Ireland Scope of Corporation Tax
Corporation tax is levied under the Taxes Consolidation
Act 1997. Resident companies pay corporation tax on
their worldwide income; non-resident companies carrying
on business in Ireland are liable to corporation tax
on their Irish-sourced income only. Equivalent rules
apply to capital gains; however there are roll-over
exemptions available for capital gains.
a number of years, residence has been determined primarily
according to a 'management and control' test, with some
subsidiary tests such as the location of actual trading,
location of bank accounts, location of head office,
etc. Until 1999 there was no statutory definition of
'residence', and it has been possible to maintain non-residence
for an Irish company despite a substantial level of
activity in Ireland.
part of a general response to the EU's initiative against
'harmful tax competition', Ireland installed or announced
new tax regimes during 1999, agreed with the EU, which
continued the existing favourable tax regime in many
respects, but which brought some parts of the tax system
much more closely into line with general EU practice.
the Finance Bill, 1999, all Irish-incorporated companies
became resident; however, there are a number of exceptions
to the rule, some of them to accommodate the situation
of multinational companies (many American) who have
established themselves in Ireland. See Offshore
Legal and Tax Regimes for a detailed description
of the exceptions; the most important ones cover companies
which are owned or controlled in a country with which
Ireland has a Double Tax Treaty, and which have trading
activity in Ireland.
Corporate Tax Rates
Until 1998 the standard rate of corporation tax in Ireland
was 32%. Following the Irish Government's agreement
with the EU for a general rate of 12.5% to apply from
1st January 2003, the rate to be applied to trading
income fell in stages between 1999 and 2003:
the 1999 fiscal year the rate was 28%;
the 2000 fiscal year the rate was 24%;
the 2001 fiscal year the rate was 20%;
the 2002 fiscal year the rate was 16%;
the rate has been 12.5%.
the 12.5% rate has come under fire from several quarters,
most notably those within the European Commission intent
on creating some form of harmonised European corporate
tax base, it is viewed by the Irish government as a
cornerstone of the Republic's economic success, and
is unlikely to be surrendered without a long and bitter
rate to be applied to non-trading income is 25% (N.B.
the 2010 Finance Bill reduced this rate to 12.5% in
Capital gains, other than gains
from development land, are included in a company's profits
for corporation tax purposes and are charged to tax
under a formula that normally means that tax is paid
at a rate equivalent to the standard rate of income
by companies from disposals of development land are
chargeable to capital gains tax and are not, accordingly,
included in profits chargeable to corporation tax.
used to be a number of special lower-tax regimes in
Ireland, including the Shannon Free Zone, the International
Financial Services Centre in Dublin, and the 'Manufacturing
Rate of Corporation Tax, all of which delivered a 10%
rate of tax until varying dates between 2005 and 2010.
Under the Irish Government's agreement with the EU that
one rate of corporation tax of 12.5% applied to all
Irish companies from 1st January 2003, transitional
arrangements were put in place for existing companies
under the 10% regime; see Offshore
Legal and Tax Regimes for details.
companies in Ireland have historically attracted a 20%
tax surcharge on undistributed investment income, and
certain types of expense within the company are liable
to be treated as distributions; there are other awkward
rules as well. 'Close' means, under the control of five
or fewer participators, or under the control of participators
who are directors; if the foreign parent of an Irish
company would be close under these rules, then so is
the daughter. It is important to avoid close status;
the new corporation tax regime has not changed the rules
for close companies.
a new licensing round for oil and gas exploration in
the ‘Porcupine Basin’ in the early autumn
2007, Ireland's Minister for Communications, Energy
and Natural Resources, Eamon Ryan, said that companies
were to be subject to a profit resource rent tax as
part of their licensing terms.
This tax is be in addition to the 25% corporate tax
rate currently employed. It operates on a graded basis
of profitability as follows: an additional 15% tax in
respect of fields where the profit ratio exceeds 4.5;
an additional 10% where the profit ratio is between
3.0 and 4.5; an additional 5% where the profit ratio
is between 1.5 and 3.0; and no change where the profit
ratio is less than 1.5.
In Ireland's most profitable fields, this means that
the return to the state has increased from 25% to 40%.
the April 2009 interim budget, the special 20% rate
which applied to the trading profits from dealing in
or developing residential development land was abolished.
The income is now charged at the person’s relevant
marginal rates of income tax or the 25% rate of corporation
tax. This change applied as regards Income Tax for the
year of assessment 2009 and subsequent years and as
regards Corporation Tax for accounting periods ending
on or after January 1, 2009 (with accounting periods
straddling that date being deemed for this purpose to
be separate accounting periods).
trading losses were incurred from dealing in or developing
residential development land in circumstances where,
if trading profits had been made, they would have been
eligible to be taxed at 20%, and a claim to use those
losses was not made to and received by the Revenue Commissioners
before April 7, 2009, the losses will generally only
be relievable (on a value basis) up to a maximum of
20%. Where any such loss is a terminal loss, the restriction
are implemented by “ring-fencing” the loss.
Relief for for capital expenditure
on intangible assets is granted in the form of a capital
allowances and is allowed against trading income, where
the capital expenditure is incurred by the company for
the purposes of the trade.
2009 Finance Bill also brought in the termination of
capital allowances scheme for private hospitals and
nursing homes. Transitional arrangements were put in
place for projects that were at an advanced stage of
2010 Finance Bill ushered in a new carbon tax at a rate
of EUR15 per tonne on fossil fuels. This applies to
petrol and auto-diesel with effect from midnight December
9, 2009; and from May 1, 2010, to kerosene, marked gas
oil, liquid petroleum gas (LPG), fuel oil and natural
gas. The application of the tax to coal and commercial
peat is subject to a Commencement Order.
Calculation of Taxable Base
Substantial capital allowances are available to many
Irish companies, including:
annual 'wear and tear' allowance of 15% (10% in
the seventh year) is given on plant and machinery;
'free depreciation' allowances of 100% are available
to companies in the Shannon Free Zone and the International
Financial Services Centre;
on disposal of plant and equipment over w.d.v. are
allowable in full;
can be depreciated under the 'wear and tear' regime
as above; other industrial buildings at 4% (not
offices and shops unless they are in 'urban renewal
capital allowances are available on seven categories
of 'energy efficient' equipment.
allowances described apply to cost after deduction of
Irish Development Authority and other Government subsidies
(except for food processing plants).
relief, group relief and consortium relief are available,
and broadly speaking follow the UK rules. The companies
involved all need to be resident in Ireland.
Irish Finance Act 1991 implemented the EU parent/subsidiary
directive; ie an Irish company with a 10% or greater
holding in an EU company can deduct tax paid (or to
be paid) on dividends, but only up to the amount of
the Irish tax which would have been payable.
and Development expenses, including capital expenditure,
for scientific research may be charged against trading
income in the year in which such costs are incurred.
A 25% tax credit (increased from 20% in the 2009 Finance
Act) is available for increases in R&D expenditure
in addition to deductions or capital allowances for
R&D expenditure, resulting in a cumulative benefit
of up to 37.5% (increased from 32.5% from 2009). The
20% credit is set against any increase in expenditure
over the average for the three previous years, but for
expenditure incurred in tax accounting periods commencing
between January 1st 2004 and December 31st 2006, a single
base period applies, which is the relevant period beginning
The credit is available for R&D carried out anywhere
in the EEA, provided no relief has been claimed in another
country. The R&D must be carried out in-house, but
an amount of up to 5% of the total expenditure qualifies
for the credit where the money was paid to a university
or institute of higher education. The tax credit may
be carried forward indefinitely where profits are insufficient
to absorb it in the year of the expenditure. It can
also be counted towards group relief.
Finance Act 2009 introduced a 'start-up' relief on up
to EUR60,000 of tax due during the first three years
of a new trade begun in 2009 or afterwards. Firms due
to pay up to EUR40,000 will be exempt from corporation
tax during this period, with marginal relief granted
on the next EUR20,000 of tax.
extension to the three-year tax exemption scheme for
new startups in 2010 was announced in the December 2009
December 2009 budget also expanded enhanced accelerated
capital allowances for companies purchasing energy-efficient
equipment to include 3 new categories of equipment,
(refrigeration and cooling systems, electro-mechanical
systems and catering and hospitality equipment), bringing
the total number of categories to 10.
Duty is levied under the Stamp Act 1891 as amended.
The Finance Act 1991 stipulates that any instrument
relating to property or a transaction in Ireland must
be stamped within 30 days.
duty on share transactions is 1%. Duty on transfers
of real estate and immoveable property (including leases
of the same) vary up to 6% for larger transactions (9%
for larger residential transactions). In June 2000 the
government announced that transactions on jointly-listed
iteq/Nasdaq stocks would be free of stamp duty.
are a number of ways in which stamp duty can be mitigated,
if not avoided altogether, particularly on corporate
transactions, the importation of capital etc. Professional
advice is required on the most effective method in a
Until 1999, Ireland operated an Advance Corporation
Tax (ACT) and tax credit system similar to that of the
UK; but Ireland has followed the UK in abolishing both
ACT and tax credits. The Finance Act 1999 introduced
a withholding tax for dividends paid by all Irish companies
except collective investment undertakings (UCITS) at
the rate of 24%; however, dividends to EU 10% parents
of Irish companies escape withholding tax under the
parent/subsidiary directive. There are a number of other
exemptions, subject to quite complex rules, but which
in general terms exempt payments made to individuals
and some companies in countries with which Ireland has
double tax treaties.
withheld from dividend payments has to be paid to the
Collector General by the 14th day of the month following
the month in which a distribution is made.
Deposit Interest Retention Tax imposes a withholding
tax of 27% (increased from 25% in 2009) on all payments
of interest made on deposits.