Ireland is uniquely placed for companies or individuals in the UK looking to relocate to an EU country following Brexit. Ireland offers access to the EU single market, a common law jurisdiction, a workforce of native English speakers, a low rate of corporation tax on trading activities (12.5%), an extensive network of double taxation agreements (DTAs) with more than 70 countries, and a similar ethos and working culture to that in the UK.
For those thinking of making a move to Ireland, there are a number of tax issues to consider.
Once individuals acquire Irish tax residency, they become liable to Irish tax on income and gains.
In broad terms, an individual is resident in Ireland if they are present in Ireland at any time for 183 days in one year, or 280 days over two consecutive years with at least 30 days spent in Ireland in each year. Individuals are ‘ordinarily resident’ the year after they have been resident in Ireland for three consecutive tax years.
‘Domicile’ is a general legal concept in Ireland and the UK that has no explicit definition but is broadly analogous to where the individual has their permanent home.
Where individuals are tax-resident and domiciled in Ireland for a tax year, they will pay Irish tax on their worldwide income and gains in that year. The remittance basis of taxation generally applies to individuals who are Irish resident but not Irish domiciled, ensuring that they are taxed only on income sourced in Ireland.
Individuals who are resident or ordinarily resident, but not domiciled, in Ireland are liable to capital gains tax (CGT) on gains arising from the disposal of assets situated in Ireland and on all foreign gains remitted to Ireland.
The sale or transfer of any property that is or was the individual’s main residence throughout the period of ownership, with a 12-month grace period to cater for the purchase and sale processes, is exempt from CGT.
Transborder relief may be relevant to individuals who become Irish tax-resident but who also commute regularly (for a continuous period of not less than 13 weeks) to a country with which Ireland has a DTA. The relief removes from the Irish tax net any earnings for a qualifying foreign employment to the extent that foreign tax has been paid on those earnings.
Split-year relief applies to employment income only. In effect, the year is split to ensure that foreign employment earnings before arrival or after departure are not subject to Irish tax.
The special assignee relief programme (SARP) provides relief from income tax for individuals assigned to work in Ireland from abroad. Where the employee and employer satisfy the conditions for SARP, 30% of taxable employment income over €75,000 will be disregarded for income tax purposes. Subject to conditions, SARP recipients may also receive compensation for certain expenses tax-free.
CGT reliefs are available on the disposal of shares in a trading company and business assets, subject to certain conditions on the assets being disposed of and the individual themselves.
- Entrepreneur relief reduces the CGT charge from 33% to 10% on chargeable gains up to €1m.
- Retirement relief provides a CGT exemption on certain disposals of qualifying assets where individuals are aged 55 or over.
A company that is tax-resident in Ireland is liable to Irish corporation tax on its total worldwide profits. Companies not tax-resident in Ireland are liable to corporation tax only on profits generated by an Irish branch or agency.
Foreign companies that wish to expand into Ireland have a choice of two options:
- A branch, which has restricted commercial independence (ie it is seen as an extension of the overseas parent), is liable to Irish corporation tax on Irish profits.
- A subsidiary, which is an independent legal entity (ie the overseas parent company’s liability is limited to the share capital invested), can avail of Ireland’s corporation tax rate of 12.5% on its worldwide sales.
A startup company can qualify for relief from corporation tax for the first three years. Subject to conditions, a startup company may qualify for relief from corporation tax for the first three years where the corporation tax due is €40,000 or less in a tax year. Partial relief may be available if the corporation tax due is between €40,000 and €60,000.
Subject to conditions, the relief can be claimed where the total amount of corporation tax payable by the company is for an accounting period falling within the first three years of trading.
Companies in Ireland undertaking qualifying R&D activities in Ireland or in the European Economic Area (EEA) may be eligible for the R&D tax credit. Qualifying R&D expenditure generates a 25% tax credit available for offset against taxable profits.
The Knowledge Development Box offers an effective tax rate of 6.25% on qualifying profits determined as a proportion of the Irish company’s R&D spend relative to the total R&D spend to develop qualifying assets. Broadly speaking, qualifying assets are patented inventions and copyrighted software.
There is a CGT exemption from gains arising to Irish-based holding companies on the disposal of certain shareholdings in EU/DTA companies.