On
this Page:
- IRELAND
FORMS OF LOW TAX OPERATION
- IRELAND
THE INTERNATIONAL FINANCIAL SERVICES CENTRE
- IRELAND
THE SHANNON FREE ZONE
- 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been superseded by the introduction of a nation-wide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 - The
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 will
last 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 paid
the new 'exit tax' of 23% (increased to 26% in
the Finance Act 2009) imposed on gains on encashment
or maturity of Irish-resident investment fund
holdings - previously they would have been liable
on an annual basis for tax of 20% on gains.
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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.
At present, 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 exernal income or on capital gains through
the subsequent sale of foreign property.
It was estimated that up to 50,000 Irish nationals
have 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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