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Tax Benefits of Incorporating a Company in Ireland

Company Bureau Formations
23 June, 2017

The Republic of Ireland has a strong reputation as a favourable business jurisdiction due to tax incentives, transparent business practices, economic growth and availability of skilled labour. As Brexit comes into play Ireland starts to look even more desirable. Ireland is now the only English-speaking country in the Eurozone and with a diverse population of European migrants there are over half a million Irish residents who fluently speak a foreign language. It is becoming clear that Ireland is the ideal base from which to serve the European markets. In this article, we will address the tax incentives that make Ireland so popular for both local entrepreneurs and international companies.

Business- friendly tax regime

One of most attractive benefits of incorporating a company in Ireland is the fully transparent tax regime which is compliant with the Organisation for Economic Co-operation and Development (OECD) guidelines. There are two rates of corporation tax in the Republic of Ireland: 12.5% for trading income; 25% for non-trading income. To promote job creation, new companies can reduce their tax rate to 0% for their first three years in business if they hire employees in Ireland and their liabilities do not exceed certain levels. Please visit the Company Bureau website for information on 0% Corporation Tax Exemption http://www.companyformations.ie/blog/0-corporation-tax-extended-to-irish-companies-registered-in-2014/

Research and Development Tax Relief

To promote innovation and entrepreneurship there is a Research and Development (R&D) tax relief for small or medium sized enterprises (SME). Qualifying R&D expenditure will generate a 25% tax credit against corporate taxes and a tax deduction at 12.5%.

To qualify as a SME, the company must have less than 500 employees with an annual turnover under €100 million and the balance sheet under €86 million. These constraints should include any linked, partnership or shareholdings where the company holds 25% or more share. As well as when the company is part of a larger group that holds 25% or more its share.

Knowledge Development Box (KDB) Tax Relief

A company’s profits associated with the Irish R&D may be taxable at a reduced rate of 6.25%.

To qualify for KDB the company must have engaged in Research & Development in Ireland and is now be earning profits from the creation of a ‘usable qualifying asset’ directly resulting from that R&D. A ‘usable qualifying asset’ may include patents, computer programmes, copyrighted

software or other certified intellectual property. Additionally, the company’s accounting period must begin on or after 1 January 2016 to qualify.

International Tax Treaties

When investors are resident in one country and have income and gains from another, they may have to pay tax on the same income in both countries. Ireland has a continuously growing network of international double taxation treaties that follow the OECD model. These treaties provide relief from the double taxation on most kinds of income depending on the individual agreements they may include income tax, universal social charge, corporation tax and/or capital gains tax.

Please visit the Company Bureau website for information on Irelands Tax Treaties with 73 Counties. http://www.companyformations.ie/blog/irelands-extensive-list-of-double-taxation-treaties-with-71-countries/

Irish Holding Company

International companies looking to expand their operations are encouraged to use an Irish Holding Company. The main benefit is exemption from Irish capital gains tax (CGT) on disposal of shares in certain subsidiary companies. Companies are eligible if:

  • Shareholding test - The Holding Company has held at least 5% of the ordinary shares in the subsidiary company for 12 months in the previous 2 years prior to the disposal
  • Jurisdictional test - The subsidiary company is tax resident in an EU country or a country where Ireland has signed into a double taxation treaty
  • Trading test - The subsidiary company is an active trading company or is part of a group that group is mainly involved in trading activities

Additionally, non-Irish resident investors (individuals and corporates) are generally exempt from paying taxes on the disposal of business shares. There are tax deductions on the interest when borrowing to acquire shareholdings in a subsidiary company and there is no CGT on the selling of those shareholdings. This makes it possible for foreign investors to establish an Irish Holding Company for investment purposes and dispose if the investments free of tax

Strong emphasis on Joint Venture

A Joint Venter structure is a cost-effective way for international and local businesses to gain access to new markets. International firms typically use Joint Ventures to pool their supply and/or distribution resources to expand their business activities and gain bargaining power.

This structure allows the parties to undertake a new business opportunity while maintaining their individual identities and existing business operations.

A General Partnership is an unincorporated Joint Venture that has favorable taxation for all parties. This allows profits to flow between the parties and avoid the double taxation that would normally occur between corporate profits and dividends paid to shareholders. Losses are also able to flow between the parties to offset the income from the joint venture’s other operations.

Limited liability companies can also be treated as partnerships for tax purposes allowing the same income flow of loss and tax benefits even though they are otherwise treated as separate, stand-alone entities.

Incorporation Process

It is possible to form a new company on your own in Ireland but it recommended that you use a local formation agent to avoid making costly mistakes. Similarly, International companies looking to enter the Irish market should seek professional advice. The experts at Company Bureau have 20 years’ experience in company formations and company secretarial services. They offer the fastest service in Ireland and a fully comprehensive formation package.

Disclaimer: The above article does not constitute tax advice, therefore, paid professional taxation advice should be sought before considering any of the structures mentioned above. We are not responsible for any possible incorrect information contained in the above which was sourced from 3rd parties including the Irish Revenue Commissioners.

About the Author

Company Bureau Formations

Company Bureau Formations is Ireland's leading Company Formation, Company Secretarial and Corporate Service Provider. www.companyformations.ie


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