Does your business strategy include attractive tax incentives? Ireland’s 12.5% corporation tax has consistently brought a wealth of foreign direct investment into the country over the last three decades, and continues to do so. This highly favourable environment to conduct business in is a magnet for enterprises from all around the globe. But what circumstances are necessary to benefit from this particular tax incentive?
How to qualify for Ireland’s 12.5% corporation tax
The relationship your business has with the Irish state is key to whether you can avail of this tax incentive or not. This can be tricky when a foreign company wants to avail of this particular benefit. Simply put, the Irish state needs to be able to recognise who you are, where your business is located and what substance your company has in Ireland.
Does your business have substance?
With regards to the Office of the Revenue Commissioners (Revenue), substance refers to the people who run the business, and their appropriate skillsets to drive the success of that business. The daily running and operating of the business is what proves that it is an Irish trading business.
Where is your business located?
When you’re seeking to register a business in Ireland, the location of the business will be of particular importance. The distinction here is that the location must be a fixed place of business, and not a ‘care of’ address. The company accountant’s address, for example, would not qualify in these circumstances. As it must be a physical address, a PO address will not suffice either.
For an overseas business setting up in Ireland, incorporating a company is very straightforward and not too expensive. However, the challenge is to get the newly incorporated company registered for tax. For an overseas company, it is very likely that none of the Directors will have a Personal Public Service Number (known as a PPSN), and therefore they are unrecognisable to the Irish Revenue. This problem can be amended in two ways:
It will take some time (often up to six weeks), but with the necessary paperwork available from Revenue you can continue registering your company for tax.
2) An Irish Director
If you have an Irish director available for the tax registration of your company, it will prove to be a much smoother and faster process. This is beneficial for other taxes, such as VAT and the Form 11.
Directors of all Irish companies are required to fill out a Form 11. However, this can be complicated for a foreign director who does not have an Irish PPSN. The situation arises due to the financial remuneration a director may be due from the Irish business, which should be taxed in Ireland. However, not all directors are paid on a salary basis requiring the withholding of PAYE. Services fees (consultancy fees, for example) are considered differently. This may be drawn up as a contract for service which is billed as an invoice, and not a salary. Therefore, this is not a PAYE concern to the Irish 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 can be very little turnover in the first year, but a lot of setup costs incurred – securing office space, paying service charges, buying office equipment, etc. This is why a VAT refund made available in the first few months of trading is very helpful. The registration for VAT is strictly monitored and assessed due to fraudulent attempts that can be made. Requirements can include providing a copy of a contract, to demonstrate the business is legitimate. However, securing a contract can be difficult without having a registered business!
Demonstrating the steps your business is taking to securing contracts in Ireland will aid your registration process. It is also helpful in this scenario if you can point to proof of significant business occurring overseas. You can reclaim VAT from the start of the VAT period in which you get registered. It can take up to three months for your application to be processed, but you will still be able to claim VAT from the start of that VAT period. It is worthwhile making ensuring you have your application sent in a timely fashion.
Modern day globalisation has normalised cross-border services. This has resulted in the common scenario where a business does not have a residence in the country they are providing services for, but nonetheless are supplying trade in that country. There are different variations of this relationship:
- B2B: An Irish-based business providing goods or services to another EU country would be described as a business to business supply. In this case, the Irish supplier does not need to be registered for VAT in the other country.
- B2C: An Irish business supplying to a foreign consumer is considered differently. Often there are thresholds as to how much trade can be made before the supplier is subject to VAT.
- Local branch: If you set up a branch in the overseas country you will need a local VAT registration.
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!