INVESTING IN IRELAND

Subject to some exceptions ( being the trading exemption and the treaty exemption ), a company incorporated in the Republic of Ireland ("the State") is automatically considered to be Irish tax resident. Companies are liable to corporation tax on their total worldwide profits ie trading income, passive income and capital gains, less allowable deductions so that the "taxable profit" element is reached.

Additionally companies whose central management and control is exercised in the State are treated as tax resident in Ireland.  The residency rules are particularly important for companies thinking of investing in Ireland in order to avail of Irish taxation rules and Irish Tax Treaties.

There are two rates of Corporation Tax:  in respect of trading income, the rate is 12.5% unless the income is from an excepted trade ( includes certain land dealing activities, income from working minerals etc ) in which case the rate is 25% and non trading income, where the rate is 25% ( eg investment income, rental income ).

The Finance Act 2006 imposes a surcharge of 10% of the additional tax due plus interest for transactions classified as tax avoidance, if the transaction is not disclosed to the Revenue within a certain period of time.

Trading activity

The word  "trading " is not specifically defined in Irish law. Guidance on what constitutes "trading" is available from case law and from a set of rules drawn up in 1955 by the UK Royal Commission on the Taxation of Profits and Income, which rules have been approved by the Irish courts.

Holding and managing Intellectual Property as a trading activity

Subject to Revenue approval, a company carrying on trading activities which involve the development, promotion and licensing of its Intellectual Property ("IP") out of Ireland is likely to qualify for the 12.5% rate of corporate tax, providing there is relevant substance, management and control in the Irish operation, and the royalty income relates to Irish activity.