Taxation System in Ireland
Irish Resident Company
The amount of tax depends on the Irish company tax as per its residency. For the capital gains and global income received by the Irish resident company, they are liable for corporation tax. If the company is incorporated in Ireland and the central management control is in Ireland then they are tax resident. There are few exemptions for certain established companies.
An Irish branch company which is a non-resident in Ireland are accountable to corporation tax on:
(i) business profit associated with that branch and
(ii) the amount of profit received from the disposal of assets utilized by or occupied for the purpose of the branch in Ireland. In case of the non-resident Ireland Company which doesn’t have a branch in Ireland are probably accountable to income tax on any source of income from Ireland and tax on capital gains from disposing of any particular Irish assets like land/buildings from Ireland, certain Irish shares.
Corporate Income Tax
Income on Trading (Standard rate): Around the world, Ireland’s 12.5% rate of corporate tax on trading income is one of the least possible ‘onshore’ legislative corporate tax rates. This rate is not like an incentive regime but it is the nominal tax rate relevant to all ongoing business or ‘trading’ income.
Passive (inactive) Income: 25% rate of tax is applicable for the on trading income received through income on the investment, rent, profits from foreign trades, and from gas, oil and mineral exploration.
Exemption of Tax: Ireland’s commitment to promoting business start-ups, entrepreneurship and employment creation is done through a three-year exemption on corporation tax.
The company which starts the business between 1 January 2009 and 31 December 2018 that are incorporated after 14 October 2008 are eligible for relief on:
- percentage of profit of the new business, and
- taxable gains on selling on assets utilized for the new trade
The full exemption may be available when the total sum of annual corporation tax does not go beyond €40,000. Marginal relief is offered when the corporation tax is between €40,000 and €60,000. In the significant accounting period, a portion of relief is also combined to the employers’ PRSI (max €5,000 per employee) paid by the company. In case of the PRSI goes further than the corporation tax, the surplus might be carried forward and compensated against upcoming corporation tax liabilities after the end of the three-year exemption period.
| Ireland Quick Tax Facts for Companies
|Corporate income tax rate||12.5%/25% (for passive income)|
|Branch tax rate||12.5%/25% (for passive income)|
|Capital gains tax rate||0%/33%/40%|
|Basis of taxation for residents||Worldwide|
|Abroad Participation Exemption||Yes, for capital gains|
|− Carryback||One year|
|Double taxation relief||Yes|
|Tax consolidation||No, but group relief is available in certain cases|
|Transfer pricing rules||No|
|Thin capitalization rules|| No, but certain interest payment from subsidiaries may be re-characterized as dividends
|Controlled foreign company rules||No|
|− Branch remittance tax||0%/20%
|Real estate transfer tax||No|
|Social Security Contribution (PRSI)||Up to 10.75%|
|VAT|| 23% (standard rate)/0%, 4.8%, 9%, 13.5% (reduced rate)
Generally, a 20% of taxes are withheld when the distribution of dividends and other profit are made by a resident company to a non-resident company. In case if few formalities are met by the company then the rate of tax can be reduced to zero.
- If he is a native individual in the treaty company or an EU member state; or
- If the receiver is a company, then the following requirements should be met:
- The control of the company is under native residents in a treaty country or in an EU member state; or
- The most important class of shares of the company or of an additional company of which it is a 75% subsidiary is on a regular basis traded on the stock exchange in a treaty country or an EU member state; or
- It is not under the control of an individual or persons who are tax residents of Ireland; in a double taxation contract country or an EU member state.
Except in a case where the lower tax rates apply under a tax treaty, generally, 20%of withholding tax is applicable to a non-resident company on the annual interest payments. The interest payment is particularly exempt under domestic legislation, and under the EU interest and royalties directive, the interest is paid to a qualifying company.
For the payments made to a non-native company on patent royalties then a 20% of withholding tax is imposed. The reduced tax rate is applicable only if they have a double tax treaty, or the EU interest and royalties directive. Withholding tax is not available for other types of royalty. It is possible to acquire pre-clearance from Irish revenue to make royalty payments without deducting withholding tax when few conditions are fulfilled.
Branch Remittance Tax
On the reconstruction of the profits of a branch to a foreign head office withholding of tax are not imposed by Ireland.
Wage Tax/Social security Contributions
The wage tax of an employee is generally collected under the PAYE (Pay As You Earn) system, where the employer holds the calculated amount from the salaries of the employee.
The payments are made through PAYE system for the gross income in which the USC (Universal Social Charge) is applied. The social security Contributions in Ireland is indicated as PRSI contributions. The employee PRSI (4%) and company (10.75%) contributions are to be paid, and payment system will be the PAYE system.
It is the responsibility of the employer to remit the calculated PAYE/PRSI/USC on the account employee remuneration.
The PRSI contribution is not required for the individuals whose income is less than EUR 18,304 in a tax year (EUR 352 per week).
Value Added Tax
If the goods and services are imported or exported by the resident company then the VAT taxes are charged, with certain exceptions. For the imported goods & services VAT is payable as below.
- 23% is the standard VAT rate. For certain goods and services, there is a reduced VAT rate of 4.8%, 9%, and 13.5%.
- For the supply of livestock, horses, and greyhounds for the agricultural production purposes, the rate will be 4.8%.
- The tax rate of 9% is applicable for goods and services related to tourism like catering services, hotel accommodation, etc., and also for facilities for sporting, hairdressing, and selected printed matter are among others;
- For fuel like gas, coal and heating oil, electricity; agricultural contracting services, building and building services a 13.5% rate applies.
- The main things which are exempted from VAT include insurance and reinsurance, medical and related services and the provision of financial services. The VAT can be either zero-rated or exempted.
- For few goods and services like oral human medicine, medical equipment, and appliances supply, clothing for children and on certain food items are Zero-rated.
The low corporate tax rate (12.5% for trading profits), an improved IP regime, an OECD agreeable KDB process is followed by which reduced rate of tax, i.e. 6.25% on profits on the assets is applicable, a liberal R&D tax credit regime, large amount of exemption on the dividend and interest on the tax like withholding, a partaking exemption, the nonexistence CFC regulations as well as the bonus packages that make the best of European financial support and the better use of EU funds make Ireland an striking jurisdiction in Europe for a variety of activities. The foreign investors are targeted by the government incentive which offers continuous high-skilled jobs and net exports with considerable local substance. For strengthening Ireland’s original technology the government is focusing and as well as support joint ventures between local and foreign investors through complementary skills.
Research and Development (R&D) Credit
Against a company’s corporation liability, a tax credit of 25% for eligible R&D payments incurred on a quantity basis can be compensated for the expenditure sustained year. The amount of eligible expenditure is limited to incremental expenses in a base year (2003) for the accounting period starting ahead of 1 January. There is no such limitation for the business accounting periods starting on or after 1 Ireland Taxation and Investment 2017 (Updated December 2016) 14 January 2015. A cumulative credit profit of up to 37.5% is accessible in accumulation to any deductions for the R&D expenditure.
Knowledge Development Box
From 1 January 2016 a Knowledge Development Box (KDB) regime is applicable. The rules of the KDB says that the profit earned from the earned assets qualifying (i.e. patented inventions and copyrighted software) by an Irish company can be efficiently taxed for 6.25%, to the extent associated to R&D undertaken by that company. The OECD “modified nexus” approach is in compliance with KDB regime. The benefits under KBD regime can be availed by Irish-resident companies with meeting the requirements R&D action that in turn ends in the designing of qualifying assets. The assets which are listed under qualifying assets are software which is copyrighted, patented or alike protected inventions. Moreover for the registered innovations of the smaller companies those are approved by the Controller of Patents which is new and useful. The income occurring from IP/ qualifying assets of less than EUR 7.5 million are the “Small” companies for the purposes of the KDB.
Filing and Payment
The financial statements of a company should be tagged with iXBRL for filing a tax return. The time period should be within nine months of the end of the accounting episode, but no afterward than eight months and 21 days (extended to 23 days for businesses filing their return and compensating their taxes electronically) from the company’s year-end.
Accounting, Filing and Auditing Requirements
Every company is mandated to prepare audited annual financial statements according to Irish law. Exemptions can be given for few companies like inactive companies, CLG, business that meets few certain size standard and unlimited companies.
Generally, within a time span of nine months of the company’s yearend, the audited financial statements should be approved. The calendar year is not used by any company. The company with the limited liability grade’s financial statements should be filed with the Companies Office as soon as they are approved, which is accessible to the public. It is not necessary for few companies with unlimited status to file their accounts under predetermined conditions.
The first financial year of a company begins with the date of incorporation and ending date should be not more than 18 months after that time.
During 2014 The Companies Act initiated a control for changing the financial years and when once a financial year end is altered, it can only be changed after completion of five years.
Exemption for Small Companies
Three types of exemption can be availed by smaller companies which fall under the below conditions:
- Exception from registering complete statements of company financial statement details (s.352)
- Filing of auditor’s report can be exempted (s.360)
- Exemption of dormant company (s.365)
Exemption in filling the financial statements (s.352) for companies in Ireland
To avail the exemption as a small company, they should fulfill a minimum of TWO or more of the subsequent conditions in the present financial year and in the previous financial year (except if it is its first financial year)(s.350(2), (3) & (5) Companies Act 2014):
- The total of the balance sheet should not go beyond €6m
- The turnover should not be more than €12m
- The number of employees must not go over 50
(CLGs are the only form of public company to get an exemption).
Audit exemption for Small Group Company (s359, CA 2014)
When a group of companies as a whole qualified as a Small Group is entitled to audit exemption. For a small Group Company, all its subsidiary undertakings should be taken as a whole, and it should satisfy any two of the three clauses to redeem Group Company Audit Exemption:
- When taken as a whole the total balance sheet of holding business and subsidiaries should not go beyond €6m net (or €7.2m gross)
- When considered as a whole the amount of turnover of the holding company and subsidiaries should not exceed €12m net (or €14.4m gross)
- The holding company and its subsidiaries employed an average number of persons do not go above 50.