New Company/ Subsidiary
In order to use Ireland as a base to provide services into other EU states and to form branches and further subsidiaries in other EU states, an Irish subsidiary is required or is desirable.
A subsidiary is a newly formed company in the Republic of Ireland. It is a separate entity. Its shares will generally be owned fully by the UK group holding company or in accordance with the group structure. A subsidiary has the advantage of insulating the principal parent (e.g. UK entity) from direct legal liability for claims arising from the trading activity of the Irish subsidiary.
Apart from special UK legislation on controlled foreign corporations and transfer pricing, the general position is that the Irish subsidiary is subject corporation tax on its profits in Ireland only.
Issues of taxation arise on dividend receipts. They are generally exempt, when received by the corporate parent in the UK in the same way as receipts from UK resident companies. There are conditions for the exemption. Tax may be payable on ultimate distributions to personal shareholders in the usual way.
Branch / Permanent Establishment
If the objective is to establish a presence in Ireland from the perspective of being on the EU side of customs and regulatory barriers, then a branch / permanent establishment of a UK company may suffice. Even in such instances, in particular where regulatory approval is required, a subsidiary may be desirable for practical as well as taxation purposes.
A branch is a local presence in another jurisdiction of the home company. The legal entity remains the home company, in this case, the UK company. It will have all the legal liabilities arising for the business and other activities in the Republic of Ireland. Branch disclosure obligations require information on the branch to be filed with the Companies Registration Office in the Republic of Ireland.
The branch profits are taxable locally in the Republic of Ireland and as part of the company’s tax liability in the United Kingdom. If the central management and control of a UK company is undertaken in Ireland, then the company is tax resident in Ireland irrespective of its place of incorporation or the existence of a branch / permanent establishment.
The Ireland UK double taxation treaty grants credit for tax paid in the jurisdiction where the income earned at the of the lower effective tax rate (which is the actual rate of tax in the particular circumstances rather than the nominal corporation tax rate). Accordingly, the trade of an Irish branch is tax primarily in Ireland with credit for the corresponding UK tax up to the Irish effective rate.
Firms Partnerships and Sole Traders
In most cases, it will be necessary to form a company in Ireland in order to meet the relevant degree of presence for regulatory or EU rights purposes. Generally, trading as a company is desirable from a tax perspective (see separately) for the controllers, from an organisational perspective and for limitation of liability so that the shareholders and members are insulated from the debts and liabilities of the company. The formation of a company will need to be considered from the perspective of and in the context of existing UK taxation and organisational arrangements.
Firms including partnerships whose registered office central administration or principal place of business is in Ireland can also avail of the EU rights. Persons who are Irish citizens by descent from Irish national parents or persons who are British citizens in Northern Ireland who elect also to be Irish citizens as well as being British citizens thereby become EU citizens and can exercise EU rights. However, as the key EU rights require a presence or establishment in an EU state those rights may not be exercised from outside the EU.