European Union: Guide To Business Tax Rates 2017

Last Updated: 24 January 2018
Article by Ronan T. O'Grady

CORPORATION TAXES

  • Corporation Tax is charged on 'all profits' of Irish tax resident companies and certain profits of the Irish branch of a non-resident company. Profits are defined as 'income' and certain capital gains.
  • Income includes:
    • Business or trading income comprising active income.

and

  • Investment income comprising passive income.
  • Trading losses incurred in an accounting period may be offset against the following:
    • Trading income to include certain foreign dividends taxable at 12.5% during the same period.
    • Trading income of the immediately preceding period.
    • Trading income of subsequent periods.
  • Irish branches of foreign companies are liable to pay corporation tax as they apply to Irish resident companies.

Corporation Tax Rates 20171 Rate %

Trading income to include qualifying foreign dividends paid out of trading profits

12.5*

All other income to include non-trading income and non-qualifying foreign dividends

25

Capital Gains

33

GROUP RELIEF FOR TAX LOSSES

  • A loss group will now include companies which are tax-resident in an EU or tax treaty country as well as any company which has its principal class of shares substantially and regularly traded on a recognised stock exchange.

INTELLECTUAL PROPERTY

  • Companies can avail of a tax depreciation deduction on capital expenditure of qualifying Intellectual Property (IP) assets.
  • The definition of IP assets includes the acquisition of or the licence to use:
    • Patents
    • Registered designs.
    • Copyrights.
    • Goodwill applicable to qualifying assets.
    • Trademarks.
    • Brand names.
    • Domain names.
    • Know-how.
  • The tax deduction is equivalent to the depreciation charge of the IP asset in the company accounts or a Company can choose to claim a tax deduction at a rate of 15% per annum, 2% in the final year.
  • A company can claim IP tax relief up to 80% of the trading income of the company in any one year but can carry forward deductions subject to the 80% limit.
  • Qualifying assets are subject to a claw back if they are not used for a period of five years.
  • The Finance Act 2015, established the concept of the 'Knowledge Development Box' (KDB). The KDB creates a 6.25% rate of tax for profits derived from patented or similarly protected inventions and copyrighted software, which are the result of qualifying R & D activity carried out in Ireland. The Scheme commenced from the 1 January 2016.

UNILATERAL RELIEF FOR FOREIGN TAX ON ROYALTIES & INTEREST

  • Foreign tax suffered in respect of royalties (derived from certain types of intellectual property – e.g. copyrights, patents, and trademarks) which cannot be used to reduce the income because there is insufficient income to do so, can be used to reduce other foreign source royalty income which is taxed as trading income. Where royalties of the type described above or interest income are received in the course of a trade, the amount of income from those royalties or interest may be reduced by the amount of foreign tax borne on the royalties or interest.

TAX DEPRECIATION

  • Companies can deduct tax depreciation on expenditure on assets which are used by the company subject to Revenue Commissioners criteria on the type of industry.

Tax Depreciation Rates Asset

Rate %

Plant and Machinery

12.5

Industrial buildings used for manufacturing

4

Motor vehicles

12.5

IP assets

7% or Book depreciation

  • There is a separate scheme which permits an 'accelerated allowance' of 100% of the capital allowances where they relate to energy saving purposes required for trading purposes subject to Revenue Commissioners criteria and the type of industry.

LEASING

  • There is a standard eight year tax depreciation life on most assets. For leases less than eight years, assets can be written off over the shorter period for capital.

WITHOLDING TAXES

  • There is a general withholding tax rate of 20% on dividend payments. This can be reduced for companies who can benefit from:
    • The EU parent/subsidiary directive.
    • Tax treaties.

and

  • Satisfying the Revenue Commissioners criteria for both resident and non-resident companies.
  • Companies can make a declaration concerning their eligibility for exemption from withholding tax which is valid for six years.
  • Certain annual interest payments are subject to withholding tax at a rate of 20%. Interest payments between companies resident in Ireland or the EU are exempt from paying interest withholding tax.
  • Royalties are subject to a withholding tax at a rate of 20%. This applies to annual royalty payments or those in respect of a patent. Royalty payments paid to associated companies resident in the EU are no longer subject to the withholding tax.
  • The Purchaser of an asset which exceeds €500,000 is obliged to withhold 15% of the purchase price unless the vendor provides a certification from the Revenue Commissioners confirming that payment can be effected.
  • Professional Services Withholding Tax is deducted at a rate of 20% by Accountable Persons from payments made by them to in respect of Professional Services. Accountable Persons include; Government Departments, Local authorities and commercial and non-commercial semi-State bodies and their subsidiaries.

COMPANY MERGERS

  • The Act introduces an exemption from capital gains tax to ensure that a merger between an EU company and its EU parent, without the need for the company to go into liquidation, will be a tax-free event for the company.

START YOUR OWN BUSINESS

  • Individuals who have been long-term unemployed for at least 15 months prior to starting their own business as a sole trader can claim a two-year income tax exemption up to a maximum of €40,000 income per annum (available until end of December 2018).

Footnotes

1 On the back of the EU Commission's ruling against Apple and Ireland's tax agreement. Minister for Finance, Michael Noonan, has requested independent economist   Mr Michael Coffey, to conduct a review of the sustainably of the 12.5% Corporate Tax rate. The report on Mr Coffey's findings is due to the Minister by end of June 2017.  

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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