Taxation of Irish Companies
Ireland’s low corporate tax rates and its ease of doing business in are world renowned. There are a number of areas to be aware of when it comes to the taxation of Irish Companies. The main categories of business taxes are as follows:
Corporate and Business Tax
A company resident in Ireland is liable to the low Irish Corporation Tax on its worldwide profits, not just its Irish profits. Corporation tax in Ireland is charged at only 12.5% on worldwide trading income. This is on the condition that the company is considered a tax resident in Ireland. The effective rate is even lower and thought to be around 6.5% when tax breaks and incentives are considered. Certain excepted trades (e.g. petroleum activities, certain land dealing activities, etc.) and non-trading income (passive income) is taxed at the rate of 25%.
New companies incorporated that commence a new trade not previously carried on in Ireland will be entitled to have their corporation tax liability reduced to €Nil where the tax liability for the accounting period would otherwise have been €40,000 or less. A marginal relief applies where the total corporation tax payable is between €40,000 and €60,000. The relief applies for 3 years from the commencement of the trade, subject to certain conditions. The relief is linked to the number of employees and the amount of Employers’ PRSI (social insurance).
Ireland has an R&D Tax Credit scheme since 2004. Qualifying R&D expenditure generates a 25% tax credit for offset against corporation tax, in addition to the tax deduction at 12.5%. Its purpose is to encourage both foreign and indigenous companies to undertake new and/or additional R&D activity in Ireland. The R&D tax credit is available to Irish resident companies and branches on the incremental cost of in-house, qualifying R&D undertaken within the EEA, provided such expenditure is not otherwise eligible for tax benefits elsewhere within the EEA. The first D100,000 of qualifying expenditure on R&D automatically qualifies for the credit. R&D expenditure over D100,000 is compared to the expenditure in the base year of 2003, and the incremental expenditure qualifies for the 25% credit. New companies setting up an R&D operation qualify for the credit on all qualifying R&D expenditure.
Payment of Dividends / Withholding Taxes
Dividends paid to foreign resident persons in EU Member States or countries with which Ireland has a double taxation agreement are generally exempt from withholding tax, once the exemption is applied for in advance. Irish law incorporates the provisions of the EU interest and royalty directives with the aim of eliminating withholding tax on the payment of interest and royalties between associated companies of different EU Member States. There is no withholding tax on management fees. Withholding tax of 20% applies to patent royalties. However, the majority of Ireland’s double taxation agreements eliminates this requirement.
Cost of Employees
Employers pay PRSI contributions at a general rate of 10.75%. A lower rate may apply depending on the employee’s salary. Different rules apply to proprietary directors or self employed individuals. Pension contributions paid by the employer on behalf of the employees are deductible for tax purposes. There is no statutory obligation to pay pension contributions on behalf of employees. However, it is common practice to pay a pension contribution of between 5%–10% of an employee’s salary. The average industrial wage in Ireland is around €32,000.
Value-Added Tax (VAT)
Value Added Tax (VAT) is a consumer tax. It is collected by VAT registered traders on their supplies of taxable goods and services. Each trader pays VAT on goods and services acquired for the business and charges VAT on goods and services supplied by the business. The difference between the VAT charged by you and the VAT you were charged must be paid to the Irish Revenue Commissioners. If the amount of VAT paid by you exceeds the VAT charged by you, the Revenue Commissioners will repay the excess. This ensures that VAT is paid by the ultimate customer, not by the business.
An Irish-registered company is generally required to register for VAT for making supplies of goods and/or services, subject to its turnover exceeding certain thresholds. The most common are €37,500 for the supply of services, and €75,000 for the supply of goods. Some traders are generally not required to register for VAT, although they may choose to do so.
Cross-border supplies of goods to customers within the EU are generally subject to 0% Irish VAT (except when supplied to private consumers in the EU). Imports and acquisitions of goods and most services from other countries are generally liable to Irish VAT. In addition, a VAT exemption certificate may be obtained from the Revenue Commissioners by Irish businesses whose turnover mainly relates to the export of goods from Ireland (at least 75% of turnover). This certificate enables the holder to receive most goods and services in Ireland without incurring Irish VAT. This is a beneficial cash-flow measure operated by the Revenue Commissioners, effectively reducing administration.
VAT can be a complicated issue when dealing with international borders and intra-community trade within the EU. We recommend consulting a tax specialist on this matter. Please contact us to arrange a free consultation.
There are some other taxes which may or may not be applicable to you or your company. These can include capital gains tax, Stamp Duty, closed company surcharges, customs duty, excise duty, and capital acquisitions tax. Individuals tax resident in Ireland are subject to income tax, employees PRSI and the Universal Social Charge (USC)Contact us today for more information