Corporate Taxation - LSC & PARTNERS LLP

Rate - Corporate Tax Rates

Ireland’s 12.5% corporate tax rate on trading income is one of the lowest ‘onshore’ statutory corporate tax rates in the world. It is not an incentive regime, rather it is Ireland’s standard tax rate applicable to active business or ‘trading’ income.
A tax rate of 25% applies to non-trading income (passive income) such as investment income, rental income, net proﬁts from foreign trades, and income from certain land dealings and oil, gas and mineral exploitations.

The Irish Corporate Tax System

Calculating Tax Liability

The extent of a company’s liability to Irish corporation tax depends on its tax residence. Irish resident companies are liable to corporation tax on their worldwide income and capital gains. A company is tax resident in Ireland if its central management and control is located in Ireland or it is incorporated in Ireland (but there are exceptions for certain existing Irish companies).

Companies not resident in Ireland, but with an Irish branch, are liable to corporation tax on: (i) proﬁts connected with the business of that branch and (ii) any capital gains from the disposal of assets used by or held for the purposes of the branch in Ireland. Companies not resident in Ireland which do not have an Irish branch are potentially liable to income tax on any Irish source income and capital gains tax from the disposal of speciﬁed Irish assets (e.g., Irish land/buildings, certain Irish shares, etc.).

The ﬁnancial statements of Irish businesses must generally be prepared under Irish GAAP or IFRS (US or other GAAP are not generally acceptable) and they will be used as the basis for determining taxable company proﬁts for Irish tax and reporting purposes. Ireland has transfer pricing legislation endorsing the OECD Transfer Pricing Guidelines and the arm’s length principle. It is conﬁned to related party dealings that are taxable at Ireland’s corporate tax rate of 12.5% (i.e., ‘trading’ transactions).

There is an exemption for Small and Medium Enterprises.

In Ireland, companies are liable to corporation tax on their total proﬁts, including trading income, passive income and capital gains. In order to calculate the amount of proﬁt that is subject to Irish tax, it is necessary to understand the reliefs available.

Three-Year Exemption for Start-Up Companies

A three-year exemption from corporation tax demonstrates Ireland’s commitment to encouraging entrepreneurship, business start-ups and employment creation. Companies that are incorporated after 14 October 2008 and commence to trade between 1 January 2009 and 31 December 2018 are granted relief on:

Proﬁts of the new trade, and
Chargeable gains on disposals of assets used for the new trade.

Where the total amount of annual corporation tax does not exceed €40,000, a full exemption may be available. Where the corporation tax is between €40,000 and €60,000 marginal relief is given. The quantum of relief is also linked to the employers’ PRSI (max €5,000 per employee) paid by the company in the relevant accounting period. If the PRSI exceeds the corporation tax, the excess may be carried forward and oﬀset against future corporation tax liabilities after the three-year exemption period ends.

Internationalisation

Thanks to Irish attractive tax, regulatory and legal regime, combined with our open and welcoming business environment, Ireland’s status is well established as a world-class location for international business.

Ireland’s main tax advantages for holding companies

Ireland’s main tax advantages for holding companies are:

Capital gains tax participation exemption on disposal of qualifying shareholdings;
Eﬀective exemption for foreign dividends via 12.5% tax rate for qualifying foreign dividends and a ﬂexible foreign tax credit system;
Double tax relief available for tax suﬀered on foreign branch proﬁts and pooling provisions for unused credits;
No withholding tax on almost all dividends paid to treaty countries (or intermediate non-treaty subsidiaries) and access to double taxation agreements to minimise withholding tax on inbound royalties and interest, and additional domestic provisions to minimise withholding tax on outbound payments;
Extensive double taxation agreement network.

Other key tax advantages for companies locating in Ireland include a sustainable EU-approved tax regime, which is not under threat from anti-tax haven sanctions. In addition, Ireland has no CFC rules, thin capitalisation rules, capital duty or net wealth taxes. Funding costs may also be tax-deductible.

No withholding tax on the payment of dividends by the holding company to EU or tax treaty countries.
No Capital Gains Tax on the disposal of shareholdings in subsidiaries.
No transfer pricing, thin capitalisation or CFC rules.
Tax deductions for interest on borrowings to acquire shareholdings in subsidiaries.
Favourable treatment on the receipt of dividend income.
Extensive Tax Treaty network and access to EU Parent-Subsidiary Directive.
Low tax rates for both trading operations and investment activities.

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