Tax Implications of Establishment
In broad terms, the establishment of an Irish subsidiary would be required to maintain access to the EU market in services. The presence of a branch / permanent establishment may suffice for the purpose of being the other side of the customs and regulatory controls, in the case of goods.
A branch is the UK entity itself present in Ireland. Generally, the branch profits are taxable in Ireland and potentially in the UK as part of the principal UK resident company’s profits. Double taxation relief is generally available.
An Irish resident subsidiary is generally required from the perspective of obtaining the requisite authorisation or regulatory status within the EU, to provide services and/ or establish further branches and subsidiaries. It is assumed that in most cases, a UK entity establishes an Irish subsidiary. This is generally advantageous and enjoys the lower Irish corporation tax rate of 12.5%
Group Context
The following refers to the taxation implications and obligations within the Republic of Ireland. UK taxation advice should be taken on the UK taxation issues in forming and operating an Irish subsidiary. The taxation implications of the particular structure and ongoing earnings from a UK perspective should be considered in conjunction with the UK company and group requirements. If there is a transfer of assets, the availability of capital gains tax reliefs must be considered.
The treatment of an Irish resident company from the perspective of favourable group treatment such as by way of transfer of losses and excess expenses under EU derived requirements, should be considered.
Relief for certain oversea losses on a group basis may be allowed provided the subsidiary is resident or has a permanent establishment the EEA (EUplus 3) and cannot be otherwise relieved. The group relief provisions are supported by EU fundamental laws and may be affected post-Brexit.
Dividends
Generally, the profits of an Irish subsidiary are subject to tax only under Irish law being its place of residence. Dividends remitted to the UK from EU subsidiaries are treated are exempt from UK corporation tax in most cases under a number of exemptions. The particular circumstances should be considered. This presumption places the UK tax treatment of foreign dividends on the same footing as UK dividends. There are two sets of exemption rules, one for “small” UK companies, and the other for medium-sized and large UK companies
In. accordance with the EU Parent-Subsidiary Directive, profits distributed by a subsidiary in one member state to its parent company in another member state will be exempt from withholding tax provided that the parent company holds at least 10% of the share capital of the subsidiary.
The Member States may require that the parent company maintain the holding for an uninterrupted period of up to 2 years, an option utilized by a number of Member States.
UK Anti-Avoidance
The UK has a controlled foreign company regime which counters the artificial use of non-resident companies to remove profits from the charge to UK tax. A controlled foreign companies charge may be levied where profits are artificially removed from the UK. The legislation is complex and specific advice should be taken,
The UK has corporation tax provisions to counter transfer pricing. Transfer pricing is the manipulation of prices charged to seek to locate taxable profits in low tax jurisdictions. HMRC have powers to counter taxation advantages assessed to be obtained by transfer pricing. Small and medium-sized entities are exempt,subject to exceptions.
Start-Up Companies Relief
Start-up companies in the Republic of Ireland which commenced trade before 31 December 2018 are exempt from corporation tax including tax on capital gains in their first three years, to the extent that their tax liability does not exceed €40,000. This implies a trading profit €200,000.
The relief is restricted to employers social insurance (PRSI), paid by the company in accounting period subject to a maximum of €5,000 per employee and an overall limit of €40,000. PRSI is broadly equivalent to national insurance contributions and is generally paid by both employer and employee.
Calculation of corporation tax
The broad structure of Irish corporation tax is similar to that of UK corporation tax. The major source of taxable income is usually trading profits i.e. profits of the business of the company.
In much the same way as the UK, there are rules as to the deductions that may be made in computing taxable profits. Most expenses for the purpose of the trade are allowable. Some are disallowed for policy or practical reasons. As with the UK, depreciation is not allowed on the basis usually provided for in the accounts. There, is instead, a system of capital allowances allowing for the write of the cost of assets over a period.
Losses may be rolled forward and deducted from future profits in almost all cases. Excess capital allowances and certain other charges are deductible. They may usually be added to a loss for write off purposes.
Some types of income such as rental income and investment income are treated separately and subject to their own rules with limited scope for deductions.
The ultimate profit from the various sources calculated in accordance with the rules are subject to a 12.5% corporation tax charge
Payment
A large company (where the corporation tax liability exceeds €200,000 for the prior year) must pay corporation tax in instalments. The first instalment is payable in the six-month of the accounting period by the 21st of that month. It must be 50% of the corporation tax liability for the preceding period or 45% of the liability for the current accounting period.
The second instalment is payable on the 21st day of the 11th month of the accounting period. The amount payable is to bring the total preliminary tax paid to 90% of the corporation tax liability for the current accounting period. The balancing payment is due by the 21st of the ninth month after year, coinciding with the tax return date.
Companies whose profits are below €200,000 must pay 90% of their expected corporation tax liability for the current period or 100% of the prior year liability by the 21st of the month prior to the end of the accounting year.