Tax Regime

A key aspect of Government support for industry and R&D is an attractive and continually enhanced tax system:

-  IDA Tax Brochure 2010 - PDF

Corporate Tax Rate - A corporate tax rate of 12.5% applies to all corporate trading profits

% Corporation Tax Headline Rates

*Blended rate to take account of regional as well as federal/national corporation tax rates.

Source: PricewaterhouseCoopers, 2010

Double Taxation Agreements

To facilitate international business, Ireland has signed comprehensive double taxation agreements with 56 countries, of which 48 are in force and the remainder are pending ratification. These agreements allow the elimination or mitigation of double taxation.

Where a double taxation agreement does not exist with a particular country, unilateral provisions within domestic Irish tax legislation allow credit relief against Irish tax for foreign tax paid in respect of certain types of income.

In addition, in many instances Irish domestic law provides for an exemption from Irish withholding tax on payments to treaty residents.

Ireland is continuously expanding this network of double taxation agreements:

• — Two new tax agreements have come into effect from 1 January 2010 (Macedonia and

Malta);

• — Eight tax agreements have been signed (Albania, Bahrain, Belarus, Bosnia &

Herzegovina, Georgia, Moldova, Serbia and Turkey);

• — Seven tax agreements have been concluded and are expected to be signed shortly

(Armenia, Kuwait, Montenegro, Morocco, Saudi Arabia, Thailand, United Arab
Emirates);

• — Seven new agreements are in the pipeline (Argentina, Azerbaijan, Egypt, Hong Kong, Singapore, Tunisia, Ukraine),
   
• — Tax cooperation agreements have been signed with Anguilla, Antigua and Barbuda, Bermuda, the British Virgin Islands, the Cayman Islands, the Cook Islands, Gibraltar, Guernsey, the Isle of Man, Jersey, Liechtenstein, Samoa, St. Vincent and the Grenadines and the Turks and Caicos Islands.

Holding Companies

Recent legislation has put Ireland in a position to compete with other established European holding company locations. Because of its attractive tax, regulatory and legal regime, combined with its open and accommodating business environment, Ireland’s status as a world-class location for international business is well established.

In recent years Ireland has increasingly emerged as a favoured onshore location for MNCs establishing regional or global headquarters to manage the profits, functions, and shareholdings associated with their international businesses.

Ireland’s main tax advantages for holding companies are as outlined below/

1. Capital gains tax participation exemption on disposal of qualifying shareholdings;
2. Effective exemption for foreign dividends via 12.5% tax rate for qualifying foreign dividends and flexible foreign tax credit system;
3. Double tax relief available for tax suffered in foreign branches and  pooling provisions for unused credits;
4. No dividend withholding tax to treaty countries (or intermediary subsidiaries) under domestic law;
5. Access to treaties to minimize withholding tax on royalties and interest and further domestic legislation provisions to minimize withholding tax on interest;
6. Extensive treaty network &  access to EU directives.

Other key tax advantages for companies locating in Ireland include our sustainable EU approved tax regime which is not under threat from anti-tax haven sanctions.  Also, Ireland has  no CFC or thin capitalization rules.  Funding costs may be deductible and Ireland has no capital duty or net wealth taxes

Research and Development Tax Credit

Ireland has had a 25% R&D Tax Credit scheme since 2004 (in addition to a tax deduction at 12.5% for R&D expenditure in Ireland). Its purpose is to encourage both foreign and indigenous companies to undertake new and/or additional R&D activity in Ireland. The R&D tax credit is available to Irish resident companies and branches on the incremental cost of in-house, qualifying R&D undertaken within the EEA, provided such expenditure is not otherwise eligible for tax benefits elsewhere within the EEA. Incremental spend is calculated in comparison to a base year of 2003; therefore, for new entrants to the R&D sector the credit is essentially volume-based.

There is also a certain degree of flexibility included in calculating the base year where an R&D facility has permanently ceased to operate as a consequence of economic conditions.

In order to qualify for the tax credit, it is necessary to seek to achieve scientific or technical advancement and involve the resolution of scientific or technological uncertainty.

Qualifying spend includes both revenue and capital expenditure. In practice, qualifying expenditure includes wages, related overheads, plant and machinery, and buildings.

The credit regime also provides that up to:
— 5% of the R&D expenditure can be outsourced to European Universities (includes Irish Universities); and in addition
— 10% of the R&D expenditure can be sub-contracted to unconnected parties (i.e., 15% in total).

The tax credit can be refundable where there is insufficient corporate tax liability to utilise the full credit in a particular year. The credit can be:
— carried back 12 months;
— carried forward indefinitely; or,
— claimed as a cash refund from Revenue (spread over three accounting periods).

The Irish accounting authority has confirmed that for qualifying R&D expenditure incurred after 1 January 2009, the tax credit may be accounted for ‘above the line’ in the profit and loss account for Irish GAAP (Generally Accepted Accounting Practice) and IFRS (International Financial Reporting Standards). This allows for an immediate impact on the unit cost of R&D, which is a key measurement used in determining where R&D projects will be located internationally. Similar treatment should apply under US GAAP in situations where the R&D tax credit is capable of being monetised.