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Legal And Tax Regimes
term 'offshore' is not used in Irish legislation
or in describing company forms. Use of the various
special regimes available in the Shannon Free
Zone, the Dublin International Financial Services
Centre, or through the 'Manufacturing Rate' of
tax, or via a non-resident company are the main
ways of achieving offshore tax treatment, although
all these regimes have effectively been superseded
by the introduction of a nation-wide corporation
tax rate of 12.5% as from 2003. There were, however,
some grandfathering provisions for pre-existing
January, 2004, then Irish Finance Minister Charlie
McCreevy signed an Act to incorporate the provisions
of the European Savings Tax Directive into Irish
law. Although the Directive itself did not become
fully effective until July 1st 2005, the European
Communities (Taxation of Savings Income in the
Form of Interest Payments) Regulations 2003 required
domestic banks to establish the identity and residence
of beneficial owners of all new bank accounts
opened in Ireland from January 1st 2004. Irish
banks now obliged to pass on details of savings
income for taxation purposes to the Revenue Commission
who are tasked with passing this information on
to the tax authorities of the EU member state
where the customer resides.
- Forms of Low Tax Operation
In Ireland there are no specific forms of company
or other entities designed for offshore operation.
There are a number of special taxation regimes
offering low taxation; and non-resident companies
offer a highly effective means of reducing international
tax bills, although their efficacy has been
reduced in some situations by the new rules
introduced by the Finance Act 1999, following
the Irish Government's agreement with the EU
on a 12.5% mainstream corporation tax rate.
that the agreed new regime is fully operational
in Ireland, the various special regimes have
ceased other than for existing companies; on
the other hand, the agreed new regime is far
superior to anything available elsewhere in
the EU. It is difficult to see what other major
EU country would be brave enough to take its
corporation tax rate down to 12.5%; and it is
unlikely that the EU itself is going to allow
an (even more harmful) tax competition to develop
between member states. Ireland has probably
got away with a sensational deal which is just
going to look better and better as time goes
Ireland - The
International Financial Services Centre
The International Financial Services Centre (IFSC)
has been the successful centrepiece of the Irish
Government's appeal to the international financial
community in the last ten years. A wide range
of financially-oriented companies, now including
corporate financial service centres as well, have
traditionally been able to obtain a 10% rate of
corporation tax and a number of other fiscal advantages
by locating themselves physically in the Customs
House area of Dublin's dockland, which has been
extensively fitted out to be a suitable home for
state-of-the-art financial businesses.
some extent the IFSC is history, since its purpose
has mostly disappeared now that the overall 12.5%
corporation tax rate is effective (2003), and
new entrants were permitted for the last time
in 1999, on a quota basis. However, it is probably
still useful to give some basic details of the
Centre. It was established for the following types
of operation (abbreviated and summarised):
of foreign currency services for non-residents;
on international financial activities for
non-residents, including money-management,
derivatives, securities dealing;
and systems support for the above.
In order to take advantage of the fiscal advantages
offered by the IFSC, a certificate had to be issued
by the Minister for Finance, and application was
made initially to the Industrial Development Agency
(it should always be borne in mind that the IFSC
was established - and got its EU acceptance -
through its overt role as a job creation exercise).
The main advantages were as follows:
tax at 10% on trading profits;
10-year exemption from municipal taxes;
rent allowances for leased property;
depreciation allowances for commercial buildings,
plant and machinery;
withholding taxes on dividends or interest.
application process is of only academic interest
by now, except perhaps in the event that an existing
10% certificate falls to be transferred to a new
owner. It is not clear whether this is permitted
under the agreement with the EU; perhaps, yes.
There was no set format for an application, but
it needed to address the business plan of the
applicant, its funding, revenue and profit projections,
and, importantly, the consequences for local employment.
Existing IFSC companies retained their tax privileges
until the end of 2004; but new IFSC companies
receiving certificates after July 1998 paid 10%
only until the end of 2002.
is worth remarking that a number of permitted
IFSC financial activities have come to be carried
out by management companies, who take on the responsibilities
for staffing etc that would normally have attached
to the IFSC member; both parties benefit from
the 10% tax rate, but the client does not have
to open a separate office or even incorporate
- The Shannon Free Zone
The Shannon Free Zone, administered by the Shannon
Free Airport Development Company Ltd, was one
of Ireland's earliest tax-reduction initiatives.
In order to establish an operation in the Free
Zone, a licence is required under the Customs
Free Airport (Amendment) Act 1958; this is issued
by the Minister for Enterprise and Employment.
A certificate entitling a company to the tax
benefits of the Free Zone (10% corporation tax
rate, VAT and customs duty exemptions, etc,
although see below for implications of the 12.5%
tax regime) is issued by the Minister for Finance.
A wide range of activities can qualify for licenses
and certificates, including:
repair and maintenance of aircraft; or
activities in regard to which the Minister
for Finance is of the opinion, after consultation
with the Minister for Transport, that they
contribute to the use or development of the
Shannon Free Zone; or
activities which are ancillary to either of
the above or to any operation consisting of
the manufacture of goods; or
relating to the acquisition, disposal, licence,
sub-licence and exploitation generally of
intellectual property rights.
is important to remember that the Free Zone,
like the IFSC in Dublin, was primarily a job-creating
companies in the Free Zone had certificates
giving tax benefits until the end of 2005. After
that, the tax rate increased to the 12.5% mainstream
rate of corporation tax agreed by the Irish
Government with the EU, which came into force
generally from 1st January 2003. Companies which
obtained certificates during 1999 had the 10%
rate only until the end of 2002. However, unlike
entry into the IFSC, which was quota-limited
during 1998 and 1999, no quota was set for entry
into the Free Zone, which will continue to operate
fully other than in respect of the special corporation
The 10% 'Manufacturing Rate' of Tax
As originally enacted, the 10% 'manufacturing
rate' of corporation tax applied to:
manufacturing goods in Ireland;
selling goods which are manufactured within
Ireland by a 90% subsidiary, a fellow 90% subsidiary
or a 90% parent company; and
which subject goods belonging to another to
a manufacturing process in Ireland.
10% rate could be claimed by a branch of a foreign
company as well as by companies established in
Ireland. There was no statutory definition of
'manufacturing' and over the years the Courts
extended the beneficial rate to a number of activities
not normally regarded as manufacturing, as well
as excluding some types of activity. The permitted
services performed in Ireland relating to engineering
works executed outside the EU;
services, including data processing services
and software development, and associated technical
or consultancy services;
or maintenance of aircraft, aircraft engines
and components carried on within Ireland;
production, provided that 75% of the work is
carried out in Ireland;
and repair of computer equipment by its original
types of fish sales;
production and associated advertising sales.
include retail sales, the building industry, mining,
and leasing (but not for certificated IFSC or
true 'manufacturing' companies the 10% rate lasted
until the original date of 2010; for other companies
it lasted only until the end of 2000. A company
which did not qualify as a true 'manufacturing'
company paid the declining rate of mainstream
corporation tax (see Domestic
Corporate Taxation) from 2001 until the final
12.5% rate agreed between the Irish Government
and the EU came into effect in 2003.
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 was 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 Act, 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. The most important exceptions
Irish-incorporated company which is resident
in a treaty country (Ireland has Double Tax
Treaties with 44 countries) and which is not
resident in Ireland will continue to be regarded
as non-resident in Ireland;
Irish-incorporated company which is under the
ultimate control of a person or persons resident
in an EU member state or in a country with which
Ireland has a double tax agreement, or which
is, or is related to, a company whose principal
class of shares is substantially and regularly
traded on a stock exchange in an EU country
or a treaty country AND which carries on a trade
in Ireland or is related to a company which
carries on a trade in Ireland will continue
to be able to be non-resident under the management
and control test. ('Related to' means that either
one of the two companies owns at least 50% of
the other, or that both are owned at least 50%
by a third company; 'Control' is interpreted
within Irish rules that attribute the rights
of shareholders to related parties and associates.)
these exceptions, some additional reporting requirements
have been imposed on non-resident companies, and
some stiffer incorporation rules have been imposed
on all companies:
companies must declare their country of residence,
the name and address of any qualifying trading
company in Ireland, the name and address of
any qualifying quoted controlling company, or
else the name and address of the ultimate beneficial
to be incorporated must intend to trade in Ireland,
and will have to have at least one Irish resident
director or else provide a bond.
As can probably be seen, these rules taken together
are far from restrictive, and in most cases it
was possible for companies either to continue
non-residence as they are currently structured,
or else to make reasonably straightforward adjustments
to fall within the new rules.
Taxation of Foreign and Non-Resident Employees
In Ireland, the taxation of individuals is based
on a mixture of the concepts of residence and
domicile. The general principles of individual
taxation in Ireland also apply to the resident
and domiciled employees of non-resident entities.
in many countries, residence is consequent on
presence in Ireland for more than half of a tax
year, or a substantial cumulative total of days
from previous years. An individual's domicile
is in the country where he maintains his permanent
home, in the country where he regards himself
as belonging. Domicile in Ireland is acquired
from an Irish-domiciled father, but can be changed
to another country by establishing a life there.
Resident foreign employees will thus not normally
be domiciled in Ireland.
individual resident and domiciled in Ireland pays
tax on his world-wide income; an individual resident
but not domiciled pays tax on his foreign income
only if it is remitted to Ireland. A non-resident
individual pays income tax only on Irish-sourced
income, and is liable to capital gains tax only
on gains arising in Ireland or remitted to Ireland,
unless he is domiciled in Ireland in which case
he is liable on all capital gains.
1st January 2001, non-resident individuals paid
the new 'exit tax' of 23% (increased to 26% in
the Finance Act 2009) imposed on gains on encashment
or maturity of Irish-resident investment fund
holdings - previously they would have been liable
on an annual basis for tax of 20% on gains.
his budget speech in December 2009, Finance Minister
Brian Lenihan announced that the government would
introduce an ‘Irish domicile levy’
of EUR200,000 on Irish nationals and domiciled
individuals whose worldwide income exceeds EUR1m
and whose Irish-located capital is greater than
EUR5m, regardless of where they are tax resident.
Ireland Exchange Control
Ireland has no exchange controls.
Employment and Residence
Nationals of European Union member states have free
right of movement in Ireland. Nationals of other
states wishing to work in Ireland require a work
permit from the Department of Enterprise, Trade
and Employment. The Department is obliged to issue
permits when the employee has a key role, or is
transferring from an international company which
has or intends to have a presence in Ireland. However,
the rules have recently been relaxed for certain
clases of foreign national, including inter-corporate
transferees, the spouses of EU nationals, and non-EU
nationals who have had a child born in Ireland.
In these cases letters from the employee's foreign
employer, and the prospective Irish employer are
now sufficient to immigrate for one year. However
it is advised to check the current situation before
attempting to immigrate.
June, 2004, the Revenue Commission said it planned
to step up its enforcement of Irelandís tax exile
rules by gaining access to commercial flight passenger
lists and private jet schedules, in order to prevent
individuals falsifying the amount of time spent
out of the country.
Traditionally, investigators are only able to make
cursory checks on the movements of individual taxpayers
and a review has been called for to consider whether
more thorough access to passenger rosters and other
information is needed to police the system. Current
rules stipulate that commissioners must obtain a
High Court order to gain access to such information,
although this avenue has hitherto not been pursued.
Reports also indicated that the Commission wants
to reduce the number of days that non-residents
may reside in Ireland for tax purposes. As in many
countries, residence is assumed if an individual
is present in Ireland for more than half of a tax
year, or for 280 days in two consecutive years.
However, this may prove more difficult for the Revenue
as such rules are governed at the EU level. In a
separate development, it has also been reported
that the Revenue intended to investigate the financing
of overseas property purchases by Irish citizens,
and to ascertain whether the appropriate amounts
of tax have been paid on external income or on capital
gains through the subsequent sale of foreign property.
It was estimated that up to 50,000 Irish nationals
had bought property in Spain, and thousands more
have acquired houses in other popular spots such
as France, Portugal and the United States.
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