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Brexit Ramifications For Ireland

Sponsored by Company Bureau Formations
06 February, 2019


Amid intensifying uncertainty over Britain's future legal and trading relationships with the European Union, Ireland is looking like an increasingly attractive alternative for UK companies seeking a politically stable, legally predictable, low-tax base in the EU.

Ireland's advantages summarised

Due to its low corporate tax rate, business-friendly government, use of the English language, and its common law heritage, Ireland has become a favoured destination for foreign companies entering the EU marketplace. This is especially the case for investors from the United States. According to the American Chamber of Commerce in Ireland, in 2016, Ireland attracted over 12 percent of all US foreign direct investment to Europe, despite only accounting for one percent of the European economy. Total US investment now amounts to USD387bn, and more than 155,000 people are directly employed by over 700 US firms in Ireland.

Ireland's economy

Traditionally, Ireland's economy was largely dependent on agriculture. However, thanks to a series of tax and regulatory reforms and an education system that has created a skilled workforce, Ireland now has a thoroughly modern economy with significant hi-tech manufacturing and services sectors, particularly financial services. Ireland has also been at the forefront of the internet and fintech revolutions, and is home to many cutting-edge technology firms.

Indeed, the export sector, dominated by foreign multinationals, has become a critical component of Ireland's economy. The main export sectors are machinery and equipment, computers, chemicals, medical devices, pharmaceuticals, foodstuffs, and animal products. Almost one-quarter of Irish exports are bound for the United States, with the UK, Germany and Belgium other significant export markets.

Dublin, the administrative capital, is also the chief business and financial center. Home to more than one million people, the city has evolved over recent years into a lively and cosmopolitan city with a thriving cultural life.

Undoubtedly, an important factor in Ireland's success at attracting high volumes of foreign investment has been its membership of the European Union, which it joined in 1973. This means that Ireland is part of the Single Market and the customs union and is able to trade with all EU member states free from tariffs, duties and many other barriers to trade. Ireland is also a part of the EU value-added tax area having incorporated the requirements of the EU VAT Directive into the domestic legal and regulatory framework.

Tax advantages

Ireland has one of the most of competitive corporate tax regimes, not only in the EU but also among the world's advanced economies. The cornerstone of the corporate tax system is the 12.5 percent corporate tax rate, which successive governments have committed to protecting, including the current administration. Numerous tax reliefs are also available, including for small companies and for firms undertaking research and development. There is also a special tax regime for income derived from intellectual property.

Irish resident companies are liable to corporation tax on their worldwide income and capital gains. Generally, a company is tax resident in Ireland if its central management and control is located in Ireland or it is incorporated in Ireland. Ireland has a large network of double taxation avoidance treaties, which includes almost 80 jurisdictions at the time of writing.

Non-resident companies with an Irish branch are liable to corporation tax on profits connected with the business of that branch, and any capital gains from the disposal of assets used by or held for the purposes of the branch in Ireland.

In tax terms, Ireland is also reputationally sound. The government has committed to implementing internationally-agreed standards in the areas of transparency and the prevention of tax avoidance, including under the OECD's base erosion and profit shifting initiative.

Ireland also has one of the most efficient, effective and administratively-simple tax regimes. Indeed, according to PwC, Ireland is the most effective country in the EU in which to pay business taxes and the fourth most effective worldwide.

PwC calculated that an Irish company will pay 26 percent of its profits in taxes, compared to 39.3 percent in the EU and 40.3 percent globally. This figure is comprised of 12.4 percent in profit taxes – close to the headline corporate tax rate of 12.5 percent – 12.2 percent in labor taxes, and 1.4 percent in other taxes. With the EU average for labor taxes standing at 25.6 percent, Ireland is substantially more competitive when it comes to the cost of employing people.

The study also found that a typical Irish company will spend just over two weeks dealing with its tax affairs and will make a tax payment nearly every six weeks. Globally, the typical company will spend nearly seven weeks dealing with its tax affairs and will make a tax payment every two weeks.

Company formation

Given its common law traditions, investors from the UK and elsewhere will be largely familiar with the concepts of Ireland's companies law. Companies are formed under the Companies Act 2014, which replaced the Companies Acts 1963-2013. In particular, the new Companies Act simplified the private limited company rules, among other changes aimed at modernizing companies legislation.

Irish legislation provides for several types of companies, including the following:

  • Limited Company: A company owned by its shareholders. Shareholders' liability, should the company fail, is limited to the amount, if any, remaining unpaid on the shares held by them.
  • Single Member Company: A company which is incorporated with one member (although it must have at least two directors and a secretary). A limited company may be private, public, and limited by shares or by guarantee.
  • Unlimited Company: an unlimited company has no limit placed on the liability of the members.
  • Undertakings for Collective Investment in Transferable Securities (UCITS): A public limited company formed under EU regulations and the Companies Act 2014. The sole object of a UCITS is the collective investment in transferable securities of capital raised from the public that operates on the principle of risk-spreading.
  • European Economic Interest Groupings (EEIG): A mechanism through which business within the EU can engage in cross-border commerce. The purpose of an EEIG is to facilitate or develop the economic activities of its members.
  • Societas Europaea (SE): A Societas Europaea or SE is a European public limited liability company formed under EU Regulation. It is a form of association between companies or other legal bodies, firms or individuals from different EU countries who need to operate together across national frontiers. It carries out particular tasks for its member-owners and is quite separate from its owners' businesses. Its aim is to facilitate or develop the economic activities of its members.

Conclusion

While at the time of writing it is impossible to know what the final terms of the UK's legal and trading relationships with the EU will be, and when they will be put in place, it is probably safe to assume that those arrangements will, to a large extent, differ from those in place at present. Indeed, the dreaded no-deal "hard Brexit" remains a distinct possibility. For businesses trading between the UK and the EU, this lack of clarity and high degree of uncertainty makes forward planning very difficult.

Ireland therefore, with its long-established membership of the EU under no apparent threat, and with its favourable and familiar legislative, regulatory and business environment and pool of foreign investors, could represent the ideal platform for companies from the UK and other jurisdictions looking to maintain stable commercial relationships with Europe.




 

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