Ireland: Offshore
Legal and Tax Regimes
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Information: Business, Taxation and Offshore
In this section:
- Ireland Forms of Low Tax Operation
- Ireland International Financial Services Centre
- Ireland: The Shannon Freezone
- Ireland the 10% 'Manufacturing Rate' of Tax
- Ireland Non-Resident Companies
- Ireland Taxation of Foreign and Non-Resident Employees
- Ireland Exchange Control
- Ireland Employment and Residence
The
term 'offshore' is not used in Irish legislation or
in describing company forms. Use of the various special
regimes available in the Shannon Free Zone, the Dublin
International Financial Services Centre, or through
the 'Manufacturing Rate' of tax, or via a non-resident
company are the main ways of achieving offshore tax
treatment, although all these regimes have effectively
been superseded by the introduction of a nation-wide
corporation tax rate of 12.5% as from 2003. There
were, however, some grandfathering provisions for
pre-existing regimes.
In
January, 2004, then Irish Finance Minister Charlie
McCreevy signed an Act to incorporate the provisions
of the European Savings Tax Directive into Irish law.
Although the Directive itself did not become fully
effective until July 1st 2005, the European Communities
(Taxation of Savings Income in the Form of Interest
Payments) Regulations 2003 required domestic banks
to establish the identity and residence of beneficial
owners of all new bank accounts opened in Ireland
from January 1st 2004. Irish banks now obliged to
pass on details of savings income for taxation purposes
to the Revenue Commission who are tasked with passing
this information on to the tax authorities of the
EU member state where the customer resides.
Ireland Forms of Low Tax Operation
In Ireland there are no specific forms of company
or other entities designed for offshore operation.
There are a number of special taxation regimes offering
low taxation; and non-resident companies offer a highly
effective means of reducing international tax bills,
although their efficacy has been reduced in some situations
by the new rules introduced by the Finance Act 1999,
following the Irish Government's agreement with the
EU on a 12.5% mainstream corporation tax rate.
Now
that the agreed new regime is fully operational in
Ireland, the various special regimes have ceased other
than for existing companies; on the other hand, the
agreed new regime is far superior to anything available
elsewhere in the EU. It is difficult to see what other
major EU country would be brave enough to take its
corporation tax rate down to 12.5%; and it is unlikely
that the EU itself is going to allow an (even more
harmful) tax competition to develop between member
states. Ireland has probably got away with a sensational
deal which is just going to look better and better
as time goes by.
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Ireland 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;
- Insurance;
- 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.
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Ireland: The Shannon
Free Zone
The Shannon Free Zone, administered by the Shannon
Free Airport Development Company Ltd, was one of Ireland's
earliest tax-reduction initiatives. In order to establish
an operation in the Free Zone, a licence is required
under the Customs Free Airport (Amendment) Act 1958;
this is issued by the Minister for Enterprise and
Employment. A certificate entitling a company to the
tax benefits of the Free Zone (10% corporation tax
rate, VAT and customs duty exemptions, etc, although
see below for implications of the 12.5% tax regime)
is issued by the Minister for Finance. A wide range
of activities can qualify for licenses and certificates,
including:
- The
repair and maintenance of aircraft; or
- Trading
activities in regard to which the Minister for Finance
is of the opinion, after consultation with the Minister
for Transport, that they contribute to the use or
development of the Shannon Free Zone; or
- Trading
activities which are ancillary to either of the
above or to any operation consisting of the manufacture
of goods; or
- Activities
relating to the acquisition, disposal, licence,
sub-licence and exploitation generally of intellectual
property rights.
It is
important to remember that the Free Zone, like the
IFSC in Dublin, was primarily a job-creating measure.
Existing
companies in the Free Zone had certificates giving
tax benefits until the end of 2005. After that, the
tax rate increased to the 12.5% mainstream rate of
corporation tax agreed by the Irish Government with
the EU, which came into force generally from 1st January
2003. Companies which obtained certificates during
1999 had the 10% rate only until the end of 2002.
However, unlike entry into the IFSC, which was quota-limited
during 1998 and 1999, no quota was set for entry into
the Free Zone, which will continue to operate fully
other than in respect of the special corporation tax
rate.
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Ireland The 10% 'Manufacturing Rate' of Tax
As originally enacted, the 10% 'manufacturing rate'
of corporation tax applied to:
- Companies
manufacturing goods in Ireland;
- Companies
selling goods which are manufactured within Ireland
by a 90% subsidiary, a fellow 90% subsidiary or a
90% parent company; and
- Companies
which subject goods belonging to another to a manufacturing
process in Ireland.
The
10% rate could be claimed by a branch of a foreign company
as well as by companies established in Ireland. There
was no statutory definition of 'manufacturing' and over
the years the Courts extended the beneficial rate to
a number of activities not normally regarded as manufacturing,
as well as excluding some types of activity. The permitted
activities included:
- Professional
services performed in Ireland relating to engineering
works executed outside the EU;
- Computer
services, including data processing services and software
development, and associated technical or consultancy
services;
- Fish
farming;
- Certain
shipping activities;
- Repair
or maintenance of aircraft, aircraft engines and components
carried on within Ireland;
- Film
production, provided that 75% of the work is carried
out in Ireland;
- Approved
meat processing;
- Re-manufacture
and repair of computer equipment by its original manufacturer;
- Some
types of fish sales;
- Newspaper
production and associated advertising sales.
Exclusions
include retail sales, the building industry, mining,
and leasing (but not for certificated IFSC or Shannon
companies).
For true
'manufacturing' companies the 10% rate lasted until
the original date of 2010; for other companies it lasted
only until the end of 2000. A company which did not
qualify as a true 'manufacturing' company paid the declining
rate of mainstream corporation tax (see Domestic
Corporate Taxation) from 2001 until the final 12.5%
rate agreed between the Irish Government and the EU
came into effect in 2003.
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Ireland Non-Resident Companies
Non-resident
companies carrying on business in Ireland are liable
to corporation tax on their Irish-sourced income only.
Equivalent rules apply to capital gains; however there
are roll-over exemptions available for capital gains.
For
a number of years, residence has been determined primarily
according to a 'management and control' test, with some
subsidiary tests such as the location of actual trading,
location of bank accounts, location of head office,
etc. Until 1999 there was no statutory definition of
'residence', and it was possible to maintain non-residence
for an Irish company despite a substantial level of
activity in Ireland.
As
part of a general response to the EU's initiative against
'harmful tax competition', Ireland installed or announced
new tax regimes during 1999, agreed with the EU, which
continued the existing favourable tax regime in many
respects, but which brought some parts of the tax system
much more closely into line with general EU practice.
Under
the Finance Act, 1999, all Irish-incorporated companies
became resident; however, there are a number of exceptions
to the rule, some of them to accommodate the situation
of multinational companies (many American) who have
established themselves in Ireland. The most important
exceptions are:
- An Irish-incorporated
company which is resident in a treaty country (Ireland
has Double Tax Treaties with 44 countries) and which
is not resident in Ireland will continue to be regarded
as non-resident in Ireland;
- An
Irish-incorporated company which is under the ultimate
control of a person or persons resident in an EU member
state or in a country with which Ireland has a double
tax agreement, or which is, or is related to, a company
whose principal class of shares is substantially and
regularly traded on a stock exchange in an EU country
or a treaty country AND which carries on a trade in
Ireland or is related to a company which carries on
a trade in Ireland will continue to be able to be
non-resident under the management and control test.
('Related to' means that either one of the two companies
owns at least 50% of the other, or that both are owned
at least 50% by a third company; 'Control' is interpreted
within Irish rules that attribute the rights of shareholders
to related parties and associates.)
Alongside
these exceptions, some additional reporting requirements
have been imposed on non-resident companies, and some
stiffer incorporation rules have been imposed on all
companies:
- Non-resident
companies must declare their country of residence,
the name and address of any qualifying trading company
in Ireland, the name and address of any qualifying
quoted controlling company, or else the name and address
of the ultimate beneficial owners;
- Companies
to be incorporated must intend to trade in Ireland,
and will have to have at least one Irish resident
director or else provide a bond.
As can
probably be seen, these rules taken together are far
from restrictive, and in most cases it was possible
for companies either to continue non-residence as they
are currently structured, or else to make reasonably
straightforward adjustments to fall within the new rules.
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Ireland Taxation of Foreign and
Non-Resident Employees
In Ireland, the taxation of individuals is based on
a mixture of the concepts of residence and domicile.
See Domestic Personal Taxes
for the general principles of individual taxation in
Ireland, which also apply to the resident and domiciled
employees of non-resident entities.
As
in many countries, residence is consequent on presence
in Ireland for more than half of a tax year, or a substantial
cumulative total of days from previous years. An individual's
domicile is in the country where he maintains his permanent
home, in the country where he regards himself as belonging.
Domicile in Ireland is acquired from an Irish-domiciled
father, but can be changed to another country by establishing
a life there. Resident foreign employees will thus not
normally be domiciled in Ireland.
An
individual resident and domiciled in Ireland pays tax
on his world-wide income; an individual resident but
not domiciled pays tax on his foreign income only if
it is remitted to Ireland. A non-resident individual
pays income tax only on Irish-sourced income, and is
liable to capital gains tax only on gains arising in
Ireland or remitted to Ireland, unless he is domiciled
in Ireland in which case he is liable on all capital
gains.
From
1st January 2001, non-resident individuals pay an 'exit
tax' of 33% (30% before 2012) on gains on encashment
or maturity of Irish-resident investment fund holdings
- before 2001 there was an annual basis for tax of 20%
on gains.
In
his budget speech in December 2009, Finance Minister
Brian Lenihan announced that the government would introduce
an ‘Irish domicile levy’ of EUR200,000 on
Irish nationals and domiciled individuals whose worldwide
income exceeds EUR1m and whose Irish-located capital
is greater than EUR5m, regardless of where they are
tax resident.
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Ireland Exchange Control
Ireland has no exchange controls.
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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.
In
June, 2004, the Revenue Commission said it planned to
step up its enforcement of Ireland’s tax exile rules
by gaining access to commercial flight passenger lists
and private jet schedules, in order to prevent individuals
falsifying the amount of time spent out of the country.
Traditionally, investigators are only able to make cursory
checks on the movements of individual taxpayers and
a review has been called for to consider whether more
thorough access to passenger rosters and other information
is needed to police the system. Current rules stipulate
that commissioners must obtain a High Court order to
gain access to such information, although this avenue
has hitherto not been pursued.
Reports also indicated that the Commission wants to
reduce the number of days that non-residents may reside
in Ireland for tax purposes. As in many countries, residence
is assumed if an individual is present in Ireland for
more than half of a tax year, or for 280 days in two
consecutive years.
However, this may prove more difficult for the Revenue
as such rules are governed at the EU level. In a separate
development, it has also been reported that the Revenue
intended to investigate the financing of overseas property
purchases by Irish citizens, and to ascertain whether
the appropriate amounts of tax have been paid on external
income or on capital gains through the subsequent sale
of foreign property.
It was estimated that up to 50,000 Irish nationals had
bought property in Spain, and thousands more have acquired
houses in other popular spots such as France, Portugal
and the United States.
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