UK Businesses and low Irish Corporation Tax Rates
Ireland is renowned for its low 12.5% rate of corporation tax. In addition to this, there are tax benefits and other incentives offered to businesses established in the Republic. Some of our technology clients have set up operations in Ireland to take advantage of tax incentives to develop intellectual property there.
Being eligible for this low rate of corporation tax is not as simple as establishing a limited company in the state. Ireland has 2 rates of corporate tax:
· Trading or active income – taxed at the 12.5%
· Non-trading, foreign or passive income which is taxed at a rate of 25%
The Irish Revenue Commissioners are under pressure from other jurisdictions and are looking more closely at foreign entities setting up offices for the with the expectation of paying less tax. One key test looked at when determining the rate of corporation tax that should apply is that the company is deemed to be “managed and controlled” in Ireland. Some factors that are looked at when determining management and control are:
· Are board meetings held in Ireland?
· Where do the directors reside?
· Where are the companies books and records maintained?
· Is the head office based in Ireland?
· Are there employees based and paid in Ireland?
Basically, it not as simple as registering an Irish based company to avail of the low rate of Irish corporation tax. Some businesses who do this may end up paying corporation tax at a higher rate than in the UK. Businesses need to look at conducting part their management operations in the country to guarantee this.
At a minimum this will involve arranging some board meetings in the Republic. After establishing a company, it should register as an employer and look to pay directors and other employees for work carried out in Ireland through the Irish entity.
Obviously, there will be costs involved with ensuring that there is sufficient management and control being conducted through the Irish entity but as with many of our clients this is deemed to be a worthwhile exercise.
We can help to advise you on what is required to be eligible for the 12.5% corporation tax rate. With offices in both the UK and Ireland we can help to facilitate any management and structural changes required.
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