Ireland 2015 (English & Chinese)

The Irish Government is keen to support foreign direct investment (FDI) into Ireland and has established government departments specifically to facilitate FDI into Ireland – including the Industrial Development Authority (IDA) and Enterprise Ireland (EI) which have representative offices in most locations. These departments work closely with businesses looking to invest in and out of Ireland. They can introduce a business to Ireland and, in certain circumstances, provide incentive grants, particularly for certain types of operations in parts of Ireland that can offer employment.

With the long established history of inbound investment into Ireland from many jurisdictions (such as the US or UK), Ireland has a well-developed system to facilitate investors. This ranges from investor friendly laws, which respect and protect investment, to well experienced advisors to guide an investor safely and with ease through the process.

Inbound investment into Ireland spans various different types of industries and interests. From China, there has been a significant interest in the area of aircraft leasing, and many of the major Chinese banks have established aircraft leasing platforms in Ireland. Ireland has also seen significant investment by pharmaceutical companies and other types of companies looking for a base as a holding company. Many of the top international software companies have located some or all of their intellectual property (IP) in Ireland. Financial services are well developed in Ireland and most of the major international financial services entities have a presence in Ireland, such as in the area of regulated funds, insurance or securitisation.

Some of the multinationals that have chosen Ireland in recent years include:

Section 2: Tax and allowances

Ireland has a very attractive tax system for business. Key highlights include:

Trading tax rate at 12.5%: Companies pay corporation tax at 12.5% on their trading profits. Many international companies use an Irish company to base their Irish, European or worldwide operations to make use of this low tax rate, while still being an onshore company with tax treaty access. Activities such as leasing, trading in licences/IP, banking and manufacturing would all be covered by this attractive rate.

IP and R&D tax reliefs: Companies get various tax breaks on IP in Ireland, such as capital allowances (similar to depreciation) on the acquisition of certain IP. This includes the acquisition of or the licence to use:

• patents and registered designs;

• trademarks, brands, brand names, domain names and services marks;

• copyright or related rights;

• know-how, generally related to manufacturing or processing, industrial, commercial or scientific experience whether protected or not;

• goodwill to the extent that it is directly attributable to specified intangible assets;

• computer software or a right to deal in or use such software;

• applications for grant or registration of patents, trademarks, copyrights etc.; and

• certain other rights.

The tax write off is granted as a capital allowance and is available in line with the depreciation or amortisation charge for accounting purposes. Alternatively, a company can elect to take the write off against its taxable income over a 15-year period. The capital allowances that are available must be used for offset against profits generated from exploiting the IP itself (which includes profits from the sale of goods or services that derive the greater part of their value from the IP). If the allowance cannot be used up in one year, it can be carried forward.

Where a company incurs research and development (R&D) expenses, in addition to having this as a deduction against taxable profits in the normal way, an increased tax credit is available, which means that incurring R&D expenses will trigger a deduction for more than double the amount actually spent against profits.

Finally, the use of the 12.5% tax, allowances for the acquisition of IP and the generous R&D allowances combine to make Ireland an attractive location to place IP. All of these allowances are available before any structuring is done to enhance the effective rate. A popular structure that has been used in Ireland is the “Double Irish” structure. Since January 1 2015, the original form of Double Irish is no longer used, however, companies will always seek to structure their business in the most tax-efficient way. In addition, the Irish Department of Finance introduced a new knowledge box system of relief in the budget announcement made in 2014. Details of the relief will be published as soon as consultations with businesses and advisors are completed. Government announcements confirmed the commitment of the Irish government to maintain and increase the tax efficiency of conducting research in Ireland.

Using an Irish company either for an overall structure or as a holding company for a mini group within a structure can facilitate grouping profits and passing them upwards in a tax-efficient manner. Further details are outlined below.

Section 3: Investment vehicles

Tax-efficient holding company structures: Private holding companies set up in Ireland provide tax-efficient mechanisms for holding shares in subsidiary companies and particularly EU subsidiaries. Not only do these companies benefit from certain tax exemptions, but the Irish company law regime also offers great flexibility. Many private companies and family holding vehicles have chosen Ireland as the base of their European or intermediate holding companies. Advantages for holding companies in Ireland include dividends being payable without withholding tax to countries with which Ireland has a double taxation agreement, certain capital gains tax exemptions on share disposals, a lack of CFC legislation, no thin capitalisation rules and relief from stamp duty on share transfers within 90% groups.

Irish trading companies: Regular Irish trading companies subject to tax at 12.5% with full access to Ireland double tax treaties (over 70) have proven to be a very popular vehicle for investment. These are often used as the company of choice for Chinese aircraft leasing platforms.

Special purpose vehicles: Special purpose vehicles (SPVs) for structured finance transactions, including bond issuances, financings for international groups, synthetic and cash flow CDOs, asset-backed commercial paper programmes, securitisations and a host of other financing transactions, are common in Ireland and are designed to minimise tax leakage and maximise return for investors. These transactions have made Ireland a global hub for financial services and enable Ireland to offer maximum benefits to international companies and investors in Asia.

Funds: Ireland is a leading on-shore location for global funds. There are currently approximately €970 billion in net assets in funds domiciled in Ireland. Ireland offers a highly regulated funds environment and requires independent custody and administration arrangements for all its funds. The Irish funds regime provides for both UCITS and non-UCITS funds. Ireland has been the fastest growing UCITS funds domicile and UCITS funds account for almost 80% of Irish domiciled funds. In addition to being subject to a legal and regulatory framework that is tailor-made for the funds industry, there are a number of beneficial tax provisions for funds domiciled in Ireland – there is no Irish tax levied on regulated funds and also no annual subscription tax for funds, which makes this jurisdiction stand out from others. Certain Irish funds are also particularly attractive for use in investing in a variety of investments, including, in particular, A-shares in China.

Section 4: Incentives for individuals

Ireland has recently introduced an Immigrant Investor Programme which is open to non-EEA nationals and their families who commit to an approved investment in Ireland. It has proven already to be of particular interest to high net worth Chinese families (and in some cases has facilitated their children's education in Irish schools and universities). Approved participants in the Programme and their immediate family members will be granted rights of residence in Ireland, which will allow them to enter Ireland on multi-entry visas and remain here for a defined period but with the possibility of on-going renewal.

Ireland taxes individuals based on the source of income and gains as well as the residence and domicile of the individual. Irish sourced income and gains are generally subject to tax in Ireland. However while Irish resident and domiciled individuals would generally be subject to tax in Ireland on their worldwide income and gains, the tax system is quite efficient for individuals coming to Ireland for a specific period.

In particular, individuals resident in Ireland but not domiciled will only be subject to tax in Ireland on their Irish sourced income and gains, and only on their foreign income and gains if remitted to Ireland, i.e. the remittance basis. Individuals who are not resident or domiciled in Ireland will only be liable to tax in Ireland on Irish source income and gains.

Double tax treaties can also reduce any of the taxes mentioned above.

Section 5: Management and operations

It is relatively easy to establish a legal entity in Ireland. A company can be set up in about one working week and approval comes from one government body, the Companies Registration Office. If any additional specialised regulatory approvals are needed, this would take longer, as an application would be needed to the appropriate regulator. However, it should be noted that unless the company is to engage in a regulated activity, such as banking or insurance, there is no regulation required to simply set up a company.

The Irish government has engaged in a large scale reformation and improvement of its corporate legislative system which commences in June 2015. A large number of legislative changes have been put in place to ensure that companies can be run and maintained as efficiently as possible.

Currently an Irish company should have two directors (who should be individuals), a company secretary and a registered office in Ireland. As an example of improving the legislative environment, the new companies' legislation provides that a single director is sufficient for certain types of companies. It is recommended to ensure that the most tax-efficient structure is selected, such as the identity of shareholders and the location of directors.

Irish private companies operate in a relatively informal manner and their business is done through the board of directors. The day-to-day operations are typically delegated to management.

In the case of inbound investment into Ireland, where a business requires clarification from the Irish government bodies on any particular matter, such as a tax confirmation, it is usually quite easy to arrange a meeting with the Irish Revenue Commissioners (the tax authority of Ireland) who are pleased to understand and assist new operations in Ireland. Equally, the Irish government, through the Finance and Justice ministries, are receptive to suggestions and concerns an investor company may have in relation to its operations in Ireland.

Section 6: Profit extraction methods

Profits can be extracted from an Irish company in a number of ways, including:

Dividends: There is no withholding tax on dividends paid to a Chinese resident shareholder. Dividend payments are not a deductible expense for an Irish company.

Interest: If the company was funded by loans, profits can be extracted by way of interest payment. There is no withholding on interest paid to a Chinese lender. Interest should generally be a deductible expense where the borrowings were incurred for the purpose of the trade of the company. There are no thin capitalisation rules in Ireland, but in certain cases the interest will not be a deductible expense.

Fees: An Irish company might, in certain circumstances, pay a fee for services rendered to a group company.

Where an SPV is used and formed under a particular tax regime (Section 110), this company can issue profit dependant debt, which is like equity, in terms of subordination and being related to profits, but is technically debt.

Shares in an Irish company can be sold and a non-Irish shareholder typically will not have a liability to capital gains tax on a sale.

Ireland has over 70 tax treaties, and this generally means that profits can be extracted to individuals in those territories in a tax-efficient manner with no withholding.

Section 7: Regulatory regime

Ireland's regulatory system emanates mainly from EU law as enacted in Ireland. In implementing EU law in Ireland, traditionally, Ireland has endorsed a 'light touch' regulatory regime. Since its inception in 2003, the Irish Financial Regulator has regulated on a principles basis. Principles-based regulation involves the establishment by regulators of the basic principles that a firm is compelled to follow. The approach involves management internally supervising adherence to these standards and confirming compliance with these principles to the national regulator. Firms are subject to less direct intervention than under a rules-based approach, which is why this is perceived as a light touch regulation. Such a system is reliant on an effective corporate governance structure and a relationship of trust between the regulator and firm. However, the Irish Financial Regulator responded to the financial crisis by changing the rules governing regulation and moving from a light touch approach to stricter regulatory rules.

Section 8: Legal environment and protections

Ireland is a common law jurisdiction which originates from the English legal system. As Ireland is a member of the European Union, disputes involving European law may be referred to the European Court of First Instance or the European Court of Justice.

Where parties use a law other than Irish law in their dealings, it will generally be respected in Ireland, provided there is some nexus to the law chosen. Furthermore, judgments granted with Ireland can generally be enforced in another EU jurisdiction with minimal additional court intervention required. Disputes in Ireland can be brought before the Irish courts, arbitration or general mediation discussions. Judgments made in other jurisdictions – including outside the EU – are also usually enforceable in Ireland. Ireland has an excellent Commercial Court system that deals efficiently and speedily with commercial and especially IP disputes and, as a result, Irish law is often selected where possible, as disputes can be brought to a conclusion before the Commercial Court within a matter of months. The Irish system respects the rights of nationals and non-nationals equally.

In conclusion, as an English speaking, EU, common law country with interesting benefits for investors, Ireland continues to be a popular destination for investment. The favourable tax system, geographical location and availability of genuine good bargains make Ireland a much sought-after jurisdiction both for investment and as a base to access both the EU and the USA.