Advantages of Forming a Company in the Republic of Ireland
(August 2011)

The advantages of locating a business in the Republic of Ireland can be summarised as follows:

Pro-Business Environment

The 2008-2012 Business Environment Ranking of the Economist Intelligence Unit placed Ireland 11th globally out of 82 countries, naming it as one of the most attractive business locations in the world. A politically stable country and respected regulatory regime.

Furthermore, Ireland is considered to be a low bureaucracy, low tax environment that is very supportive of entrepreneurs. The World Bank's "Doing business" Report rates Ireland as the easiest place in the European Union (EU) to start a business and as having the most business friendly tax regime of any country in Europe or the Americas.

Young, Talented Workforce

Favourable demographics and consistent investment in education ensure a plentiful supply of highly qualified workers with excellent technical, language and customer service capabilities, as well as a reputation for flexibility and innovation.

English Speaking Jurisdiction

While English may be the language of choice for most internationally trading businesses, Ireland also has ready supply of workers with multilingual skills.

Minimal Share Capital Requirements

The minimum issued share capital requirement for a Private Company, Limited By Shares, is just €1.00 which compares favourably with most other European countries.

Ease of Incorporation

A new company can be registered in just 1/5 working days from date of lodgement of the incorporation papers and does not require the opening of a bank account as part of the registration process.

Ease of Administration

Once a company has been established any subsequent changes, such as the allotment of new shares, changing directors, or amending the Memorandum & Articles (Constitution) is easily recorded in the Companies Registration Office. Making any of these changes does not require attendance before a Notary Public or re-execution of deeds, as required in mainland Europe.

Favourable Taxation

A key aspect of the Irish Government's support for industry and R&D is an attractive and continually evolving tax system:

Corporation Tax Rate

A corporate tax rate of 12.5%* applies to all corporate trading** profits, which compares very favourably with other major jurisdictions (See below):

% Corporation Tax Headline Rates:

Country % Corporation Tax
- Ireland 12.50
- Singapore 17.00*
- Russia 20.00
- Switzerland 21.17
- China 25.00
- Netherlands 25.00
- UK 26.00
- Luxembourg 28.80
- Germany 30.20**
- France 33.33
- Belgium 33.99
- India 32.44
- Brazil 34.00
- USA 35.00
- Japan 38.01***

Source: PricewaterhouseCoopers, 2012

* The marginal federal corporate income tax rate on the highest income bracket of corporations (for 2011, USD 18,333,333 and above) is 35%.

** Berlin rate used for illustrative purposes. Corporation tax rate varies depending on location.

*** This tax rate illustrates the effective tax rate for the Tokyo area where a company has paid-in capital of more than JPY 100 million.

Double Taxation Treaties

Ireland has signed comprehensive double taxation agreements with 63 countries, of which 55 are in effect (as of August, 2011). The agreements cover direct taxes, which in the case of Ireland are income tax, corporation tax and capital gains tax.

Ireland has signed DTT's with the following countries:

Albania (signed 16/010/2009 but not yet in effect) Armenia (signed 14/07/2011 but not yet in effect) Australia, Austria, Belgium, Bosnia & Herzegovina (signed 03/11/2009 but not yet in effect) Bulgaria, Canada, Chile China, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Georgia Germany, Greece, Hong Kong (effective 01/01/2011), Hungary, Iceland, India, Israel, Italy, Japan, Korea, Kuwait (signed 23/11/2010) but not yet in effect Latvia, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Moldova, Montenegro, (signed 07/10/2010 but not yet in effect) Macedonia, Morocco (signed 22/06/2010 but not yet in effect) Netherlands, New Zealand, Norway, Pakistan, Poland, Portugal, Romania, Russia, Serbia, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, The Republic of Turkey, United Arab Emirates (signed 01/07/2010 but not yet in effect) United Kingdom, United States, Vietnam and Zambia.

New agreements are in the pipeline and include:

Argentina, Armenia, Azerbaijan, Belarus, Egypt, Singapore, Tunisia, Thailand and Ukraine.

A tax co-operation agreement has been signed with the Isle of Man.

In addition, where a double tax agreement does not exist with a particular country, unilateral provisions within the Irish Taxes Acts allow credit relief against Irish tax for foreign tax paid in respect of certain types of income.

Holding Company Regime

A favourable Holding Company regime allows an Irish company to act as a European/Regional holding or intermediate holding company.

Until recently, investment in Ireland was likely to be routed through a holding company in another European location such as the Netherlands or Luxembourg. Recent legislation has put Ireland in a position to compete with these established European holding company locations.

As a consequence of these changes, an Irish company can now act as a European/Regional holding or Intermediate holding company. The changes relate to the treatment of capital gains and foreign dividends.

Foreign Dividend Income

Although foreign dividend income is liable to tax in Ireland it is possible to gain relief so that no actual Irish tax will arise. Companies may use a system of:

  1. Foreign tax credit pooling.
  2. The EU Parent - Subsidiary Directive.
  3. Double taxation agreements.

R&D Tax Credit

  • A 25% tax credit can be claimed against qualifying R&D expenditure by Irish tax-resident companies within the European Economic Area (EEA).
  • Flexibility in the R&D tax credit system grants companies whose corporation tax liability is insufficient to claim the credit via a refund by the revenue commissioners over three accounting periods.
  • The R&D tax credit is claimable against "qualifying buildings" which are defined as buildings with a minimum R&D usage of 35% over a defined 4 years period.
  • R&D work sub-contracted to unconnected parties also qualifies for the credit, up to a maximum of 10% of the company's qualifying R&D expenditure in any one year.
  • Up to 5% of R&D expenditure can be outsourced to European universities.

Intellectual Property

The Irish Government has signalled its intention to promote Ireland as a location for intellectual property management. There is no stamp duty on transfers of intellectual property. Effective management of such property in Ireland could result in the profits generated being treated as trading income and thus taxable at the low 12.5% rate.

Controlled Foreign Company ("CFC") Regulations

Ireland does not have any CFC regulations and therefore it is possible for an Irish company to hold shares in companies that are resident in other jurisdictions and not require the profits of the entity in the other jurisdiction to be repatriated to Ireland. Many other international holding company locations include CFC rules which can limit the range of countries into which they can invest.

Thin Capitalisation Rules

The ability of a holding company to finance its operations by means of borrowings is restricted in many territories due to the imposition of thin capitalisation rules requiring that companies be financed in part by equity. This can limit a company's ability to expand its operations. Ireland does not have thin capitalisation rules provided that the rate of interest charged does not exceed a reasonable rate. This allows international holding companies to be fully financed through debt. Accordingly a company with a nominal share capital is in a position to fund its operations by unlimited borrowings and the interest on those borrowings is fully deductible.

Transfer Pricing

Another key attraction for Ireland as a location for investment by international businesses is the fact that there are no transfer pricing rules. The aim of transfer pricing rules is to prevent income from being artificially shifted from a country with a high corporation tax rate to a lower tax jurisdiction.

The income is moved to the low tax jurisdiction by having a related company in the low tax jurisdiction supply goods or services to a related company in the high tax jurisdiction at artificially inflated prices. The effect of transfer pricing rules is to deem the transaction to have occurred at fair market value consideration so as to remove the tax benefit achieved through the use of artificially high transfer prices.

Companies Capital Duty ("CCD")

CCD on the allotment of shares was reduced to 0.5% and then finally abolished in December 2005.

For further details please contact our MD, Mr. Sean Kavanagh
or our Corporate Services Manager, Ms. Karen Corcoran