| Direct
Corporate Taxation |
Special
rules apply to non-resident, Shannon Free Zone, IFSC and 'Manufacturing
Rate' entities
In
Ireland the main tax impinging on companies is corporation
tax, which applies both to trading income and to capital gains.
As a member state of the EU, Ireland applies the VAT directives;
currently the rate of VAT is 21%. Stamp duties apply to some
transactions. The Department of Finance, headed by the Minister
for Finance has responsibility for the taxation system; day-to-day
administration of the tax system is in the hands of the Revenue
Commissioners, a division of the Ministry.
The
Irish Revenue Commission is to commence a consultation with
tax practitioners, industry representative bodies, software
providers and taxpayers over a proposal to introduce mandatory
e-filing for certain categories of taxpayer.
The Commission revealed in September 2007 that its Revenue
Online Service (ROS) has already achieved significant electronic
return filing and payment rates to date; some 2.6 million
returns or forms were filed via ROS in 2006, and EUR16.6 billion
in payments made. However, a considerable number of fully
computerised businesses still remain outside the ROS system.
The aim is to bring these businesses within ROS, on a phased
basis, commencing with certain returns and payments due from
larger companies in 2009.
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.
For
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.
As
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.
Under
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.
BACK
TO TOP
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:
- in the 1999
fiscal year the rate was 28%;
- in the 2000
fiscal year the rate was 24%;
- in the 2001
fiscal year the rate was 20%;
- in the 2002
fiscal year the rate was 16%;
- thereafter
the rate has been 12.5%.
Although
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 fight.
The
rate to be applied to non-trading income is 25%.
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 tax.
Gains
by companies from disposals of development land are chargeable
to capital gains tax and are not, accordingly, included in
profits chargeable to corporation tax
There
are 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 have 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.
'Close'
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.
Announcing
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 will be subject to a profit resource rent
tax as part of their licensing terms.
This new tax will be in addition to the 25% corporate tax
rate currently employed. It will operate 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 will mean that the
return to the state will increase from 25% to 40%.
BACK
TO TOP
Calculation
of Taxable Base
Substantial
capital allowances are available to many Irish companies,
including:
- An annual
'wear and tear' allowance of 15% (10% in the seventh year)
is given on plant and machinery;
- So-called
'free depreciation' allowances of 100% are available to
companies in the Shannon Free Zone and the International
Financial Services Centre;
- Profits
on disposal of plant and equipment over w.d.v. are allowable
in full;
- Hotels 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 zones').
The
allowances described apply to cost after deduction of Irish
Development Authority and other Government subsidies (except
for food processing plants).
Loss
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.
The
Irish Finance Act 1991 implemented the EU parent/subsidiary
directive; ie an Irish company with a 25% 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.
Research
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 20% tax credit
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 32.5%. 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 in 2003.
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.
BACK
TO TOP
Stamp Duty
Stamp
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.
Stamp
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.
There
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 given case.
BACK
TO TOP
Withholding
Tax
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 all
Irish companies except collective investment undertakings
(UCITS) at the rate of 24%; however, dividends to EU 25%
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.
Tax
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.
BACK
TO TOP
|
LAWANDTAX-NEWS.COM
