Corporate Tax Reduction in Ireland
This article is a follow-up to our recent piece on Agency Companies in Ireland and the UK.
In the 1990s, Ireland was becoming regarded as one of the more attractive jurisdictions in which to form a company if one wished to do business in the European Union on a level playing field, i.e. with a domestic corporate entity. The Irish Non-resident company quickly became a popular vehicle but was criticized by the EU as anti-competitive for its tax advantages. The non-resident company was eliminated in 1999 and only resident companies were permitted to be formed. There was a significantly higher tax rate, which was reduced progressively until its final reduction to the current level at the beginning of 2003 as described below. With the reduction in tax rates, we may well now see a return to the attractiveness of the Irish company as an entry-level vehicle for trading in the EU.
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A company is generally regarded as resident in Ireland if it is either incorporated in Ireland or if it is managed and controlled in Ireland. Irish resident trading companies are subject to corporation tax in Ireland at the rate of 12.5% on their trading income.
The 12.5% rate applies to income from every type of activity, which is generally regarded as trading except:
dealing in development land (note that fully developed land and construction etc. are 12.5% activities)
working minerals (e.g. digging, mining, treating)
petroleum activities, including exploration, extraction and dealing in petroleum rights
Non-trading income of an Irish company is taxed at the rate of 25%. Income taxed at the 25% rate includes:
Irish investment income
non-Irish source income
The Irish authorities are anxious to avoid "brass plate companies"; the greater the level of substance and activity carried on by the company in Ireland, the more likely it is to be regarded as carrying on a trade in Ireland and therefore to qualify for the 12.5% rate of corporation tax.
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