Ireland: Offshore Business Sectors

On this Page:

- Ireland Corporate Financial Services
- Ireland Licensing, Royalties and Franchising
- Ireland Investment Fund Management
- Ireland Banking
- Ireland Securitisation SPV
- Ireland Film Financing
- Ireland Insurance
- Ireland Aircraft Financing and Leasing

The development of the European single market during the 1980s and 1990s, together with a consistently pro-business attitude on the part of the Irish Government has seen the emergence of Ireland as one of the fastest-growing European states, and the establishment of the International Financial Services Centre in Dublin, along with the Shannon Airport tax-free area, has led to the development of a substantial offshore business sector, made more or less redundant in 2003 by Ireland's adoption of a universal 12.5% corporate tax rate.

According to the National Quarterly Household Survey for Q3 2011, total employment in the financial, insurance and real estate industries was 98,200, down from 99,400 in Q3 2010.

This section of the site describes the main business sectors in which 'offshore' or other tax-privileged regimes are available. The forms and structures used by these business sectors are described in Offshore Legal and Tax Regimes, and the legal basis for some of them in Law of Offshore.

Ireland Corporate Financial Services

The growing reputation of Dublin as a global financial centre was boosted in November, 2004, with the opening of a new oil trading floor in the city by the New York Mercantile Exchange (NYMEX), the world’s largest commodities exchange. In what was seen as a direct challenge to London’s International Petroleum Exchange, Europe’s foremost energy trading exchange, around 40 traders normally based in London or New York began trading on floor space leased from the New York Board of Trade’s FINEX Dublin operation.

The Brent crude oil futures contract is traded using the open outcry system under the same terms and conditions as its counterpart listed in New York, except that it is listed 30 consecutive months forward with additional long–dated futures initially listed 36, 48, 60, 72, and 84 months prior to delivery.

“This project is a highly significant win for Ireland”, noted Deirdre Lyons of IDA Ireland, a governmental body responsible for promoting the Republic’s financial services industry. We hope this is the first step in encouraging the company to list additional trades in Dublin, including heating oil, gold and silver, all of which are currently traded in New York”.

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Ireland Licensing, Royalties and Franchising

Acquisition by the Irish company of the rights in the first place can usually be carried out without a stamp duty or transfer charge; and there are no thin capitalisation rules, so that capital duties will be minimal.

Ireland's extensive network of Double Tax Treaties will ensure that incoming revenues are normally free of withholding taxes. In some cases, the tax treaty might have excluded payments destined for companies which don't pay 'normal' taxes; this problem has perhaps disappeared now that the 12.5% rate is in force, because it is the EU-accepted 'normal' rate.

In mid-2002 the UK government announced that as a result of the 12.5% corporation tax rate it would no longer automatically exclude Irish companies from operation of its CFC (Controlled Foreign Corporation) rules.

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Ireland Banking

Since the introduction of the Central Bank Reform Act in October, 2010, bank regulation reverted back to the Central Bank of Ireland. Between 2003 and 2010, the Irish Financial Services Regulatory Authority (IFSR) took over bank regulation from the Central Bank in 2003. The change was more apparent than real, since the IFSR brought together many of the responsibilities previously held by the Central Bank (which continues to form a part of the Authority), the Department of Enterprise, Trade and Employment, the Office of the Director of Consumer Affairs and the Registrar of Friendly Societies. See Law of Offshore for a more detailed treatment of Irish banking legislation as it affects offshore banking operations.

The Central Bank Reform Act, 2010, is now responsible for both central banking and financial regulation. This new structure combines the previous related entities of the Central Bank, the Financial Services Authority and the Financial Regulator.

Banks need licences from the Central Bank, unless they are already authorised in an EU member state under the Second Banking Directive 89/646/EEC, in which case they have to comply with certain administrative and information requirements. A non-EU bank will need to have an Irish subsidiary in order to apply for a license.

In early 2009, in response to the global credit crunch, the Irish government announced its decision after having consulted with the Board of Anglo Irish Bank Corporation plc, to take steps that enabled the bank to be taken into public ownership.

Within a statement the Finance Ministry said: “This decision has been taken after consultation with the Central Bank and the Financial Regulator, which has confirmed that Anglo Irish Bank remains solvent. Anglo Irish Bank is a major financial institution whose viability is of systemic importance to Ireland. Anglo has a balance sheet of some EUR100bn with a substantial deposit base which the State is determined to safeguard. The government has made clear that it will ensure its continued viability. Anglo Irish Bank will continue to trade normally as a going concern, with appropriate government support as necessary. All Anglo employees remain employed by the company.”

“The funding position of the bank has weakened and unacceptable practices that took place within it have caused serious reputational damage to the bank at a time when overall market sentiment towards it was negative. Accordingly the government believes that the recapitalisation is not now the appropriate and effective means to secure its continued viability. Therefore the government must move to the final and decisive step of public ownership.”

“The government believes that the prospects for the institution are solidly underpinned in the new structure, with the benefit of state ownership and a renewed management and Board. In the current circumstances the State is the only available potential owner.

“The recently appointed Chairman of the Board, Mr. Donal O’Connor, will stay on as Chairman. Anglo will be managed on an arms length basis as a commercial entity. A new board will be appointed having regard to the need for appropriate continuity.”

“Shareholder rights will be respected in this process. The relevant legislation outlines a process for determining compensation as appropriate.”

“All customers of Anglo Irish Bank can be assured that the full amount of their deposits and savings are further safeguarded by this action. They can also be assured that they can and should continue transacting with Anglo as normal and there is no need for customers to take any steps as a result of this announcement. Anglo Irish Bank will communicate directly with all customers in the coming days.”

“Creditors (including bondholders) of Anglo Irish Bank can be assured that it will continue to service its obligations and will repay its debts at maturity."

In February 2010, The European Commission announced that it had approved, under EU state aid rules, the establishment of the National Asset Management Agency (NAMA), an impaired asset relief scheme for financial institutions in Ireland.

The Commission said that it was satisfied that the scheme was in line with its guidelines on impaired asset relief for banks that allowed state aid to remedy a serious disturbance in a member state's economy. The scheme helped address the issue of asset quality in the Irish banking system and promoted the return to a normally functioning financial market.

Commenting, Competition Commissioner, Joaquín Almunia, said: "Ireland's financial sector has been one of the most affected by the global financial crisis in Europe and the burst of the Irish real estate bubble has only compounded the problems. This impaired asset measure, which is specifically targeted at real estate assets, is therefore key to cleaning up Irish banks' balance sheets. This is an important step towards the overall restructuring of the sector and its return to a normal and responsible functioning of the market."

The purpose of NAMA is to restore stability to the Irish banking system by allowing participating financial institutions to sell to the agency assets whose declining and uncertain value is preventing the long-term shoring-up of the financial institutions' capital and, therefore, the return to a normally functioning financial market.

The scheme was open to all systemically-important credit institutions established in Ireland, including subsidiaries of foreign banks, with a 60-day application window that expired on February 19. Five institutions participated: Anglo Irish Bank, Allied Irish Bank, Bank of Ireland, Irish Nationwide Building Society and Educational Building Society.

A joint restructuring plan for the Anglo Irish Bank and INBS was approved by the European Commission in June 2011. The business of Irish National Building Society was transferred to Anglo Irish Bank on 1 July 2011 and the combined entity was renamed Irish Bank Resolution Corporation Limited. It will be resolved within the next ten years.

See Offshore Legal and Tax Regimes for details of taxation in the IFSC and the application process for a tax certificate.

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Ireland Securitisation SPV

The Irish Finance Act 1996 included provisions which installed a favourable regime for the establishment of 'SPVs' ( Special Purpose Vehicles for the securitisation of assets) within the International Financial Services Centre in Dublin. Profits were treated as trading receipts and taxed at 10%; and there were no withholding taxes on interest payments on bonds. See Offshore Legal and Tax Regimes for fuller details.

Certificates granting tax advantages within the IFSC were issued by the Minister for Finance; initial application was made to the Industrial Development Authority. The 10% rate applied to new SPVs only until the end of 2002, when the general rate of 12.5% came into effect for all Irish companies.

In order to ensure future competitiveness in the area of securitisation, a review group of industry and Government agency members was set up in 2002 to identify where legislation needed to be amended. The Finance Bill 2003 overhauled the rules and any securitisation vehicle established in Ireland on or after February 6th 2003 was subject to the new legislation. From this date, there is no difference between vehicles set up in the IFSC and non-IFSC SPVs. Existing IFSC SPVs were unchanged by the new legislation.

Under the amended legislation, excessive or profit participating interest is now allowed to be a tax-deductible expense in the SPV. The scope of qualifying activities has been broadened so that SPVs can now carry on a business of holding or managing, or holding and managing, qualifying assets.

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Ireland Film Financing

Ireland has seen considerable success in encouraging film production through a combination of subsidy programmes and tax breaks.

In 2003, then Finance Minister Charlie McCreevy decided to end the system of tax breaks for film financing in Ireland. According to film-makers, the so-called section 481 tax breaks had contributed to year on year growth of 18% in the industry, and account for 107 million euros of Ireland's GDP. The industry also directly employed 4,300 people, bringing a further 49 million euros into the labour market.

Lobby groups urged the government to extend the tax breaks for a further ten years, by which time they estimated that the industry will employ up to 11,000 people with turnover rising from 103 million euros to 550 million euros. The cumulative effects of allowing the tax break to lapse in 2004 would result in 80% of the industry being lost, the body claimed.

The government bowed to pressure, and in its 2004 budget extended the Section 481 scheme until 2008. In May 2006, it emerged that the European Commission had endorsed a new system of tax incentives designed to encourage growth in the Irish film industry, announcing that the scheme does not constitute state aid.

The Irish scheme to support film production amended an earlier scheme previously approved by the Commission, and allows film production companies to obtain 80% tax relief on investments of up to EUR35 million or 80% of the production budget of a single film.

Additionally, Finance Minister Brian Cowen announced in the 2006 Finance Bill that the percentage of expenditure that is eligible for tax relief would be raised to 80% for all films, up from the existing levels of 55%-66%.

In 2008, the Irish government introduced new measures to strengthen Section 481, increasing the ceiling on qualifying expenditure for any one film from EUR35 million to EUR50 million. Qualifying expenditure includes all EU personnel and purchases of goods and services in the State. Projects may derive a benefit of up to 28% of their eligible Irish expenditure.

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Ireland Insurance

See Offshore Business Review – Insurance for a more general treatment of captive insurance companies.

Insurance business in Ireland (including captive insurance) is regulated by the Central Bank of Ireland since October, 2010. Following the 1994 implementation of the EU Insurance Framework Directives, there is a 'single passport' regime in effect for EU insurance companies, and they can commence business in Ireland, as elsewhere, subject to a notification procedure and the annual filing of accounts with the Registrar of Companies.

However, the captive insurance sector in Ireland has taken root in the International Financial Services Centre (IFSC) in Dublin, where substantial tax advantages have traditionally been available to companies who obtain certification.

Captives (or other insurers) based in Ireland can take advantage of almost 60 double tax treaties, although the withholding tax exemptions available through the IFSC do compromise treaty benefits in some cases. From 2003 the 10% IFSC regime was supplanted by the 12.5% general corporation tax rate.

The events of 9/11 in 2001 temporarily dampened the rate of growth of the insurance sector, but in 2002 strengthening premium rates led to an influx of new capital and company formations. 50 captives alone were formed in the first nine months of 2002 in Dublin.

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. Among the financial sectors governed by the IFSR are the insurance industry, and the aim is to protect consumers.

Also in April 2001, Ireland's Central Bank announced that it had taken over responsibility for the regulation and supervision of insurance intermediaries. This resulted in about 5,500 new firms coming under the regulatory framework of the Central Bank. This new addition to the Central Bank’s responsibilities, under the Insurance Act 2000, extends the scope of the Bank’s supervisory remit to cover the protection of clients of insurance intermediaries, both life and non-life.

As of 2008, there were 170 licensed captives in Ireland, the third-highest tally in Europe.

In October 2009, Aviva, the UK's second largest insurance firm, announced plans to consolidate its European business under the umbrella of a new holding company in Ireland, but the firm has insisted that the move was not motivated by a desire to reduce the amount of tax it pays.

The company announced that the plan is designed to cut costs and consolidate its business across its 12 separate operations in Europe. But while the company expects that the move will cut its overall tax rate, it argues that tax savings are not the sole motivation.

A company statement announcing its decision explained that: "As part of the transformation of its European business Aviva has established a single holding company for its European operations in Ireland. It will convert a number of existing subsidiary businesses in the region to branch status, where it is appropriate to do so, and subject to regulatory approval. This will deliver economic, operational and regulatory benefits to Aviva, especially with the anticipated introduction of Solvency II."

A number of UK-incorporated companies have fled the UK citing the burdensome corporate tax laws as a primary reason. Another major UK insurance firm, Brit Insurance, is among this list of companies.

In January 2010, Global insurance group XL Capital Ltd proposed to move its parent holding company's place of incorporation to Ireland from the Cayman Islands, with the parent holding company to be renamed "XL Group plc", according to a statement issued by the company.

XL's Chief Executive Officer, Michael S. McGavick, said: "We believe that changing XL's place of incorporation from the Caymans to Ireland is in the best interests of XL and our shareholders. Among other benefits, we believe the proposed move will reduce certain risks that may impact us and offer us the opportunity to reinforce our reputation, which is one of our key assets, and to better support our global business platforms. The new 'XL Group' name is desirable to reflect our exclusive focus on providing property, casualty and specialty insurance and reinsurance products for our customers' complex risks."

XL's statement indicated that redomestication will not have a material impact on its financial results, the implication being that it can continue to enjoy low tax advantages comparable with those pertaining in the Cayman Islands, whilst gaining the stated benefits. In its filing with the US Securities and Exchange Commission (SEC), XL has reported "reputational, political, tax and other risks because of negative publicity regarding companies that are incorporated in jurisdictions, including the Cayman Islands, whose economies have low rates of, or no, direct taxation."

The following month, Insurance firm, United America Indemnity also announced its intention to re-domicile from the Cayman Islands to Ireland.

The company had previously planned to re-domicile to Switzerland but later determined that incorporating in Ireland is in the best interests of both the company and its shareholders. In a statement, UAI underscored that its decision was motivated by Ireland’s “attractive business environment, a highly educated and motivated professional workforce, a comprehensible legal system grounded in common law, a sophisticated regulatory environment, and an extensive global network of international treaties.”

See Law of Offshore for further details of the regulatory regime for insurance in Ireland; see Offshore Legal and Tax Regimes for details of the IFSC and the application process; and see Double Tax Treaties.

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Ireland Aircraft Finance and Leasing

Ireland has put behind it the unfortunate GPA debacle, and with the asset of the International Financial Services Centre (IFSC) has continued to establish itself as a major jurisdiction for aircraft leasing, attracting such notable names as Airbus Industrie which runs its main aircraft leasing operation from Dublin.

The IFSC offered a 10% corporation tax rate and exemption from withholding taxes to companies which obtained certification from the Minister for Finance; applications were made through the Industrial Development Authority. The 10% rate was not available to new applicants after 1999, due to the introduction of of a general 12.5% corporation tax rate agreed by the Irish Government with the EU from 1st January 2003.

There are a number of other favourable tax rulings available in Ireland to leasing companies; see Offshore Legal and Tax Regimes for further details.

Ireland's network of double tax treaties is also a major attraction for leasing companies, although the IFSC tax benefits cause the loss of treaty coverage in some cases.

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