IDA's guide to tax brochure 2013
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What are the features of Ireland's tax regime that make it one of the most attractive global investment locations? Check out IDA's guide to tax 2013 now available.

What are the features of Ireland's tax regime that make it one of the most attractive global investment locations? Check out IDA's guide to tax 2013 now available.

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IDA's guide to tax brochure 2013 IDA's guide to tax brochure 2013 Presentation Transcript

  • www.idaireland.com
  • e s01-INTRODUCTION | 02WHY IRELAND ? | 03CORPORATE TAX IN IRELAND | 06TAX RELIEFAVAILABLE | 08RESEARCH & DEVELOPMENT (R&D) TAX CREDIT | 10INTANGIBLE ASSETS &INTELLECTUAL PROPERTY (IP) IN IRELAND | 11INTERNATIONALISATION | 12TAXES ON CAPITAL | 14TAX ADMINISTRATION | 15OTHER BUSINESS TAXES | 16PERSONAL TAXATION | 18FURTHER INFORMATION | 20
  • i rodu ion02-Ireland continues to attract companies from a variety of sectorsincluding Information and Communications Technology (ICT),Life Sciences, Financial Services, Engineering, Digital Media,Games and Social Media.While the pace of Irelands economic recovery remains modest fornow, this countrys Foreign Direct Investment (FDI) performance hasremained buoyant. Despite a myriad of challenges, Irelands uniqueattributes as an investment location remain intact. The years 2012 &2013 have seen a strong performance in the level of FDI won by Ireland.Over 1,000 Multinational Corporations (MNCs) have chosen Irelandas their strategic European base, attracted by our pro-business,low corporate tax environment, track record of success and a young,highly skilled talent pool. Many of these MNCs have gone on toexpand their facilities in Ireland because of the positive, adaptableattitude of the workforce and the ready availability of highly educatedand experienced managers. MNC management teams in Ireland takea forward-thinking, partnership approach to business, anticipatingmarket developments and innovation to seize new opportunities.That’s why so many have moved up the value chain to take on highervalue, knowledge-intensive activities.
  • whyire nd?03-Ireland’s 4 ‘T’s’ - Talent, Track Record, Tax and Technology makesIreland the destination of choice for Foreign Direct Investors.Talent - Our predominantly young work-force is capable, highly adaptable,mobile and very committed to achievement. The median population ageis 35, the lowest in the EU.Track Record - Over 1,000 multinational companies have already chosenIreland as their strategic European base.Taxation - Ireland’s Corporation Tax Rate is firmly fixed at 12.5% - and willremain at this attractive level in the future.Technology - Significant State Investment in R&D helps ensure Irelandstays at the forefront of technological innovation.Ireland’s 3 ‘E’s’ - Education, European Marketand English Speaking.Education - Ireland leads in the skills race with a higher percentage ofthird level graduates than UK, US and OECD averages. An EIUBenchmarking Competitiveness Report ranks Dublin as the best cityin the world for human capital.European Market - Companies located in Ireland benefit frombarrier-free access to over 500 million consumers in Europe.English Speaking - English is the universal spoken language of Ireland.The country is a highly-developed multi-cultural community.Foreign Direct Investors experience and enjoy a distinctly pro-businessenvironment. Positive attitudes prevail - all the way from the generalpublic, through the media, right up to the most senior levels ofGovernment.
  • 04-Ire nd’srporatetax rateCorporate tax rates have been one of the principal elementsof the favourable enterprise environment in Ireland for morethan three decades. The Irish tax regime is open and transparentand complies fullywith OECD guidelines and EU competition law.Rate - The Government policy in relation to the 12.5% rate of corporationtax is clear.Regime - This refers to the additional elements of Ireland’s broaderCorporation Tax Strategy, e.g. 25% R&D tax credit, an intellectualproperty (IP) and attractive holding company regime.Reputation - Ireland offers a transparent corporation tax regimeaccompanied by a rapidly growing network of international tax treatieswith full exchange of tax information.Corporatetaxrates12.5%17%20%23%24.43%25%25%28.8%33%33.99%34%34.43%38.01%40%42%IRELANDSINGAPORERUSSIAUKSWITZERLANDNETHERLANDSCHINALUXEMBOURGGERMANYBELGIUMBRAZILFRANCEJAPANUSAINDIA*1*2*3*4*5*6*7SOURCE: PRICEWATERHOUSECOOPERS, 2013See notes page 20.
  • 05-world lêderschOOse Ire ndbeÊuse:The IMD World Competitiveness Yearbook 2012 ranks Ireland first inthe world for availability of skilled labour, flexibility and adaptabilityof workforce and attitudes towards globalisation. The same report alsoranks Ireland second in the world for adaptability and efficiency of companiesand large corporations.The 2012 IBM Global Location Trends Report highlights that Ireland isranked first in the world for inward investment by quality and valueand second in Europe for the number of inward investment jobs per capita.Ireland is also top for R&D activities in the same report.In 2012 Foreign Direct Intelligence stated that Irish performance faroutweighed the average for Europe in 2011.Ireland makes the top 10 of easiest places in the world to do businessscoring particularly well in regards to starting a new business, ease ofgetting credit, and protecting investors according to the World BankDoing Business 2012 report.Out of 141 economies, Ireland ranks in the top 10 in the global innovationindex 2012, scoring well for it’s business environment, human capital, FDIinflows and market sophistication.Ireland leads the skills race - in 2012 it had the highest proportions ofthose aged 30 to 34 having completed tertiary education according toEurostat 2013.Ireland is ranked in the 10 best educated countries in the world, this isaccording to the 24/7 Wall St/ OECD Education at a Glance report.Ireland has one of the highest proportions of innovative enterprises inthe EU. The proportion of innovative enterprises in Ireland (60%) was wellabove the EU average between 2008 and 2010 – Eurostat, 2013.Ireland comes in at 12th place in Bloombergs 50 most innovativecountries, as at February 2013.Ireland is to be the third most ‘digitally engaged’ country by 2015. Irelandis anticipated ‘to climb the fastest up the rankings, from 11th place in2012 to third [in the world] in 2015’, according to the latest New MediaForecasts Report.On a global scale, Ireland scores extremely well in many of thekey areas of importance to investors, helping drive FDI.
  • rporate taxin ire nd06-The key features of Ireland’s tax regime that make it one ofthe most attractive global investment locations include:- a 12.5% corporate tax rate for active business;- a 25% Research & Development (R&D) tax credit;- an intellectual property (IP) regime which provides a taxwrite-offfor broadly defined IP acquisitions;- an attractive holding company regime, including participationexemption for gains on disposals of most shares;- an effective zero tax rate for foreign dividends (12.5% tax rate on qualifyingforeign dividends, with flexible onshore pooling of foreign tax credits);- an EU-approved stable tax regime, with access to extensive double taxationagreement network and EU directives;- generous domestic lawwithholding tax exemptions;- attractive reliefs for staff assigned from abroad, key staff working in R&Dand staff carrying out work in certain1countries.1See page 19Corporate Tax RatesIreland’s 12.5% corporate tax rate on trading income is one of the lowest ‘onshore’statutory corporate tax rates in the world. It is not an incentive regime, rather it isIreland’s standard tax rate applicable to active business or ‘trading’ income.The Irish Government is committed to retaining the 12.5% corporate tax rate ontrading income as affirmed by the Minister for Finance in the 2013 Budget in whichhe stated:‘ The Government remains 100 per cent committed to maintaining the12.5 per cent Corporation Tax Rate, a sentiment I believe is shared by the vastmajority of Deputies in this House. Even though this commitment has beenstated numerous times, it is worth repeating so that there can be no doubt.’A tax rate of 25% applies to non-trading income (passive income) such as investmentincome, rental income, net profits from foreign trades, and income from certain landdealings and oil, gas and mineral exploitations.The Irish Corporate Tax SystemThe extent of a company’s liability to Irish corporation tax depends on its tax residence.Irish resident companies are liable to corporation tax on theirworldwide income andcapital gains. A company is tax resident in Ireland if its central management and controlis located in Ireland or it is incorporated in Ireland (but there are exceptions for certainIrish companies).Companies not resident in Ireland, but with an Irish branch, are liable to corporation tax on:(i) profits connected with the business of that branch and(ii) any capital gains from the disposal of assets used by or heldfor the purposes of the branch in Ireland.Companies not resident in Ireland which do not have an Irish branch are potentially liableto income tax on any Irish source income and capital gains tax from the disposal ofspecified Irish assets (e.g., Irish land/buildings, certain Irish shares, etc.).Calculating Tax LiabilityThe financial statements of Irish businesses must generally be prepared under Irish GAAPor IFRS (US or other GAAP are not generally acceptable) and they will be used as the basisfor determining taxable company profits for Irish tax and reporting purposes. Ireland hastransfer pricing legislation endorsing the OECD Transfer Pricing Guidelines and the arm’slength principle. It is confined to related party dealings that are taxable at Ireland’scorporate tax rate of 12.5% (i.e., ‘trading’ transactions). There is an exemption for Smalland Medium Enterprises.In Ireland, companies are liable to corporation tax on their total profits, including tradingincome, passive income and capital gains. In order to calculate the amount of profit thatis subject to Irish tax, it is necessary to understand the basics of the Irish tax system.
  • 07-% incrêse in profitrequired to achievesame di rib ablein me avai ble inire ndIRELANDSINGAPORERUSSIAUKSWITZERLANDNETHERLANDSCHINALUXEMBOURGGERMANYBELGIUMBRAZILFRANCEJAPANUSAINDIA% INCREASE IN PROFIT 0 10 20 30 40 50 60 70 80 90 100êse of payingbusine taxesSINGAPOREIRELANDLUXEMBOURGUKSWITZERLANDNETHERLANDSFRANCERUSSIAUSAGERMANYBELGIUMCHINAJAPANINDIABRAZILCOUNTRY SCORE 0 20 40 60 80 100 120 140 160 180 200SOURCE: PRICEWATERHOUSECOOPERS, 2013SOURCE: PRICEWATERHOUSECOOPERS, 20130.00%5.42%9.38%13.64%15.79%16.67%16.67%22.89%30.60%32.56%32.58%33.45%41.15%45.83%50.86%5TH6TH14TH16TH18TH29TH53RD64TH69TH72ND75TH122ND127TH152ND156TH
  • tax reliefavai ble08-InterestInterest on borrowings used fora trade or business is generally tax-deductible onan accruals basis, subject to some exceptions. Interest on borrowings used fornon-trading purposes, forexample, forthe acquisition of shares in anothercompany, may be deductible on a paid basis, subject to certain conditions.Capital AllowancesGenerally, with the exception of certain intellectual property (see page 11) and leasingtaxpayers, accounting depreciation and amortisation are not deductible in calculatingbusiness profits fortax purposes. Capital allowances (ortax depreciation) are, however,available in relation to expenditure on:Plant and Machinery— Expenditure on plant and machinery, fixtures and fittings, and certain software, etc.,may be written off at 12.5% perannum on a straight-line basis overan 8-yearperiod.— Expenditure on scientific equipment is eligible fora 100% yearone capital allowance.— Expenditure on qualifying energy-efficient equipment qualifies fora 100% yearonecapital allowance (in the yearof the expenditure) as part of the Irish Government’sGreen Initiative. Eligible equipment includes:- Motors and drives;- Lighting;- Building Energy Management Systems (BEMS);- Information Communications Technology (ICT);- Heating and electricity provision;- Process and heating ventilation and air-conditioning (HVAC) control systems;- Electric and alternative fuel vehicles;- Refrigeration and cooling systems;- Electro-mechanical systems;- Catering and hospitality equipment.Industrial BuildingsExpenditure on industrial buildings used for manufacturing purposes qualifies for anannual tax allowance of 4%, written off on a straight-line basis over a 25-year period.LossesTrading losses can be used as follows;i. Offset trading income and foreign dividends taxable at the 12.5% ratein the same period;ii. Offset trading income and foreign dividends taxable at the 12.5% ratein the immediately preceding period;iii. Offset trading income of subsequent periods.To the extent not usable against trading income, a current year trading (12.5%)loss can effectively be converted into a tax credit which may be used to reduce thecorporation tax payable on other passive income and chargeable gains in the sameperiod or the immediately preceding period.Capital losses can typically be offset against other capital gains, eitherwithin thesame period or in future periods (subject to some exceptions).Group ReliefIreland’s tax regime does not involve the filing of consolidated tax returns.Affiliated companies may, however, be able to avail of corporation tax ‘group relief’provisions. Irish tax legislation provides that two companies are deemed to bemembers of a group of companies if:— one company is a 75% subsidiary of the othercompany; or— both companies are 75% subsidiaries of a third company.The relevant companies must be resident in Ireland, any EU Member State orany countrywhich has a double taxation agreement with Ireland.Group relief can be claimed in Ireland on a current year basis in respectof the following:— trading losses;— excess management expenses;— excess rental capital allowances and— excess charges on income (such as certain interest expense).
  • 09-While loss relief is typically restricted to losses of an Irish trade, Irish legislationprovides that an Irish resident parent company may offset against its profits anylosses of a foreign subsidiary resident fortax purposes in the EU orany otherEEAcountrywhich has a double taxation agreement with Ireland.2This is providedthat the losses cannot be used in the local jurisdiction.Capital Gains Tax (CGT) GroupWhere capital assets are transferred between companies in a CGT group, they aretransferred at such amount that will triggerneithera gain nora loss, provided thateach company is within the charge to Irish tax. CGT group relief has the effect ofdeferring any CGT that may arise on the transfer of a capital asset within the groupuntil the asset is disposed of outside the group.A group forCGT purposes is a principal company and all its effective 75% subsidiaries,including 75% subsidiaries of those 75% subsidiaries. The relevant companies mustbe resident in Ireland, any EU MemberState orany otherEEA countrywhich has adouble taxation agreement with Ireland.2Pre-Trading ExpensesCertain pre-trading expenses of companies are allowable in calculating taxabletrading profits once the trade has commenced. A deduction is allowed forpre-trading expenses incurred in the three years priorto commencementof the trade.Examples of eligible pre-trading expenses include:— accountancy fees;— advertising costs;— costs of feasibility studies;— costs of preparing business plans;— rent paid forthe premises from which the trade operates.Tax Exempt Government SecuritiesForeign-owned Irish companies are exempt from corporation tax on interest earnedon certain Irish Government securities issued to them. Such securities can be issuedin a numberof majorcurrencies.2Iceland and NorwayTOP DE INATIONU RIESFOR FDIIRELANDSINGAPORESWITZERLANDJAPANUKCHINANETHERLANDSBRAZILGERMANYFRANCEINDIASPAINUSAHUNGARYRUSSIASOURCE: IBM GLOBAL LOCATION TRENDS FACTS AND FIGURES REPORT, 2012COUNTRY RANK1ST2ND4TH5TH7TH12TH14TH17TH18TH21ST23RD24TH29TH32ND39TH
  • resêrch &deve pme (R&D)tax credit10-Ireland has an R&D Tax Credit scheme since 2004. Qualifying R&Dexpenditure generates a 25% tax credit for offset against corporationtax, in addition to the tax deduction at 12.5%. Its purpose is toencourage both foreign and indigenous companies to undertake newand/or additional R&D activity in Ireland. The R&D tax credit is availableto Irish resident companies and branches on the incremental cost ofin-house, qualifying R&D undertaken within the EEA, provided suchexpenditure is not otherwise eligible for tax benefits elsewhere withinthe EEA. The first €200,000 of qualifying expenditure on R&Dautomatically qualifies for the credit. R&D expenditure over €200,000is compared to the expenditure in the base year of 2003, and theincremental expenditure qualifies for the 25% credit, but the maximumclaim cannot exceed the R&D expenditure in the year. New companiessetting up an R&D operation qualify for the credit on all qualifyingR&D expenditure.In order to qualify for the tax credit, it is necessary to seek to achievescientific or technical advancement and involve the resolution ofscientific or technological uncertainty.Qualifying expenditure includes both revenue and capital expenditure.In practice, qualifying expenditure includes wages, related overheads,plant and machinery, and buildings.The credit regime also provides that:— the greater of 5% of the R&D expenditure and €100,000 can be outsourcedto European universities (includes Irish universities); and in addition— the greater of 10% of the R&D expenditure and €100,000 can besub-contracted to other unconnected parties.Where there is insufficient corporation tax liability to utilise the full credit in aparticularyear or previous year, the tax credit can be refundable over a threeyear period, provided conditions are satisfied. Otherwise it is carried forward.How it works - example of Irish support for R&D spend of €100COMPANY PERSPECTIVE IRISH SUPPORTR&D SPEND 100.00 TAX RELIEF: 90 @ 12.5% = 11.25GRANT AID (10%) (10.00) TAX CREDIT: 90 @ 25% = 22.50NET OFGRANT COST 90.00 TOTAL TAX SAVING 33.75TAX SAVING (33.75) PLUS GRANT AID 10.00TOTAL NET COST 56.25 TOTAL SUPPORT 43.75Companies have the option to account for the credit ‘above the line’ in theProfit & Loss account under IFRS, Irish and US GAAP, thereby immediatelyimpacting on the unit cost of R&D which is the key measurement used by MNCswhen considering the location of R&D projects. This is extremely helpful to Irishsubsidiaries of MNCs in competing for R&D projects.
  • i angible a ets &i ee ual property (IP)in ire nd11-Ireland’s tax system encourages both the creation and managementof intellectual property, by means of our 12.5% corporate tax rate,25% R&D tax credit, and, most recently, our IP tax regime.In 2009, a new tax incentive was introduced for expenditure incurredon the acquisition of intangible assets. The relief applies to qualifyingacquisitions occurring after 7 May 2009 and allows for the capitalexpenditure to be written off over a fixed period of 15 years or overits useful life for accounting purposes. The relief is given by meansof a capital allowance (tax depreciation) deduction available againsttrading income from the management, development or exploitationof the intangible asset concerned. There is no clawback of relief ifthe disposal is after 5 years, where expenditure is incurred after13 February, 2013.The regime applies to specified intangible assets recognised undergenerally accepted accounting practice, which include the following:— patent;— registered design;— design right or invention;— copyright;— trade mark;— trade name;— trade dress;— brand;— brand name;— domain name;— service mark or publishing title;— know-how;— certain software;— any licence in respect of, and any goodwillattributable to, the above;— costs associated with applications for certain legal protection.There is a stamp duty exemption also; see page 14.Other Tax Deductions for IP CostsOther existing provisions continue to apply, separate to the new scheme,for revenue and capital expenditure on qualifying scientific research andthe acquisition of software, where the software is used for ‘end use’business purposes.
  • I ernationalisation12-Holding CompaniesThanks to ourattractive tax, regulatory and legal regime, combined with ouropenand accommodating business environment, Ireland’s status as a world-classlocation forinternational business is well established.In recent years Ireland has increasingly emerged as a favoured onshore locationforMNCs establishing regional orglobal headquarters to manage theircorporatestructure and head office functions associated with theirinternational businesses.Ireland’s main tax advantages for holding companies are:1. Capital gains tax participation exemption on disposal of qualifying shareholdings;2. Effective exemption forforeign dividends via 12.5% tax rate forqualifying foreigndividends and a flexible foreign tax credit system;3. Double tax relief available fortax suffered on foreign branch profits and poolingprovisions forunused credits;4. No withholding tax on dividends paid to treaty countries (orintermediatenon-treaty subsidiaries);5. Access to double taxation agreements to minimise withholding tax on inboundroyalties and interest, and additional domestic provisions to minimise withholdingtax on outbound payments;6. Extensive double taxation agreement networkand access to EU directives.Otherkey tax advantages forcompanies locating in Ireland include a sustainableEU-approved tax regime, which is not underthreat from anti-tax haven sanctions.In addition Ireland has no CFC rules, thin capitalisation rules, capital duty ornetwealth taxes. Funding costs may also be tax-deductible.1. Participation Exemption for CGT on Share DisposalsCompanies are chargeable to 33% CGT in respect of gains arising on the disposalof capital assets. Irish legislation provides an exemption from CGT on the disposalof shares in a qualifying company. There are a numberof conditions, including, thecompany must hold at least 5% of the shares of the company being disposed of fora minimum of 12 months; the company being disposed of must be EU/ tax treatyresident and must not derive its value from land in Ireland and the company beingdisposed of orthe group of companies must pass a ‘trading’ test at the time ofthe disposal.2. Foreign Dividend IncomeForeign dividend income is liable to corporation tax in Ireland, generally at 12.5%.Certain foreign dividends are taxed at 25%. In general, however, no incrementalIrish tax arises as a result of our attractive foreign tax credit pooling system.Dividends paid by a company located in the EU or in a countrywith which Irelandhas a double taxation agreement (including agreements that are signed but notyet ratified) are liable to corporation tax at the 12.5% rate provided the dividendis paid out of ‘trading profits’.Dividends paid out of ‘trading profits’ of a company resident in a non-treatycountry may also be subject to corporation tax at the 12.5% rate where certainconditions are met, namely, the company must be a 75% subsidiary of a company,the principal class of shares in which are substantially and regularly traded on a‘recognised’ stockexchange, or of a company in a countrywhich has ratified theConvention on Mutual Assistance in Tax Matters.De Minimis RuleIf part of the dividend is paid from non-trading profits and part from trading profits,the non-trading balance will be taxed at the 25% rate. However, where a dividendis paid from trading and non-trading sources, a ‘de minimis rule’ states that undercertain conditions the entire dividend can be taxed at 12.5%, regardless of the factthat a portion is derived from non-trading profits.An exemption also exists from Irish tax on foreign dividends received by an Irishcompanywhere it holds less than 5% of the share capital and voting rights in aforeign company. This exemption only applies where the Irish company is itselftaxed on the dividend income as ‘trading’ income. If the dividend is not tradingincome, it is taxed at 12.5%.Tax Credit Pooling‘Onshore Pooling’ allows foreign withholding taxes and underlying taxes (taxes onthe profits out ofwhich the dividend has been paid) to effectively be pooled togetherand used to offset Irish tax on the dividends. However, excess tax on foreign dividendsliable at a rate of 12.5% cannot be used against those liable at the 25% rate. The taxcredits do not need to be utilised in the yearin which the dividend is received. They canbe carried forward indefinitely for offset against Irish tax on future foreign dividends.3. Branches and Foreign Tax CreditsIrish tax resident companies are liable to Irish corporation tax on theirworldwideincome. A foreign branch of such a company may, therefore, be simultaneously liableto both foreign and Irish tax. In order to eliminate double taxation, Ireland allowscompanies to offset the foreign tax as a credit against the corresponding Irishcorporation tax liability. A pooling provision is available forexcess credits.
  • 13-An Irish tax resident company may set foreign tax suffered on its branch income againstIrish tax on that income. Where the foreign tax exceeds the Irish tax on branch income,the excess may be offset against Irish tax on otherforeign branch income received inthe accounting period. Any unused credits can be carried forward indefinitely andcredited against corporation tax on foreign branch income in future accounting periods.4. Withholding Tax Exemptions for MNCsMNCs are generally exempt from Ireland’s 20% Dividend Withholding Taxwhich appliesto dividends and the 20% withholding taxwhich applies to certain royalties and interest.Irish Dividend Withholding Tax (DWT)A withholding tax of 20% applies to dividends and otherprofit distributions made byan Irish resident company. Extensive exemptions are available including exemptionsfordividends paid to— Irish tax resident companies;— Many companies and individuals resident in otherEU MemberStates,orcountries with which Ireland has a double taxation agreement.In particular, dividends can be paid free ofwithholding tax to any non-residentcompanywhere 75% of the shares of the recipient are held directly orindirectly bya company trading on a recognised stockexchange.The administration is on a self-assessment basis, thus alleviating the administrativecomplexity.RoyaltiesWithholding tax applies in respect of patent royalties at a rate of 20%. Otherformsof royalty may also attract withholding tax, including where the royalty constitutesan ‘annual payment’. An annual payment is one that is capable of recurring and whichthe recipient earns without having to incurany expense. Broad-ranging exemptionsfrom withholding tax are available underIrish tax law, forexample, forpayments tocompanies resident in the EU orin double taxation agreement countries.Royalty payments can be made free ofwithholding tax from Ireland to companiesresident in the EU ordouble taxation agreement countries without advance Revenueclearance, provided the royalties are paid forbona fide commercial reasons and thecountry in which the company receiving the royalty is tax resident generally imposesa tax on such royalties receivable from sources outside that territory. Also in the caseof patent royalties paid to non-treaty recipients, Irish Revenue practice allows forsuchpayments to be made free from withholding tax, provided certain conditions aresatisfied and advance clearance is obtained from Irish Revenue.In addition, royalty payments to related companies in the EU may be exempt fromwithholding tax in accordance with the EU Interest and Royalties Directive.An extensive networkof double taxation agreements also typically provides foran exemption from withholding tax, if required.With regard to royalties received in Ireland on which withholding tax has beensuffered, relief should be available in Ireland for such foreign withholding tax byway of credit or deduction. Care should be taken howeverwhen structuring foreignoperations in order to minimise foreign withholding tax on royalties and othersimilarpayments in the first instance.InterestInterest withholding tax at the rate of 20% applies to interest payments made on loansand advances capable of lasting for 12 months or more. However, where the interest ispaid in the course of a trade or business to a company resident in an EU or tax treatycountrywhich generally taxes interest received from outside its territory, no withholdingtaxwill apply.Various otherdomestic exemptions, treaty provisions orthe EU Interestand Royalties Directive may also provide an exemption from interest withholding tax.5. Double Taxation AgreementsTo facilitate international business, Ireland has signed comprehensive doubletaxation agreements with 69 countries, ofwhich 64 are in effect as at April 2013with the remaining treaties pending ratification. These agreements allow for theelimination or mitigation of double taxation.Where a double taxation agreement does not exist with a particular country,unilateral provisions within domestic Irish tax legislation allow credit relief againstIrish tax for foreign tax paid in respect of certain types of income.In addition, in many instances Irish domestic law provides for an outright exemptionfrom Irish withholding tax on payments to treaty residents.Ireland is continuously expanding this networkof double taxation agreements.— New agreements with Armenia, Panama and Saudi Arabia are effective from1 January 2013. New agreements have been signed with Egypt, Qatar andUzbekistan. The legal procedures to bring these agreements into force arebeing followed.— Ireland has completed the ratification procedures to bring the new agreementwith Kuwait into force. When ratification procedures are also completed there,the agreement will enter into force.— Negotiations fora new agreement with Thailand have been concluded and itis expected to be signed shortly, while negotiations for new agreements areongoing with Azerbaijan, Jordan and Tunisia.— Tax cooperation agreements have been signed with 21 countries.
  • taxesonÊpital14-Capital Gains Tax (CGT)Profits arising from the disposal of capital assets are subject to capital gains tax.With effect from 6 December 2012, the standard rate of capital gains tax is 33%.For companies, the corporation tax due on capital gains can be offset by the valueof 12.5% trading losses. Capital assets may generally be transferred betweenqualifying group companies without triggering a capital gain. Irish legislationprovides an exemption from corporation tax on the disposal of shares in aqualifying company, provided the conditions outlined earlier are satisfied.There is a tax relief for land and buildings acquired at market value in the EEA,including Ireland, in the period 7 December 2011 to 31 December 2013 andowned for at least 7 years. On disposal part of the gain is not taxable, namely,the proportion that 7 years bears to the total period of ownership.Relief from Capital Gains TaxUnilateral Credit ReliefCredit is available in Ireland for capital gains tax paid in certain countries withwhich Ireland has a double taxation agreement, but where that agreement doesnot cover capital gains tax, including Belgium, Cyprus, France, Germany, Italy,Japan, Luxembourg, the Netherlands, Pakistan and Zambia (Ireland signed taxagreements with these countries prior to the introduction of Irish capital gains tax).In addition, persons (an individual or a company) who are liable to CGT in Ireland,but are also taxed on the gain in another country, will generally be entitled, underthe relevant double taxation agreement, to a credit for foreign tax paid againstIrish capital gains tax due.Stamp DutyStamp duty is payable on the transfer of most forms of property where such transferis effected by way of a written document; in the absence of a written document nocharge will generally arise.Duty of 1% applies on the transfer of common stock or marketable securities of anIrish company. Transfers of most other forms of property, including intangibles butexcluding residential property, attract duty at 2%. Transfers of residential propertyare liable to duty of up to 2%.Stamp duty relief is available for transfers arising from corporate reorganisationsand reconstructions effected for bona fide commercial reasons. In addition, no dutyarises on transfers between associated companies (90% direct or indirect relation-ships) subject to conditions. Other exemptions are available, including for transfersof intellectual property, a wide range of financial instruments, foreign land andforeign shares.Capital DutyIreland has no capital duty tax on the issue of shares.Capital Acquisitions Tax (CAT)CAT is payable by the recipient of gifts and inheritances at a rate of 33% of thetaxable value of the benefit received. If the donor or recipient is resident or ordinarilyresident in Ireland or the asset is located in Ireland, CAT may apply. Non-Irishdomiciled individuals are regarded as resident or ordinarily resident if they have beenresident in Ireland for the previous 5 tax years. Therefore CAT will not apply for manynon-domiciled individuals. Tax-free thresholds, which depend on the relationshipbetween the donor and the recipient, reduce the amount liable to CAT. There is arange of exemptions and reliefs.
  • taxadmini ration15-Tax AdministrationThe Irish tax system is a self-assessment regime, in which companies determinetheir tax liabilities, file a tax return and make appropriate tax payments.When activities in Ireland become subject to Irish tax, the company is required tofile a form (TR2) with the Irish Revenue Commissioners to register for corporatetax, PAYE/USC/PRSI and VAT, as appropriate. Tax returns are filed online using theRevenue Online Service (ROS), at www.ros.ie. ROS also enables taxpayers to viewdetails of their tax balances and provides any relevant information they need topay and file within the set deadlines.Three-Year Exemption for Start-Up CompaniesA three-year exemption from corporation tax demonstrates Ireland’s commitmentto encouraging entrepreneurship, business start-ups and employment creation.Companies that are incorporated after 14 October 2008 and commence to tradebetween 1 January 2009 and 31 December 2014 are granted relief on:-— profits of the new trade, and— chargeable gains on disposals of assets used for the new trade.Where the total amount of annual corporation tax does not exceed €40,000, a fullexemption may be available. Where the corporation tax is between €40,000 and€60,000 marginal relief is given. The quantum of relief is also linked to the numberof employees and the amount of employers’ PRSI paid or deemed paid by thecompany in the relevant accounting period. If the PRSI exceeds the corporationtax, the excess may be carried forward and offset against future corporation taxliabilities.Busine Legis tion- Inve meince ives area ra ive toforeign inve orsIRELANDSINGAPORESWITZERLANDNETHERLANDSUSAGERMANYFRANCECHINABRAZILUKINDIASPAINHUNGARYRUSSIAJAPANSOURCE: IMD WORLD COMPETITIVENESS YEARBOOK, 20121ST2ND4TH10TH12TH17TH20TH22ND24TH25TH36TH46TH47TH49TH52ND
  • o erbusinetaxes16-Local TaxationThere are no provincial, municipal or local taxes on the profits of companies inIreland. The local tax is a property tax, referred to as ‘rates’, levied by local authoritieson commercial properties. An amount (or rate) is payable per €1 valuation of theproperty. The rate is set annually by each local authority, which also determines thevaluation of the property. Rates are tax-deductible for Irish corporation tax purposes.Value Added Tax (VAT)Value Added Tax is a consumption tax and is charged on goods and services suppliedin the course of business. Credit is given forVAT paid by most registered traders, thusthis tax is ultimately borne by the final consumer.VAT rates range from zero to 23% depending on the type of product or service.Detailed VAT rules apply to supplies of property and to cross-border supplies ofgoods and services (including electronically supplied services) to customerselsewhere in the EU.Export VAT ExemptionCross-border supplies of goods to customers within the EU are generally subjectto 0% Irish VAT (except when supplied to private consumers in the EU). Imports andacquisitions of goods and most services from other countries are generally liableto Irish VAT.In addition, a VAT exemption certificate may be obtained from the RevenueCommissioners by Irish businesses whose turnover mainly relates to the exportof goods from Ireland (at least 75% of turnover). This certificate enables the holderto receive most goods and services in Ireland without incurring Irish VAT. This is abeneficial cash-flow measure operated by the Revenue Commissioners, effectivelyreducing administration.Customs Duties and Excise DutiesCustoms DutiesIreland is a member of the EU and all border controls between EU Member Stateshave been eliminated. This allows customs duty-free importation of goods fromother EU countries where they are of EU origin or customs cleared in the EU.Goods imported into Ireland from outside the EU are subject to customs duties.The rates of duty are provided by the EU’s Common Customs Tariff.The key duty drivers are:— tariff classification;— customs valuation; and— origin.The EU has preferential tariff agreements with certain countries and countrygroupings, which result in customs duty being reduced or eliminated. In addition,the EU operates certain customs duty reliefs and procedures, for example tariffsuspensions, inward processing relief, warehousing and processing undercustoms control.It is essential to assign the correct tariff classification, customs valuation and originto goods imported into the EU to avoid over/underpayment of duty and to make thecorrect use of any available customs duty reliefs and procedures.Customs duty becomes due at the point of importation. However, importers canapply to operate a deferred payment procedure whereby the duty and/or import VATbecomes payable by the 15th day of the month following importation. This providesthe importerwith a cash flow advantage.
  • o erbusinetaxes17-Excise dutiesExcise duties are chargeable on mineral oils, alcohol products and tobacco productsimported into or produced in Ireland and released for consumption here. The rate ofexcise dutyvaries depending on the goods and is payable on import (in addition toany customs duty) orwhen released for consumption. However, as with customs duty,importers can apply to operate a deferred payment procedure for payment of exciseduty.There are also national excise taxes charged in Ireland, for example:— An excise energy tax is charged on the supply of electricity in Ireland; and— Vehicle Registration Tax (VRT) is charged on the registration of motorvehiclesin Ireland.Various drawbacks, rebates and allowances may be claimed for certain uses ofexcisable goods.Ireland uses the EU-wide electronic system for the control of duty-suspendedexcisable goods moving within the EU, known as the Excise Movement andControl System (EMCS).Export controlsCompanies located in Ireland who are exporting goods to outside the EU (and in somecases, when making intra-Community supplies) must complywith EU and Irish exportcontrol legislation, as well as US re-export control legislation where applicable.The EU ‘Dual-Use Regulation’ controls the movement of specific dual-use goods, i.e.goods with both a civilian and military application and this is given effect in Irelandby the Irish Control of Exports Order.Carbon TaxIn an effort to reduce carbon emissions and encourage energy users to switch torenewable energy sources, Ireland has a carbon tax. The tax applies to the followingcategories of fuel that are supplied in Ireland:— transport fuels: petrol and auto-diesel;— non-transport fuels: oil, gas and kerosene, and— solid fuels: peat and coal.The carbon tax rate is €20 per tonne of CO2 emitted and is charged at the time the fuelis supplied to the consumer. The fuel supplier is liable and accountable for the paymentof the tax. Carbon tax on solid fuels applies from 1 May 2013 at a rate of €10 per tonne,increasing to €20 per tonne from 1 May 2014.
  • personaltaxation18-Taxation of Foreign Domiciled Persons in IrelandMost foreign executives working for overseas companies in Ireland are classifiedas being resident, but not domiciled, in Ireland. This means they are subject to Irishincome tax on income earned in Ireland, as well as any income remitted fromoutside Ireland.As regards employment income earned under a foreign employment contract, suchincome will be taxable to the extent it is attributable to Irish duties but otherwise onlyif remitted to Ireland.Foreign executives may reduce their tax liabilities through a number of exemptionsand reliefs as theywill be treated as a qualifying person for the purposes of theRemittance Basis of Taxation (RBT). RBT is available in respect of (i) foreign sourceemployment income not applicable to duties performed in Ireland (referred to asnon-Irish workdays) and (ii) foreign source investment income. ‘Foreign source’means arising outside Ireland.Alternatively, one of the three reliefs, outlined next, may be available .Special Assignee Relief Programme (SARP)A new, improved SARP was introduced in 2012 aimed at encouraging key overseastalent to come to Ireland. (The existing SARP continues for existing beneficiaries.)It provides for an income tax relief on part of the income earned by employees who,having worked full-time for a minimum period of 12 months for an employer in acountrywith which Ireland has a double taxation agreement or a tax informationexchange agreement, are assigned to work in Ireland for that employer, or anassociated company.In the case of individuals who come to Ireland during 2012, 2013 or 2014, thenprovided certain conditions are satisfied, the employee will be entitled to claim atax deduction in calculating income tax for the first 5 years. An employee can makea claim to have 30% of income between €75,000 (the lower limit) and €500,000 (theupper limit) exempted from income tax. For an assignee earning €195,000 per annum,the deduction is €36,000. The main conditions include, the individual must not havebeen resident in Ireland for the preceding 5 years; the minimum time period that anindividual must remain working in Ireland is one year; and the individual must beresident in Ireland. If the individual arrives during the year, the limits are reducedproportionately.An employee who qualifies for this relief is also entitled to one return trip home forhim or herself and family. Also the cost of school fees of up to €5,000 for each child,paid to an Irish school, can be reimbursed or paid by the employer free of tax.Income TaxIncome tax is generally chargeable on all income arising in Ireland, and on incomefor services performed in Ireland. The tax on other income and gains depends on theresidence and domicile of the individual.The most common form of income tax is PAYE (Pay As You Earn), which is a salarywithholding tax deducted by employers from an employee’s pay. Persons who areself-employed or receive income from non-PAYE sources use the self-assessmentsystem. Personal income tax rates depend on marital status.Personal income tax ratesAT 20% AT 41%SINGLE PERSON €32,800 BALANCEMARRIED COUPLE / CIVIL PARTNERS(ONE INCOME) €41,800 BALANCEMARRIED COUPLE / CIVIL PARTNERS(TWO INCOMES) €65,600 BALANCEThere is a wide range of deductible expenses, such as pension contributions, whichcan be deducted in calculating taxable income and there are tax credits, such as theemployee credit, which can be deducted from tax payable.
  • personaltaxation19-R&D Credits Surrendered to Key Employees Working in R&DInstead of claiming R&D credits against corporation tax due for an accountingperiod, a company may surrender some or all of the credits to key employees workingin R&D, so that they reduce their income tax payable. The employee must not be adirector or own 5% of the company or an associated company. At least 50% of theemployee’s emoluments must qualify for the R&D tax credit and the employee mustperform 50% or more of the duties of his or her employment in the conception orcreation of new knowledge, products, processes, methods or systems.The employee can claim the R&D credit against his or her income tax payable. Anemployee’s maximum claim is limited in that the employee’s effective income taxrate cannot be reduced below 23%. Unclaimed credits can be carried forward.Foreign Earnings Deduction for Income Earned whileWorking in a Certain CountriesThere is a tax deduction for individuals resident in Ireland who perform the duties oftheir employment in Brazil, Russia, India, China, South Africa, Egypt, Algeria, Senegal,Tanzania, Kenya, Nigeria, Ghana or the Democratic Republic of the Congo, providedthat the individual spends at least 60 qualifying days in a 12 month period in thesecountries. A day qualifies if the individual works for at least four consecutive days inthese countries. This deduction applies to the years 2012, 2013 and 2014.The deduction is calculated by multiplying qualifying income by the ratio ofqualifying days to the number of days in the year. The maximum deduction is€35,000.Share Schemes and Profit Sharing SchemesIt is possible for companies to operate share schemes and/or profit sharing schemesto allow employees to participate in the business in a tax-efficient manner. Employers’PRSI does not apply to share schemes.Social security (PRSI) and USCPRSIEmployed persons are compulsorily insured under a State-administered scheme ofPay-Related Social Insurance (PRSI). Contributions are made by both the employerand the employee.Contributions by the employer are an allowable deduction for corporation taxpurposes. The PRSI contribution rate for employers is 10.75%. A reduced rate of4.25% applies where earnings in anyweek are €356 or less. Employers’ PRSI appliesto all employment earnings including taxable benefits.The individual’s share of PRSI is 4%. Employees whose pay is €352 or less perweekare exempt from paying PRSI.Universal Social Charge (USC)A Universal Social Charge (USC) is also payable by employees at rates of 2%, 4% and7%. (There is no USC if total income is less than €10,036. USC of up to 10% is payableby self-employed individuals in certain circumstances).
  • fur erinformation20-Corporate Tax in IrelandA guide written by the Irish Revenue Authority explains what is classified as‘trading income’ at www.revenue.ie/en/practitioner/tech-guide/index.html.Tax ReliefMore information regarding energy efficient equipment can be sourced fromSustainable Energy Authority of Ireland at www.seai.ie.Further clarification on pre-trading expenses can be obtained from theIrish Revenue Authority at www.revenue.ie/en/tax/it/reliefs/index.html.R&D Tax CreditGuidance on what activities constitute R&D is available atwww.revenue.ie/en/practitioner/tech-guide/index.html.Double Taxation AgreementsAgreements and terms and conditions can be found atwww.revenue.ie/en/practitioner/law/tax-treaties.html.Tax AdministrationInformation on Value Added Tax (VAT) is available from the Irish RevenueAuthority at www.revenue.ie/en/tax/vat/index.html.Tax returns can be filed online by using the Revenue Online Service (ROS)at www.revenue.ie/en/online/ros/index.html.Detailed rules forVAT on property are available atwww.revenue.ie/en/tax/vat/property/index.html.Business TaxesCustoms and excise duties and rates of excise taxvary. For detailedinformation visit www.revenue.ie/en/customs/index.html.Personal Taxation and Tax CreditsFor more information visit www.revenue.ie/en/personal/index.html.While every care has been taken by IDA Ireland to ensure the accuracyof this publication as of May 2013, no liability is accepted for errors or omissions.*1corporate tax rate applicable in city of Geneva.*2incl employment fund contribution &municipal business tax for city of Luxembourg.*3incl solidarity, local & trade taxes for city of Munich.*4incl 3% crisis surcharge.*5incl 3.3% social security & temporary surcharge.*6incl various local enterprise & inhabitant taxes.*7rate for foreign non-resident companies withincome in excess of INR 10 million.Notes from Corporate Tax Rates page 4.
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