Paul Foley Solicitors :: Investing in Ireland :: Headquarters and Holding Companies

INVESTING IN IRELAND

HEADQUARTERS AND HOLDING COMPANIES

Existing legislation and changes introduced by the Finance Act 2004 enable an Irish company to act as a European/Regional holding or intermediate holding company. In summary:

interest deduction is available to Irish companies borrowing funds which are used to acquire shares in trading subsidiaries or to make loans to such subsidiaries;

no thin capitalisation rules apply, providing for specific debt to equity ratios or interest cover ratios in order to obtain a full tax deduction for interest expense;

exemption from capital gains tax is available for certain disposals3 by an investor company of shares or assets related to shares ( for example put/call options over shares and convertible / exchangeable instruments ) in an investee company ( essentially a 5% direct or indirect subsidiary ) . For the exemption to apply, certain conditions must be complied with, one of which is that the investee company must be a company resident for tax purposes in an EU/ DTA country. In addition the company must be a 'trading company' or a member of a trading group

favourable treatment of dividend income ( by giving reduction or a credit against Irish tax, by the amount of the foreign tax paid ) received from foreign subsidiaries in tax treaty countries or in the EEA resulting from extensions/amendments made to the foreign tax credit regime, by the Finance Act 2004. The foreign subsidiary must be owned to the extent of at least 5% by the company immediately above and also to the extent of at least 5% indirectly by the Irish parent company.

additionally, the Finance Act 2004 introduces onshore pooling as a means of dealing with the situation where the foreign tax on dividends received, exceeds the Irish tax. It allows any excess to be offset against Irish tax on other foreign dividends received in the accounting period concerned and any unused balance to be carried forward and offset in subsequent accounting periods.

there are no controlled foreign corporation rules for foreign subsidiaries of Irish resident companies.

3 The exemption does not apply inter alia (a) to disposals of shares which are part of a life assurance company’s life business fund or (b) to disposals of shares deriving the greater part of their value from land in the state or from minerals or rights or interests in relation to mining or minerals or the searching for minerals.