Doing Business & Investing In...
John Fisher Associate Director Smith & Williamson
Tel: +353 1 6142500
Email:
john.fisher@
smith.williamson.ie Web:
www.smith.williamson.ie
While the standard rate of corporation tax is 12.5%, passive income such as certain interest, rent and royalty income, is taxable at a higher rate of 25%. Income from certain trading activities (e.g. dealing in and developing land, the exploitation of oil, gas and mineral resources, and dealing in licences) is also taxable at the 25% rate.
The government understands the requirement for certainty and the rate has been the same since 2003 and will remain the same for the foreseeable future. The rate is not a one off time limited benefit to attract investment.
The government has recognised that start-up activities require assistance and a three year relief from corporation tax is currently available for new start-up companies subject to certain conditions. The primary condition is that the relief is limited to a threshold of profits and is also linked, in order to encourage job creation, to the amount of employers’ PRSI paid by a company. The maximum annual relief is €40,000 and to achieve this level of savings there must be 8 employees and the company pays at least €5,000 of employers PRSI for each employee. In recognition of the fact that many start up companies may not earn sufficient profits to use the relief, the relief has been extended to allow the relief to be carried forward.
Other incentives introduced include an extremely attractive R&D tax credit of 25% which results in an effective triple tax deduction. Where there are insufficient corporation tax liabilities against which to offset the credit, a cash refund, subject to the amount of payroll tax paid in the current and prior accounting periods, is available over a 3 year period. There is also the ability for key R&D employees to benefit from the R&D tax credit available in Ireland through an allocation by the company of part of the credit to the employees.
In 2009 the Government introduced an IP regime which enables companies to obtain a tax deduction for acquisition of intangible assets including brands, trademarks, other rights and goodwill associated
with the qualifying IP. The deduction is not confined to third party acquisitions and can therefore be accessed through asset transfers arising from global reorganisations.
Ireland introduced a holding company regime in 2004 which provides for an exemption from capital gains tax on the disposal of shares of qualifying investments. The Government has continuously engaged with industry and tax practitioners to discuss and implement changes which assist Irish located businesses with foreign operations. These changes include tax pooling which enables companies to pool for example, foreign dividends or interest income, which enables efficient use of the credit to be taken for foreign withholding tax or other foreign taxes suffered on the specific income, which if not available, can result in a significant tax cost. These measures enable Ireland to continue to attract foreign investment and to compete with other countries who offer similar reliefs.
Ireland introduced transfer pricing legislation with effect from 2011 in accordance with OECD principles. The regime applies only to trading transactions and allows companies to rely on documentation prepared by the group which is required to conform to the requirements of the country in which the related party is located. There is also an exclusion for small and medium size companies which fulfil certain criteria.
Ireland has a comprehensive tax treaty network which is increasing substantially each year. Also in place are information exchange agreements with other countries. Ireland has substantial domestic withholding tax exemptions which primarily apply to EU member countries and countries which are part of the tax treaty network. Ireland also has certain unilateral credit provisions which eliminate or reduce the Irish tax payable on certain foreign income.
Other incentives currently available include a capital gains tax relief, subject to specific conditions, for purchases of properties and relief from a portion of Irish tax for foreign executives.
63 Q
What are the main considerations that a company should make when looking to invest or sustain investment in Ireland?
The primary considerations are the availability of the skills that are required to operate the business, the presence and experiences of companies operating in the same field, a stable political and tax environment and the ease with which business can be carried on from an Irish location.
Q
What are the main potential liabilities that arise when investing in Ireland and how can these be mitigated or avoided entirely?
In our experience companies need to carry out sufficient research before committing to setting up in Ireland, speak to IDA Ireland to understand reliefs that may be available, obtain the necessary tax and associated advice (e.g. audit, accountancy, legal, investment) and also commit the necessary resources. Locating operations in a country outside the home jurisdiction is an exercise that requires time and resources and if not planned and executed properly can fail to deliver the expected results.
Q
Is there anything else you would like to add?
To summarise foreign investment into Ireland is one of the top priorities of the Irish Government and as evidenced by the disproportionately high number of foreign businesses with operations in Ireland, Ireland has been and will continue, by its proactive approach, non complex administration and stable political and tax system, to attract foreign investment.
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