How to set up your business in Ireland and reduce your tax liability

Your company, set up in Ireland

✅ 1. 12.5% CORPORATION TAX?

Reasons

12.5% corporation tax and access to the EU? Yes, that is certainly one of the reasons why the tech giants have found Ireland so attractive, and why many of my clients are relocating their offices to Dublin.

This rate of 12.5% is one of the very lowest ‘headline’ corporation tax rates in the EU, beated only by Bulgaria at 10% and Hungary at 9%. The average of OECD nationals is about 25%. It is also well-governed and OECD whitelisted. It has one of the lowest secrecy scores in the FSI rankings for 2018.

However, as with all tax matters these days, it is all a question of substance over form. In other words, you cannot simply set up an off-the-shelf company in Ireland, direct your revenues through it, and expect to be able to pay less tax.

The 12.5% rate of Irish corporation tax only applies in respect of profits from trade carried on – or partly carried on – in Ireland. This means you have to prove that this was actual trading – not just ‘passive’ income (trading presupposes activity), and that the activies are carried out in Ireland rather than abroad.

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✅ 2. AVOIDING DOUBLE TAXATION

Tax treaties

Assuming you can show all of this, you still also need to prove to your local tax authorities, in the country where your company is originally based, that your company has no taxable presence there. As long as that is done, most tax treaties will prevent so called ‘double taxation’, i.e. your company being taxed both in Ireland and locally in your country. The way that most tax treaties determine which country’s corporation tax applies is through asking ‘where is the central management and control of your company’?

This is determined by the location of your company’s:

  • directors’ meetings
  • directors’ residence
  • shareholders’ meetings
  • negotiation of major contracts
  • determination of questions of important policy
  • head office
  • accounts
  • auditing of the accounts
  • Minutes
  • Company seal
  • Share register
  • dividends
  • realisation of profits
  • company’s bank account

If you can show that the location of these in the case of your company is Ireland, then you will likely be able to show that the 12.5% rate of Irish corporation tax applies. Remember that even if it does, this only covers taxable profits from trade carried on in whole or part in Ireland. For taxable profits arising from trade carried on wholly outside Ireland, the corporation tax rate is 25%. This is because if your company is Irish tax resident, it is subject to Irish corporation tax on its worldwide income and gains.

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