What special regimes exist (eg, for fund entities, enterprise zones, free trade zones, investment in particular sectors such as oil and gas or other natural resources, shipping, insurance, securitisation, real estate or intellectual property)?
Answer ... There are a number of special regimes and incentives in Ireland, including the following.
- Securitisation: Securitisation companies are Irish resident special purpose companies that hold and/or manage ‘qualifying assets’ (which include financial assets). They are used in a wide variety of financial transactions, such as securitisations, repackagings, bond issues, investment platforms and reinsurance vehicles. The securitisation company is subject to tax, so will typically be entitled to the benefit of Irish double tax treaties. Its taxable profits can be reduced by debt funding, including the issue of profit participating securities.
- Regulated funds: Ireland has a special regime for regulated investment fund which ensures that the fund itself is exempt from all Irish tax on its income and gains. Tax typically arises for the investors only to the extent that they are Irish resident individuals. Various domestic withholding tax and stamp duty exemptions are available for Irish investment funds.
- Research and development credit: See question 3.2.
- Capital allowances for intellectual property: See question 2.5.
The Irish tax code also contains a number of specific reliefs and incentives for companies involved in shipping, financial services, property development, forestry, farming and mining businesses.
Answer ... Where shares are transferred as part of a bona fide scheme of reconstruction or amalgamation and certain additional conditions are met, no capital gains tax arises for the disposing shareholder and the acquiring shareholder is deemed to have received those shares on the same date and at the same cost as the old shares. The relief will apply only where the company acquiring the shares has, or as a result of the transaction will have, control of the target or where the share-for-share exchange results from a general offer made to the members of the target.
Transfers of chargeable assets within a capital gains tax group can be made on a tax-neutral basis. A group for this purpose comprises 75% effective subsidiaries of a principal company and can include companies resident in an EU state or a jurisdiction with which Ireland has concluded a double tax agreement.
With regard to stamp duty - a tax on certain instruments (primarily written documents) - subject to certain conditions, group relief may be available and reconstruction or amalgamation relief from stamp duty may apply on a share-for-share exchange that is a bona fide reconstruction or amalgamation.
Ireland has a participation exemption for capital gains. Where an Irish company disposes of shares in a company resident in an EU state or a jurisdiction with which Ireland has concluded a double tax agreement in which it has held at least 5% of the ordinary shares for more than 12 months, any gain should be exempt from capital gains tax. The subsidiary must carry on a trade, or else the activities of the disposing company and all of its 5% subsidiaries taken together must
Answer ... As outlined in question 1.3, a company’s profits for tax purposes will normally follow its accounts.
It is possible, however, to elect for the tonnage tax regime whereby, as an alternative to charging corporation tax on certain profits of a qualifying shipping company, a tax charge is levied each year instead on the tonnage of the ships operated by the company.
Answer ... Different rules may apply depending on whether a transaction or a balance is considered to be trading or non-trading.
In practice, when preparing corporate tax returns, the Central Bank of Ireland’s average foreign exchange rate for the period in question can be used to translate the taxable profits for that period.
Answer ... Companies carrying on a trade in Ireland can claim a tax deduction on capital expenditure incurred on the acquisition or development of certain ‘specified intangible assets’ for the purposes of their trade.
The allowances will typically follow the accounting write-down, but the company can elect for a fixed write-down period of 15 years (7% per annum and 2% in year 15). The allowances can be offset against income generated from managing, developing or exploiting the intangible assets or income from selling goods or services that derived their value from the intangible assets. Allowances are capped at 80% of the trading income derived from the intangible assets.
Allowances can be claimed where the intangible asset is acquired from another party (including an affiliate, where arm’s-length pricing rules apply). In the context of transfers of intangible assets between Irish group companies, allowances can be claimed where an election is made to opt out of certain capital gains tax group relief provisions.
Where the intangible asset is held for more than five years, there is no clawback of the allowances on a disposal (unless the asset is sold to a connected company that wishes to claim allowances). This is an important measure, as traditionally the risk of a future ‘recapture’ of capital allowances can be problematic for companies with a high spend on capital.
There is an exemption from Irish stamp duty on the transfer of specified intangible assets.
Ireland has also recently established a Knowledge Development Box. This relief applies to income from qualifying patents, computer programs and, for smaller companies, certain other certified intellectual property. The result of the application of this relief is that a company’s qualifying profits will be subject to tax at a rate of 6.25%.
Answer ... Employers qualify for tax relief when they make pension contributions to approved pension schemes on behalf of their employees. Relief will be granted only for actual payments made to the scheme. Therefore, any accruals for pension contributions will not qualify.
Equally, only the employer’s ordinary annual contribution will qualify. Any payment in excess of this amount (referred to as a ‘special contribution’) will not be allowed in the accounting period in question, but will need to be spread over a number of years. The spread of the special contribution is determined by dividing the special contribution by the normal contribution, subject to a maximum of five years.
Answer ... A surcharge of 20% applies in respect of ‘estate and investment’ income retained by ‘close’ companies. In general terms, close companies are companies which are controlled by five people or fewer. A surcharge of 15% will also be applicable in respect of retained professional income in cases of close ‘professional’ service companies.
Value added tax (VAT) is an EU transaction-based tax that is chargeable on the supply of goods and services in Ireland by a taxable person. The rate of tax is 23%, but certain services, including ‘financial services’, are VAT exempt (outlined in further detail in question 8.1).
Incorporated businesses operating in certain industries may be subject to additional taxes, such as relevant contracts tax and professional services withholding tax. In addition, incorporated businesses are required:
- to operate income tax withholding on payments to employees and directors of the company (pay-as-you-earn income tax);
- to withhold tax at 20% from payments of interest, dividends and certain royalties (unless exempted); and
- to pay social insurance contributions in respect of employees.
Answer ... For corporates, other than the rate charge discussed in question 1.1, there are no surtaxes.
Answer ... There are no deemed deductions against corporate tax in Ireland for equity.