Benefits of locating your business in Ireland

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Ireland enjoys an enviable reputation as a business-friendly location and it’s not just global giants who reap the benefits, says Edward Murphy, Partner and Head of Tax Services.

Ireland is home to many of the world’s most successful companies. Sixteen of the top twenty global technology firms are located here as are twenty-four of the twenty-five top biotech and pharma companies.

However, it is not just global giants that reap the benefits of doing business in Ireland. Many smaller companies also take advantage of the pro-business culture and ease of access to EU markets.

In the software sector alone, more than 900 multinational and indigenous firms employ 24,000 people generating €16 billion of exports annually, according to IDA Ireland, the state agency responsible for promoting foreign direct investment.

Ireland’s Foreign Direct Investment Success

One reason for Ireland’s foreign direct investment (FDI) success is the favourable tax regime. There are double tax treaty agreements in place with 72 other countries and the 12.5 percent corporate tax rate is one of the lowest in the EU.

Other advantages include an attractive holding company regime and tax incentives for certain types of investment. For example, Irish-resident companies carrying out qualifying research and development activity can avail of a ‘Knowledge Development Box’ where eligible profits are taxed at a rate of just 6.25 percent.

Tax not the only reason to locate in Ireland

While tax is undoubtedly an important consideration, it is not the only reason foreign businesses choose to locate in Ireland. Other influences include:

  • Ease of doing business.
  • Supportive state agencies.
  • Political stability.
  • EU membership and proximity to EU markets.
  • Strong legal framework for the development, exploitation and protection of intellectual property rights.
  • English-speaking population (When the UK leaves the EU, Ireland will be the only English-speaking EU member state).
  • Strong talent pipeline with around 30 percent of Irish third level students enrolled in science, technology, engineering and maths (STEM).
  • Collaborative ecosystem where industry and academics work together to the benefit of society and the economy.
  • Growing economy. GDP growth of 4.4 percent is forecast for 2018 and 3.9 percent for
US and Canadian Companies in Ireland

Around 700 US companies are located in Ireland, employing more than 150,000 people.  Anecdotally, US technology companies report that they can hire two engineers in Ireland for the price of one in Silicon Valley, with higher multiples for some engineering specialties.

Notwithstanding the Trump administration’s recent tax reform package which will see US corporation tax rates fall from 35 percent to 20 percent, Ireland’s corporate tax rate is still only around half the US rate when federal taxes are taken into account.

Canadian interest in Ireland is also growing. The EU-Canada trade deal which provisionally came into force in September 2017 will create further opportunities for Canadian businesses seeking to set up in Ireland.

Conclusion

At a time of global economic and political uncertainty, Ireland offers a stable, pro-business environment and is an excellent location from which companies seeking to establish a base in the EU can develop and expand their businesses.

Crowleys DFK assists many foreign owned companies to set up operations in Ireland. For more information and to discuss your specific requirements, please get in touch.

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Edward Murphy
Partner and Head of Tax Services
edward.murphy@crowleysdfk..ie

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KEEP – Share Option Scheme

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The Finance Bill 2017 has introduced a tax efficient share option scheme for employees of SMEs. The Finance Bill provides that from 1 January 2018, SMEs in Ireland will be able to grant KEEP (Key Employee Engagement Programme) share options to their employees.

The change in a tax treatment of these share options means an employee may exercise a “qualifying” share option without incurring the liability to income tax, PRSI and USC that he would have under the current rules. Currently, gains arising on the exercise of a share option at a discount on market value are subject to income tax, PRSI and USC. However, KEEP provides that tax on such shares will be deferred until the shares are disposed of and the employee will pay only capital gains tax at 33% on his profit when the shares are sold.

The KEEP Scheme was introduced to facilitate the use of share-based remuneration to attract and retain key employees in unquoted companies.

A number of conditions must be satisfied in order to avail this tax advantageous KEEP Share Option incentive, which are briefly set out below:

Qualifying share options

  • Shares must be new, ordinary fully paid up with no preferential, current or future rights to dividends or assets on a winding up or redemption
  • Share options must have an exercise price that is not less than the market value of the underlying shares on the date the option is granted
  • There must be a written contract in place setting out number and type of shares, option price and exercise period
  • Share options cannot be exercised within 12 months of grant other than in limited circumstances and options cannot be exercised more than 10 years after date of grant
  • Share options must be granted for bona fide commercial purposes the main purpose of which is to recruit or retain employees in the company and not part of a tax avoidance scheme or arrangement.

Qualifying company

  • For the purpose of the relief the company must be a “qualifying” company i.e. must have been Ireland/EEA incorporated and Irish resident or carrying on a business in Ireland through a branch or agency
  • Qualifying company must be carrying on trading activities with the exception of certain excluded activities set out in legislation. The most notable of these excluded activities include professional service companies, companies dealing in or developing land, financial activities and the building and construction industry
  • The company must be unquoted and remain within the definition of an SME i.e. a company with less than 250 employees and with turnover less than €50m or less than €43m balance sheet
  • The company can only have a maximum of €3m value of share options in issue and unexercised at any one time.

Qualifying individual

  • Must be a fulltime employee/director working at least 30 hours per week
  • The employment held must be capable of being held for at least a further 12 months from the date the option is granted
  • The employee must not acquire or be connected to a person who controls more than 15% of the ordinary share capital of the company during option period
  • Market value of all shares which can be granted in any year of assessment to an employee cannot exceed €100k in any one tax year, €250k in any three consecutive years or 50% of the employee’s annual emoluments for the year in which the option is granted.

KEEP will be available for qualifying share options granted between 1 January 2018 and 31 December 2023. As State Aid approval will be required to introduce this scheme, the scheme is subject to a Ministerial Order.

Contact our Tax Department if you have any questions about KEEP share options or other employee share scheme matters.

 

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Budget 2018 – VAT Compensation Scheme for Charities

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Budget 2018 introduced a Charities VAT Compensation Scheme. This will take effect from 1 January 2018 but will be paid one year in arrears i.e. in 2019 charities will be able to reclaim some element of the VAT costs arising in 2018.

Charities will be entitled to a refund of a proportion of their VAT costs based on the level of non-public funding they receive.

For example, where a charity’s gross income for 2018 involves 30% funding from State/EU/international organisations and 70% privately sourced income including fundraising, subscriptions and donations, they may claim 70% of their VAT input costs for the year.

Not eligible for relief under the scheme will be VAT incurred on private non-charity-related expenses; VAT incurred that is subject to an existing VAT refund order and VAT incurred that is otherwise deductible.

From 2018 onwards, charities will need to ensure that their accounting systems are designed to enable them quantify the total VAT cost and the proportion that is eligible for refund.

We would be happy to assist charities with implementing/upgrading their accounting systems to identify VAT costs so they can easily be reclaimed and on how best to structure their activities to ensure they maximise the amount of VAT they can reclaim.

You can view the Department of Finance’s document in full here.

If you would like further information, please contact us.

 

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