When it comes to foreign direct investment (FDI), Ireland has become a key player in the heartland of European economic activity. Our corporation tax regime is central to the overall package of measures that include
- 25% Research & Development tax credit
- an excellent intellectual property (IP) regime
- effective zero tax rate for foreign dividends
All of which contribute to making Ireland an attractive destination for overseas companies.
Figure 1 Current Corporate Tax Rates
What Is Corporation Tax?
It’s helpful to take a quick look at what exactly is corporation tax.
In Ireland, it’s a tax on Irish company profits on companies that are resident in Ireland and also on the Irish profits of foreign companies that trade here through a branch.
How much is paid is based on income tax rules. There are currently two corporation tax rates here;
- The 12.5% rate applies to trading income from products and services
- The 25% rate applies to non-trading income from investments or rental properties and to excepted trade
Your business will be liable for tax on income and profits once it is deemed resident in Ireland (see below for further detail on residency requirements).
It’s important to note that a company resident here, is liable for corporation tax in Ireland on its worldwide income - not just the profits generated in Ireland.
If your company operates outside of Ireland, but it has, for example, an Irish branch, then it will be taxed at the appropriate Corporation Tax rate of 12.5% on any business connected with that branch.
Capital Gains Tax may also be due on the disposal of assets from the Irish branch. Corporate tax applies to any profits during the company’s accounting period, which cannot extend past a year.
The Irish corporate tax system – liability
A company’s liability to Irish corporation tax depends squarely on it being tax resident in Ireland. If a company’s central management and control is in Ireland and incorporated here it can be considered tax resident. It’s also important to note that it could be controlled outside of Ireland but operated from Ireland.
Companies with an Irish branch but not resident in Ireland, are liable to corporation tax on:
- profits connected with the business of that branch and
- capital gains from the disposal of assets used by or held for the purposes of the branch in Ireland.
If a company is not resident in Ireland and does not have an Irish branch it will be liable to income tax on any Irish source income and capital gains tax from the disposal of specified Irish assets (e.g., Irish land/buildings, certain Irish shares, etc.).
Calculating tax liability
Under the Irish tax regime, companies are liable to corporation tax on their total profits. This includes trading income, passive income and capital gains. Ireland’s transfer pricing legislation is endorsed by the OECD Transfer Pricing Guidelines and the arm’s length principle.
It is applicable only to dealings that are taxable at the 12.5% corporate tax rate (i.e., ‘trading’ transactions). There is an exemption for Small and Medium Enterprises.
Key factors for Eligibility of Corporation Tax RATE [12.5%]
The key factors in determining if a company is resident in Ireland are set out below.
1. Do you hold your board of directors’ meetings in Ireland?
It’s important you can show that key decisions and planning are made in Ireland. Ensuring that Directors hold periodic board meetings in the state and declare an Irish salary on the Irish company’s payroll is also an important step when looking to avail of the 12.5% tax rate.
2. Where do most of the directors reside?
To ensure you have a strong presence here, the company will need to demonstrate that the majority of director’s are resident in Ireland.
It’s important to keep any records that will help prove this including personal banking details, payment of tax and flight records in and out of the country for directors visiting on business.
3. Are the company’s books and records maintained in Ireland?
Company Financial statements must be prepared under Irish GAAP or IFRS (US or other GAAP are not acceptable). These are then used to determine the taxable purposes for Irish tax and reporting purposes.
4. Where are the companies’ employees based?
While having some staff who work remotely from abroad would not necessarily rule you out of the 12.5% rate for corporation tax here, it is important that some of your employees live and work here.
5. Where is the company’s head office located?
If the firm’s head office were to be relocated to Ireland it would obviously make a stronger case for a company’s tax residence and its eligibility for the lower corporate tax rate.
6. Do you have rent payments or invoices for office space?
This will enable you to prove that that you maintain an office or head office in Ireland – not just a brass plate company or post forwarding address.
What else has Ireland got to offer?
If your business has been considering Ireland as your next location for business growth, please get in touch with us.
Smart MBS have over 35 years’ experience in dealing with small to medium sized companies from all industries.
All you have to do is fill out the form below. We’ll provide more detail about how Ireland and Smart MBS can provide the best solution for your company.