Ireland’s Corporation Tax

Ireland is increasingly being called the world’s biggest corporate tax haven. Wondering why? Well, Ireland’s open, transparent and welcoming tax regime, makes it an attractive location for global investments. The legislation of the country is conducive to the establishment of multinational corporations and offers lucrative schemes that allow for a business to thrive. Many multinational companies have made use of Ireland’s hospitable enterprise environment that offers a headline corporate tax rate of 12.5%, the lowest in the whole of Europe. The multinationals also gain from specific corporate tax schemes introduced to make business operations more profitable.

For instance, if a company has a patented product or Intellectual propriety over a product, the corporate tax can reduce to as low as 6.25%, to protect and provide for royalties derived from the IP.  Similarly, corporations invested in research, innovation, and development specifically receive additional tax advantages. Furthermore, Ireland also makes it easier for corporates to move profits from high-tax jurisdictions to low-tax jurisdictions. This way, the company is doing business with multiple subsidiaries and not individual companies. Multinationals that are responsible for over 70% of the world’s trade, utilize this artificially created shift to lower their tax liability. For instance, Apple managed to bring their effective tax rate to 3.7% on revenue of $31 billion in 2014 using a scheme called base erosion and profit shifting (BEPS) tools developed by tax academics. 

Ireland’s BEPS tools make it possible to achieve an effective tax rate of 0% to 3%, depending on which BEPS tool is used. Although this was disputed and investigated, later on, the company was able to save millions in transactions. As the Irish economy is less bureaucratic and more inclined to support business, the country’s cost of living is one of the lowest in comparison to other European nations. This comes as a blessing to transnational companies who look to sustain and support operations here. Salaries, insurance, rent, and raw-material costs are all likely to be very economical. That the Irish government does not require transnational corporations to provide public accounts of turnover, subsidies received, profit or amount of taxes paid, also adds to the attraction of setting up shop here. All these factors have made Ireland host to more than 1000 offshore corporations. But what does that mean for domestic business? The corporation tax rules for domestic business are straightforward and similar to the rules of foreign investment. Domestic corporations are required to pay a flat 12.5% tax on commercial transactions called “active” income, and 25% on non-trading transactions. List of non-trading transactions include money generated from rentals, foreign companies, interests, and royalties which are commonly known as “passive” income. However, for domestic businesses, a number of advantageous policies have been introduced by the Irish. Research and Development garners a host of incentives stimulating more innovative business ideas in the country. Start-ups that are established with research and development as the base, are offered a 25% refundable tax credit i.e. the ability to claim back 25% of the taxes paid, even if operating under a loss. Irish holding companies benefit from EU tax exemptions on domestic and foreign income. It is also possible to set up a company in Ireland with only one shareholder, an extremely rare privilege in business.