Tax Benefits of an Irish Holding Company
By Caitlyn Buchanan, 23rd Oct 2018
Ireland is world renowned as a holding company location for high-profile social media and technology groups. A lot of media attention is given to major corporations from the US and the UK have redomiciled their headquarters in Ireland to take advantage of the favourable tax rates. But there is actually a large range of corporates who enjoy the benefits of an Irish holding company including equity funds, investment funds, and family offices.
An Irish holding company can be an efficient structure for financing, funds movement and profit extraction for multinational groups. In this article we cover the major advantages of setting up an Irish Holding company:
What is an Irish holding Company?
Simply put, a holding company is a ‘parent company’, holding the majority of shares of other companies (51% or more). Companies that are held under a holding company are known as subsidiary companies. Irish holding companies are most often formed as a Limited Company type and can be the majority shareholder of both local and overseas companies.
One of the more attractive aspects of establishing an Irish holding company is the low corporation tax rate of 12.5%. There are other tax benefits including; withholding tax exemptions, capital gains participation exemption, onshore pooling of dividends and double taxation treaties. There are many other factors that make Ireland attractive:
- A member of the OECD (Organisation for Economic Co-operation and Development) an organisation consisting of 36 countries which were founded to stimulate economic progress and world trade.
- A common law jurisdiction which offers a clear legal system for investors.
- Established international services hub with an experienced and educated workforce primarily in tech, social media, and pharmaceutical.
- Office space is available and at lower costs than other European cities.
- English-speaking member of the EU.
- A young talented workforce who were attracted to Ireland because of the many international companies operating here. Many of these residents are bilingual.
A group’s holding company structure can benefit from establishing a holding company in Ireland, allowing it to tap into skillsets, infrastructure, and a workforce which is already in place.
Double Taxation Treaties
Double taxation can occur when someone is tax resident in one country and receives income from another country. Prior to establishing a holding company in Ireland, it is important to determine whether a Double Taxation Agreement exists between the country of residence for the holding group and company owners. Ireland holds tax treaties with more than 70 countries that protect individuals, ensuring that tax is only payable in one country.
A favourable tax rate can be attained when an Irish holding company and its subsidiaries are structured in jurisdictions where are a double taxation agreement is in place. In most situations license fees will be taxed in the jurisdiction where the holding company is registered rather than the jurisdiction where the subsidiary company is registered. Also, royalty payments can be classed as a business expense and deducted from taxable income.
Capital Gains Tax Exemption
Irish holding companies are exempt from capital gains tax when the profits arising from the sale (disposal) of shares when the following criteria are met:
- Prior to disposal, at least 5% of the ordinary shares have been held for 12 months or more and
- the subsidiary company whose shares are disposed of is a resident in an EU or treaty state; and
- the subsidiary operates as a trading company or the same business as the holding company.
This exemption can also be applied to share options or bonds convertible into shares with no advance tax authority clearance required.
Drawing profits from an Irish holding Company
In most cases, there are no capital gains taxes when a non-Irish resident sells shares of an Irish company. Only when an Irish company generates value from land or mineral rights in Ireland will capital gains tax be due.
Dividend withholding tax in Ireland is 20%, however, there is no withholding tax on payments to residents of EU/treaty states. Additionally, payments to an overseas company that is ultimately controlled by EU treaty state residents (other than Ireland) should also be exempt from withholding tax.
In Ireland, there is also a 20% withholding tax on interest, but this is tax exempt if payments are made to companies in an EU or treaty state (this also applies to listed bonds).
Tax on Dividends
Irish companies can receive dividends from other Irish companies without paying corporation tax. There are taxes when receiving foreign dividends however, there are foreign withholding tax credits are available when tax is paid by a direct subsidiary and also form another subsidiary within the group structure where the Irish company
Ireland is a natural choice within Europe to base a holding company the efficient tax system is highly beneficial for group or investment structures. Ireland has been very successful in attracting leading international companies to base their headquarters in Ireland but many small to medium sized companies can also take advantage of the tax benefits of an Irish Holding company.
If you would like more information on any of the information provided in this article or if you would like to incorporate an Irish Holding Company, please contact the experts at Register a Company in Ireland today on +353 16874519 or complete our contact form.