Corporate Profits Tax
Ireland is firmly committed to maintaining its corporation tax rate of 12.5%. This rate has applied for over 20 years and was negotiated with the European Union in the context of the phasing out of earlier tax reliefs.
Tax policy is a competence of the EU states. Ireland and several other EU states are firmly committed to maintaining exclusive tax competence for the member states.
Tax is charged under the OECD scheme of taxation on the worldwide profits of a company which is tax resident or incorporated within the jurisdiction. Profits from sales and activities in other states worldwide are not charged to tax a state where they are made unless they are earned by a permanent establishment within that state.
A permanent establishment implies a presence within that state that is sufficient to undertake the trade. In the case of most businesses, it is logistically possible to sell goods and provide services into another EU state without having a permanent establishment within that state.
EU Holding Company Location
Ireland will remain within the EU Parent-Subsidiary Directive provisions, which eliminate tax obstacles to profit distributions between groups of companies in the EU. It abolishes withholding taxes on the payment of dividends between associated companies in different EU states. It prevents double taxation of parent companies on the profits of their subsidiaries. This facilitates the receipt of dividends from EU subsidiaries which established in other states.
Dividends paid out of trading profits from abroad are normally subject to a 12.5% rate where the company concerned is resident in EU state or a state with which Ireland has a double tax treaty. Ireland may allow a credit for foreign tax paid in respect of the dividend. The pooling of excess foreign tax credits is available, subject to conditions, in respect of dividends from companies in which there is at least 5% shareholding.
There are provisions for the carrying forward of excess credits. There is a further credit for foreign tax with credit dividend from EU or EEA tax treaty state is less than the amount computed by reference of the nominal rate of tax in the country concerned.
Some Significant Reliefs
Ireland has a generous relief for research and development. Expenditure on research and development qualifies for a tax credit of 25% in addition to the standard deduction. It applies with reference to the increase in research and development.
The credit can create a tax refund which can be carried back to offset against profits of the immediately preceding year. The repayment of excess credits may be available over a further three-year cycle.
Payment is at the higher of the corporation tax payable in the preceding 10 years or the payroll tax (PAYE liability) for the period during which the relevant expenditure on research and development is incurred and the immediately preceding year.
There is generous relief for expenditure on qualifying intellectual property assets. It may be based on the depreciation charged in the accounts. It may be claimed over 15 years at a rate of 7% per year and 2% in the last year.
Intellectual property assets include knowhow goodwill customer lists conventional and modern intellectual property assets. Tax may be deducted from income arising from the use of the intellectual property assets and in the sale of goods and services in which the use of the assets contributes to their value. The total deduction together with related interest expense is not to exceed 80% of the intellectual property profits before such deduction.