Ireland As A Business Location – Attracting Great Business - Offshore Financial Centres

ADVANTAGES OF IRELAND AS A BUSINESS LOCATION

Ireland is a leading hub for Foreign Direct and Inward Investment. Corporations such as Apple, PayPal, Facebook and Google have located their EMEA operations in Ireland along with major pharmaceutical and medical device companies like Baxter Healthcare, Dow Chemicals and Pfizer. These companies have recognised the attractiveness of the country as a base to serve the European market of over 490 million consumers, one of the largest markets in the world.

Over 1,000 companies have set up in Ireland in a wide range of sectors as diverse as IT, cloud computing, social media, software development, financial services, life sciences and international services. Ireland provides investors with high returns through a combination of one of the lowest corporate tax rates in the world of 12.5%, structured tax reliefs for research and development, a highly skilled and flexible workforce and a competitive cost economy.

Last year a large number of new multinationals and emerging companies located here or enhanced their R&D facilities. Ireland has proven itself through several decades as a profitable location for corporates establishing in Europe. The key advantages are:

Pro-enterprise culture
Common law system, similar in approach to UK, familiar to US multinationals
Low corporate tax of 12.5%
Exemption from corporation tax on dividends paid to other Irish corporates
Tax reliefs and enhanced tax credit system for Research and Development
Highly skilled, English-speaking workforce
Member of the EU and Euro currency zone providing easy access to EU internal market
Only English speaking Euro currency zone member
Easily accessible from mainland Europe and North America

Business structures in Ireland

Companies and branches

The main vehicles for setting up a business in Ireland are:

an Irish-incorporated private limited liability corporation ('private company'); or
an Irish-registered branch of a non-Irish corporation.

Incorporating a new Irish corporation or registering a branch of a non-Irish corporation is a quick and efficient procedure. Our company secretarial department provides a range of corporate secretarial, registration and administrative services to support new companies.

Basics of Irish companies

Financing of Irish companies can be by way of debt, subscription for shares, and, in some circumstances, contribution of capital without the issue of shares. At present, there are no thin capitalisation rules in Ireland and therefore an Irish corporation can be financed with a minimum amount of issued shares. Most enterprises establishing in Ireland choose an Irish tax resident private company with limited liability which has a share capital, although other structures are available and may suit particular purposes.

Shares must be issued with a par value - usually e1, but the par value can be any amount in any currency. Irish limited liability companies can, subject to certain formalities being observed, redeem and/or repurchase their shares out of distributable profits and reserves.

There are no requirements for minimum payment of dividends or interest. A 20% withholding tax can apply to payments of dividends or interest, but there is a wide range of exemptions from such withholding taxes. Exemptions are generally available where the recipient is tax resident in an EU country or a country with which Ireland has a double tax treaty.

The day-to-day management of an Irish company is normally carried out by its board of directors. Every Irish company must have at least two directors and a company secretary. A corporate entity may act as company secretary but the directors must be natural persons. Otherwise, there is a requirement to have at least one director who is resident in a member state of the European Economic Area (E.E.A.) or an insurance bond to the value of e25,395.

The day-to-day management of a non-Irish corporation which has a registered branch in Ireland will be regulated by the law of where that corporation was incorporated with non-intrusive local branch filing requirements.

Auditors

By law, every Irish company, except where specific exemptions apply for small companies, must appoint an auditor who will report to the shareholders on the accounts prepared by the directors. Auditors must generally be members of the major accounting bodies in Ireland, Scotland or England and Wales. All the major international accounting firms have member or affiliate firms in Ireland.

Companies incorporated in Ireland and branches registered in Ireland are obliged to publicly file accounts. Non-filing structures involving unlimited companies can be put in place to minimise or avoid such disclosures. Small and medium-sized limited companies may prepare short-form profit and loss accounts and are free from the obligation to disclose particulars of turnover in audited accounts.

Agencies

The Irish Government agencies, the Industrial Development Agency Ireland ('IDA') and Enterprise Ireland promote business development in Ireland. While Enterprise Ireland is mainly concerned with the promotion of local Irish industry, the IDA deals with attracting foreign investment projects to locate in Ireland.

There are particular areas in Ireland – the Shannon region South-West and the 'Gaeltacht' areas, where Gaelic, the Irish language is spoken, which have extra specific incentives above and beyond the normal investment incentives provided by IDA.

Grants

The grants available from the IDA provide financial assistance to businesses which become repayable only where the grant terms are broken within a five year period or where the business terminates.

Grants are given for both manufacturing activities and internationally traded services. These grants include capital grants, employment grants, research and development grants and training grants.

The IDA can make available specific grants or a combination of grants which will frequently be calculated as an overall amount of grant per job, based on the number of jobs to be created by the grant-aided project.

TAXATION BENEFITS OF STRUCTURING BUSINESS IN OR THROUGH IRELAND

Ireland is recognised in Europe and around the world as a major inward investment location. Ireland has a leading reputation as an onshore EU OECD white-listed location. It is a key EMEA hub for the financial services, information technology, e-commerce, gaming and pharmaceutical sectors. It has a growing profile as the holding company EU location of choice and a location from which to own intellectual property. In the financial sector, Ireland is a world-leading location for asset and structured finance, insurance and investment funds.

In common with all other EU Member States, Ireland uses a sophisticated toolkit of tax rates, exemptions, allowances, credits and reliefs to attract various activities to its shores. At the epicentre of this regime is a 12.5% corporation tax rate for almost any trading activity carried out in the State, an exemption from tax for certain investment funds and share portfolio income, and an ability to structure cross-border transactions, including big ticket leasing, through Irish corporate and other vehicles so as to utilise Ireland's extensive double tax treaty network.

Ireland currently has signed comprehensive double taxation agreements with 68 countries, of which 61 are in effect. The countries outside the EU with which Ireland has a double taxation agreement are: Albania, Armenia, Australia, Bahrain, Belarus, Bosnia Herzegovina, Canada, Chile, China, Croatia, Egypt, Georgia, Hong Kong, Iceland, India, Israel, Japan, Republic of Korea, Kuwait, Macedonia, Malaysia, Mexico, Moldova, Montenegro, Morocco, New Zealand, Norway, Pakistan, Panama, Qatar, Russia, Saudi Arabia, Serbia, Singapore, South Africa, Switzerland, Turkey, United Arab Emirates, United States of America, Uzbekistan, Vietnam and Zambia.

A company which is tax resident in Ireland is liable to tax at 12.5% on trading activities carried on in the State and in respect of dividends from certain foreign trading subsidiaries. A system of onshore pooling of foreign tax credits enables credit for foreign tax, including withholding taxes on profits out of which dividends have been paid, to eliminate the incidence of Irish tax. A 25% corporate tax rate applies to passive income, certain land dealing and oil, gas and mineral exploitation. Non-trading activities subject to tax at 25% are typically outside the scope of the new Irish transfer pricing regime.

With increased globalisation, competition has intensified between jurisdictions to attract and maintain mobile investment projects. Managing a group's effective tax rate is a key tool in driving shareholder value. Although a wide range of non-tax factors inform taxpayers' investment decisions, straitened economic circumstances have led to renewed focus for multi-nationals on managing, and where possible reducing, the group's effective tax rate. Ireland's pro-business and low tax regime play a significant part in this. Set out in this document are various examples by which Ireland's tax regime may be used for differing businesses and activities.

IRELAND AS A LOCATION FOR FINANCIAL SERVICES

Regulated Industries, Activities and Regulatory Authorities

International Financial Services

The International Financial Services Centre (IFSC) in Dublin has developed into a significant worldwide centre for a wide range of financial services activities. Driven initially by a package of substantial tax incentives, the IFSC has grown to an extent that the 250 global financial institutions that operate in this area now employ around 25,000 people. Many of the world's leading financial institutions have now established in the IFSC, providing a broad range of financial services in the following areas:

investment funds;
banking and asset finance;
treasury management;
finance leasing;
captive insurance;
asset management;
fund administration and custody;
securities trading; and
securitisation.

The Central Bank of Ireland (Central Bank) is the regulator of financial services activities in Ireland. The appeal of establishing an international financial services operation in Ireland is based on a unique combination of the Irish legal and regulatory system, the specialists skills and expertise of its workforce, the country's pro-business approach, low taxation, infrastructure and government support.

Typical banking activities in the IFSC include asset financing, aircraft leasing, international lending and loan syndications, bond and commercial paper issuance, global treasury, investment and corporate banking, structured finance, back office activities, credit card operations, management of client treasury functions and securitisation.

Some of the global treasury activities carried out at the IFSC include: inter-group lending/financing, cash pooling, netting, cash management, market pricing, exchange and interest rate risk management and cross-border leasing.

Over a quarter of the IFSC companies are involved in insurance-related operations, particularly captive insurance and reinsurance.

Funds

Ireland offers an attractive regime in which to domicile regulated investment funds and is a preferred location for fund administration, custody and management. An Irish fund can be established utilising a number of regulated and unregulated structures. The two regulated fund regimes in Ireland are:

Undertakings for Collective Investment in Transferable Securities ("UCITS");
Non-UCITS.

A UCITS fund must be an open-ended fund and can avail of a "single passport" throughout the EU for the sale of its units/shares. This means that UCITS, once established and regulated in Ireland, can be sold to the public in all of the EU Member States once the appropriate notifications have been made to the local authorities. The non-UCITS regime is an attractive investment vehicle for fund managers who wish to target sophisticated investors, namely institutional and high net worth individuals.

Certain funds which employ more complex investment strategies posing greater risk may not be permissible under the UCITS regime but can be set up as a non-UCITS fund. The term "non-UCITS" is generally used to describe all authorised Irish investment funds which are not UCITS.

The qualifying investor fund ("QIF") has become one of Ireland's most successful non-UCITS as QIFs offer flexibility for alternative investments e.g. hedge funds, fund of hedge funds, private equity funds, real estate investment funds. QIFs are only open to certain investors. The minimum subscription per investor in a QIF is e100,000 and investment in a QIF is limited to certain classes of professional and sophisticated investors. In order to meet the requirements of existing fund providers and become a more attractive location for alternative investments, the Irish Central Bank can now authorise a QIF, on a filing basis only, within 24 hours of submission of the relevant documentation.

Insurance

In recent times, some of the leading players in insurance and reinsurance have re-domiciled their global headquarters to Ireland. A number of factors including the favourable tax regime in Ireland have been cited as the basis for this decision which includes a gross roll up system for life assurance companies. This allows policyholders' investments to grow tax-free throughout the term of the investment. A charge to tax is imposed at the time when payment is made to the policyholder, following the surrender or encashment of the policy. The investment return or growth is liable to tax at the current rates of 30% or 33%, depending on the nature of the payment, which the assurance company is required to deduct on payments to the policyholder. There are exemptions available from this tax charge where the policyholder is not resident for tax purposes in Ireland.

Asset Finance

The Irish tax regime has been a key driver in the growth of the asset finance industry, particularly aircraft leasing, the highlights of which are:

a standard rate of corporation tax of 12.5% on trading profits;
tax depreciation for equipment is allowed to be claimed over 8 years i.e. 12.5% per annum; This essentially allows for accelerated tax depreciation as the economic life of aircraft is substantially longer;
no withholding tax is imposed on equipment lease rentals paid to non-residents;
access to Ireland's extensive double taxation treaty network which generally contain advantageous withholding tax provisions on equipment leasing;
no charge to Irish stamp duty arises on the transfer of ownership of aircraft;
for aircraft lessors, VAT leakage does not arise on aircraft leasing as the aircraft lessor generally enjoys full recovery of VAT on costs associated with the aircraft leasing business;
through domestic law exemptions, no withholding tax is applied on interest and dividends paid to non-residents located in the EU or a country with which Ireland has a double taxation treaty;
chargeable gains arising on the disposal of plant and machinery used in the course of a leasing trade can be included in the company's trading income;
Finance Act 2011 extended the assets qualifying for securitisation under Section 110 to plant and machinery acquired by a Special Purpose Company (SPC) whose business is the leasing of plant and machinery (see Ireland as a location for Securitisation and Structured Finance SPC's for further details).

Securitisation and Structured Finance SPCs

Ireland is a key location for cross border structured finance transactions. Irish tax law includes favourable provisions for qualifying SPC's who hold and/or manage, or have an interest in a wide range of qualifying assets including, in the case of plant and machinery acquired by the SPC, a business of leasing that plant and machinery. The SPC is typically taxed in Ireland at a corporation tax rate of 25%. However, critically, the return paid on certain profit participating loan notes is tax deductible. This allows the Irish vehicle to be tax neutral as interest payments can be made to match the profits arising within the company.

The net effect is that the SPC can avail of Ireland's double tax treaty network to avoid withholding tax on interest payments to non-residents. There are domestic law exemptions from withholding tax on interest paid on Quoted Eurobonds or on interest paid by the SPC to a resident in another EU member state or a country with which Ireland has a double tax treaty.

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Ireland: Ireland As A Business Location – Attracting Great Business