Ireland is considered to be a very attractive ‘holding’ company location, the benefits of which include:
- Favourable tax treatment of dividend income:
- No Witholding Tax ('WHT') on dividends from Irish Holding Company to EU/tax treaty countries
- No Capital Gains Tax on disposal of qualifying shareholdings in subsidiaries;
- Favourable tax regime for R&D/intangibles;
- Tax deductions for interest on certain borrowings;
- Favourable WHT regime for interest and royalty payments.
Foreign Tax Credit
Irish legislation gives credit to an Irish company for foreign taxation already paid by its underlying subsidiary by way of:
- Unilateral relief; or
- The EU Parent-Subsidiary Directive; or
- The provisions of a Double Tax Treaty entered into between Ireland and the jurisdiction of the subsidiary.
The Irish tax system does not impose additional taxation on foreign dividends received by an Irish company provided that the foreign tax suffered on the profits giving rise to the dividends is in excess of the Irish tax.
Irish Dividend Withholding Tax
Where an Irish company makes a distribution, in most cases the company should be able to do so without giving rise to Irish Dividend Withholding Tax (DWT), as long as certain conditions are fulfilled.
Irish DWT will not apply where the distribution is to an excluded person (e.g. an Irish resident company, pension fund, etc.) or to a qualifying non-resident beneficially entitled to the dividend. The term qualifying non-resident includes:
- A person (not being a company) who is a resident in either another EU member state or in a tax treaty country.
- Companies that are controlled by persons who are resident in an EU member state or in a tax treaty country.
- Companies not resident in Ireland that are themselves resident in another EU member state (other than Ireland) or a tax treaty country, and such companies are not under the control
of a person resident in Ireland.
Certain declarations, made by the recipient company to the paying company, may be required in order to avail of the above DWT exemptions. Also excluded from DWT are dividends paid to parent companies qualifying for an exemption under the EU Parent-Subsidiary Directive.
DWT Declaration and Distribution Details forms must be filed in respect of all profit distributions, including where an exemption from DWT applies.
Capital Gains Tax
The provisions regarding exemptions for Irish companies from Capital Gains Tax provide that a gain arising from the disposal of shares held by an Irish company will be exempt from Irish Capital Gains Tax where:-
- The Irish holding company has held at least 5% of the shares in the subsidiary; and
- The subsidiary company is tax resident in the EU or in a country with which a Double Tax
Treaty is in force with Ireland at the time of the disposal; and
- The subsidiary itself carries on a trade or is part of a trading group.
Tax Relief For Capital Expenditure On Intellectual Property
Capital expenditure incurred on certain intangible assets, used for the purposes of a trade, will be available for offset against a company’s taxable income. Capital allowances (or tax depreciation) are given on qualifying expenditure so as to reduce a company’s profits that are liable to corporation tax.
Research & Development Tax Credit
The Irish Finance Act 2004 introduced a Research and Development (‘R&D’) Tax Credit scheme in the State which was designed to encourage both foreign and indigenous companies to undertake new and/or additional R&D activity in Ireland.
A tax credit of 25% against Irish corporation tax is available to Irish tax-resident companies and branches engaged in in-house qualifying R&D undertaken within the European Economic Area (EEA), provided such expenditure is not otherwise eligible for tax benefit elsewhere within the EEA.
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