Ireland: Offshore Legal and Tax Regimes
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.