Ireland is home to many international businesses, with Dublin hosting the European headquarters of many top multinationals. Our 12.5% corporation tax rate brings a consistent stream of foreign direct investment into the country. As the main English-speaking country in the European Union, Ireland has also become a popular alternative to the UK. The robust, open economy and highly skilled workforce make this a very favourable environment to conduct business in.
Let’s explore how financially advantageous it is to locate your business in Ireland.
Ireland’s 12.5% corporation tax explained
Ireland has one of the lowest corporation tax rates in the European Union – 12.5% for trading income (that means active income earned from carrying on a trade or business) and 25% for non-trading income (passive income such as investment income or income from rental properties).
On the other hand, personal taxation rates are relatively high when compared to our EU neighbours and even globally, with a higher income tax rate of 40% and Universal Social Charge (USC) and Pay Related Social Insurance (PRSI) rising to 8% and 4% respectively on more substantial salaries.
Substance and economic activity
Your business should have substantial operations in Ireland, which could include having employees, a physical office, and active management within the country. The Office of the Revenue Commissioners (Revenue) look for evidence that the company is genuinely managed and controlled from Ireland, so key decisions related to the company should be made in Ireland. This is often evidenced by regular board meetings held in Ireland with a quorum of directors physically present.
Corporate tax residency
Your company should be tax resident in Ireland, meaning it is centrally managed and controlled in Ireland. Tax residency is crucial to qualify for the 12.5% rate and ensures that the company’s worldwide trading income is subject to Irish corporation tax. In some cases, especially for complex structures or novel business models, it may be beneficial to seek advance opinion from Revenue to confirm that the business activities qualify for the 12.5% rate.
People in the business
Irish law requires that at least one company director must be a resident of the European Economic Area (EEA). This ensures there is a local connection to the EEA, facilitating regulatory compliance and accountability.
Alternatives to an EEA resident director
- If your company does not have an EEA-resident director, you must secure a Section 137 Bond. This bond acts as insurance, covering up to €25,000 in fines or penalties that the company might incur for breaching the Companies Act 2014. It typically lasts for two years and can be renewed.
- Another option is to appoint a professional (nominee) director service, where a third-party company provides a resident director to fulfil this requirement.
Company directors must have a Personal Public Service Number (PPSN) to register a company for tax purposes in Ireland (filing tax returns, registering for VAT, and other tax-related activities). The PPSN is a unique identifier used by Revenue and other government bodies to track individuals’ tax and social welfare contributions.
Directors who are not resident in Ireland are unlikely to have a PPSN, making them effectively unrecognisable to Revenue and making the process of tax registration for the newly incorporated company more challenging.
Alternatives for directors without a PPSN
- To register the company for tax, including corporation tax, VAT, and PAYE, the directors can submit the required paperwork through Form TR2 or other relevant tax registration forms.
- In the case of non-resident directors without a PPSN, they will need to submit additional documentation (such as a copy of their passport and proof of address) and a signed declaration. This process can be time-consuming, often taking up to six weeks or more to complete, as Revenue will manually process the application.
Once the paperwork is processed and accepted, the company will be registered for tax without the need for a PPSN for each director. If the company appoints an Irish resident as a director who already has a PPSN, tax registration processes are much more straightforward and faster. Having an Irish director can also facilitate the registration for other taxes, such as VAT, and make the filing of forms, such as Form 11 (Income Tax return), smoother and more efficient.
Obligation to file a Form 11
Directors of all Irish companies are required to submit a personal tax return every year – the Form 11. This can be complicated for a foreign director without an Irish PPSN. Financial remuneration may be due from the Irish business to the director, and this should be taxed in Ireland.
However, not all directors are paid on a salary basis requiring the withholding of PAYE taxes. Services fees (consultancy fees, for example) are considered differently. This may be a contract for service which is billed as an invoice, and not a salary, meaning it is not a PAYE concern to Revenue.
This is justified on a case-by-case basis, with the necessary paperwork for the kind of contract drawn up, whether it is an employment contract or a services contract, so that the appropriate tax can be processed.
Registering for VAT
For a newly incorporated business, there may be little turnover but a lot of setup costs (office space, service charges, office equipment, etc.). Reclaiming the VAT paid on these outgoings can be very helpful, so even if you do not yet qualify for mandatory VAT registration (annual turnover over €37,500 for services or €75,000 for goods), you can choose to voluntarily register for VAT.
The registration for VAT is strictly monitored and assessed to ensure compliance and prevent fraud. You may need to demonstrate trading activity with invoices, contracts, or bank statements. If not yet trading, demonstrating the steps your business is taking to secure contracts in Ireland will help the registration process. It is also helpful in this scenario to provide proof of significant business occurring overseas.
You can reclaim VAT from the start of the VAT period in which your registration becomes effective. While it can take up to three months for an application to be processed (depending on the complexity of the business and therefore level of scrutiny required), you will still be eligible to claim VAT from the beginning of that VAT period. Therefore, it is essential to ensure that your application is submitted promptly.
Cross-border services
Globalisation has made cross-border services a routine part of business operations. This often means that a company operates in one country while providing services to customers in another. Here’s how different types of cross-border relationships might affect an Irish-based business:
- Business-to-business (B2B): An Irish company providing goods or services to a business in another EU country is engaged in a B2B transaction. Generally, the Irish company does not need to register for VAT in the other EU country. The reverse charge mechanism often applies, meaning the recipient business in the other country accounts for VAT.
- Business-to-consumer (B2C): When an Irish company supplies goods or services directly to consumers in another country, the situation differs. There may be thresholds for how much trade can be conducted before the company must register for VAT in the consumer’s country. The EU’s One-Stop Shop (OSS) scheme simplifies this process by allowing the business to handle VAT obligations for all EU consumer sales through a single registration.
- Local branch: If your Irish business sets up a physical branch in another country, you will generally be required to register that branch for VAT or other local taxes in the country where the branch operates.
Next steps if you are thinking of locating in Ireland
We have mainly covered the financial and tax aspects in this blog. There are also various requirements for registering a company with Companies Registration Office in Ireland, including having a Company Secretary, registered office, and declaring share capital. Anyone considering locating their business here should understand all the legal and compliance responsibilities involved, and also consider the personal tax implications of such a move.
Further reading
Our blog is packed with valuable advice that will give you more insights into running a business in Ireland. In particular, you may be interested in the following posts:
- Perspectives and experiences from two Beyond clients about growing a global company in Ireland.
- Ireland has various semi-state agencies supporting businesses of every size. Enterprise Ireland is the agency responsible for the development and growth of Irish enterprises in world markets.
- If you are considered a professional service in Ireland, there are significant tax implications that will affect your day-to-day operations.
- Money spent by a company on R&D activities may qualify for a tax credit calculated at 25% of qualifying expenditure and used to reduce a company’s corporation tax.
The importance of professional advice
If you’re thinking of starting a business in Ireland, it’s worth having a comprehensive conversation with an expert about the financial and legal implications of doing so. An experienced advisor will also guide you through the forms you are required to fill out and make sure you reap the benefits of setting up shop in enterprise-friendly Ireland!
