force for the relevant period;
• Tax relief under the BES/SCS will be available for individual investments in companies registered in the European Economic Area but with an establishment in Ireland carrying out qualifying activities;
• While a company may raise equity capital up to a general maximum of EUR1 million in the lifetime of the company, the schemes will respect the aid ceilings as set out in the European Commission's Guidelines on State Aid and Risk Capital so that a company may not raise more than EUR750,000 in any six month period;
• The following sectors are formally excluded from the scheme: shipbuilding, European Coal and Steel Community sectors and non viable companies within the European Community Guidelines on State Aid for rescuing and restructuring firms in difficulty.

The schemes became effective from 5 February 2004 and in line with the Commission approval originally operated until 31 December 2006. On 6 September, 2007, Brian Cowen, Irish Minister of Finance, signed the Commencement Order bringing the schemes into effect from 1 January 2007 to 31 December 2013.

In summary, the Commencement Order and Regulations provide that as and from 1 January 2007, medium-sized enterprises may qualify if they are located in “assisted areas”. (Currently, the assisted areas are defined as all of the Republic of Ireland apart from Dublin, Kildare, Meath and Wicklow. From 1 January 2009, Cork City and county will be non-assisted, apart from Cork docklands). Medium-sized enterprises will benefit from the scheme if located in non-assisted areas only where they are in seed or start-up phase.

In early 2008, Ireland's Minister for Enterprise, Trade and Employment, Micheal Martin, has announced the launch of a revised and simplified Research and Development Grant Scheme, which will make EUR500m available to companies across all sectors. The new scheme will see job creation agencies, Enterprise Ireland and IDA Ireland, invest the money to support Irish R&D and secure jobs in all parts of the country.

The funding will be made available over the remainder of the Government's Strategy for Science, Technology and Innovation period (2008-2013). Some notable features of the new R&D scheme include: a simplified application process; enhanced support from R&D novices right up to R&D experts; a new R&D investigation and stimulation phase; the elimination of repayable grants; the opening of funding to services companies; the encouragement of collaboration with other companies and third level institutions; and a special focus on SMEs with increased funding rates and more flexibility.

In unveiling the scheme, Minister Martin explained that: "This Government investment of over EUR500 million will ensure that Irish companies remain at the cutting edge of research and development into the future, and that we have an innovative economy which will continue delivering jobs for our people.

"In line with Government policy to cut red tape for business the new grant scheme will also be streamlined to make the application process as straight-forward as possible for companies."

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