1. Types of Business Entities, Their Residence and Basic Tax Treatment

1.1 Corporate Structures and Tax Treatment

Businesses in Ireland tend to incorporate in order to take advantage of the benefits of separate legal entity status and limitation of liability. Ireland enacted amended and consolidated company law legislation in 2014 (the Companies Acts 2014), which provides for the following forms of incorporated entity:

  • private company limited by shares (LTD);
  • designated activity company (DAC);
  • public limited company (PLC);
  • company limited by guarantee (CLG);
  • unlimited company; and
  • investment company.

The limited company has traditionally been the most popular form for incorporated trading business, and is likely to remain so. Companies involved in the issuance of listed debt securities are formed as DACs. Investment funds are incorporated as investment companies or as Irish Collective Asset Management Vehicles (ICAVs).

Entities with separate legal form are taxed separately.

1.2 Transparent Entities

In Ireland, partnerships and limited partnerships are treated as transparent for tax purposes. Partnerships are generally used for investment purposes and also by certain professional services firms (eg, accountants and solicitors). In addition, pension funds may make use of a particular form of tax-transparent investment fund called a common contractual fund (CCF).

1.3 Determining Residence of Incorporated Businesses

A company that has its central management and control in Ireland is considered resident in Ireland, regardless of where it is incorporated. A company that is incorporated in Ireland is considered resident in Ireland, except where the company is regarded as not being resident in Ireland under a double taxation treaty between Ireland and another country.

The term "central management and control" is, in broad terms, directed at the highest level of control of the company. The Irish Revenue Commissioners ("Irish Revenue") and the Irish courts emphasise the location of the meetings of the board of directors.

1.4 Tax Rates

Ireland currently has two rates of corporation tax.

  • A 12.5% rate applies to the trading income of a company that carries on a trade in Ireland (including certain qualifying foreign dividends paid out of trading profits). There is no precise definition of what constitutes trade for this purpose but, broadly, where a company is carrying on an active business in Ireland on a regular or habitual basis and with a view to realising a profit, it should be considered to be trading for tax purposes.
  • A 25% rate applies in respect of passive or investment income, profits arising from a possession outside of Ireland (ie, foreign trade carried on wholly outside of Ireland) and profits of certain trades, such as dealing in or developing land and mineral exploration activities.

In October 2021, the Irish Minister for Finance announced that Ireland would sign up to the OECD's Inclusive Framework, which was intended to reform international tax rules in order to address the challenges arising from the digitalisation of the global economy. As part of its implementation, a new corporation tax rate of 15% will be introduced in Ireland for large groups – specifically, groups with an annual consolidated revenue in excess of EUR750 million.

The EU Directive on minimum taxation was published in the EU Official Journal on 22 December 2022. EU member states must bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 31 December 2023.

Separately, a 33% rate applies to capital gains. The same capital gains rates also apply to gains earned by individuals directly or through transparent entities.

Personal income is subject to tax at rates of up to 55%.

2. Key General Features of the Tax Regime Applicable to Incorporated Businesses

2.1 Calculation for Taxable Profits

Corporation tax is imposed on the profits of a company (including both income and chargeable gains), wherever they arise, for the fiscal year or "accounting period" of the company. The accounting period cannot exceed 12 months.

The starting point for determining taxable profits is the profit of the company according to its statutory accounts, subject to any adjustments required by law. The more important items that are not deductible when calculating the taxadjusted profits include the following:

  • any capital expenses;
  • any expenses not wholly or exclusively incurred for the purposes of the trade or profession;
  • general provisions for bad debts (specific bad debts and specific bad debt provisions are deductible);
  • ividends or other distributions paid or payable by the company; and
  • certain specific expenses, including business entertainment costs, interest on late payment of taxes, general provisions for repairs and certain motor leasing expenses.

A tax deduction is not available for accounting depreciation. However, capital allowances are available in relation to qualifying capital expenditure on land and buildings, plant and machinery and certain intellectual property.

Chargeable gains that do not form part of the trading profits are calculated in accordance with capital gains tax rules.

2.2 Special Incentives for Technology Investments

R&D Tax Credit

A 25% tax credit for qualifying research and development (R&D) expenditure exists for companies engaged in qualifying in-house R&D undertaken within the European Economic Area (EEA). This credit may be set against a company's corporation tax liability, and is available on a group basis in the case of group companies. The tax credit is calculated separately from the normal deduction of the R&D expenditure in computing the taxable profits of the company.

Qualifying R&D activities must satisfy certain conditions and, in particular, must seek to achieve scientific or technological advancement nd involve the resolution of scientific or technological uncertainty.

The R&D tax credit is now payable under a new three-year fixed payment schedule. This change was introduced by amendments included in the most recent Irish Finance Act (Finance Act 2022), which was published on 20 December 2022.

Knowledge Development Box

In 2016, Ireland introduced an OECD-compliant "knowledge development box" for the taxation of certain intellectual property. The amount of expenditure incurred by a company in developing, creating or improving qualifying patents or computer programs ("qualifying expenditure") is divided by the overall expenditure on such assets before being multiplied by the profits arising from such assets (eg, from royalties and net sales). The result is effectively taxed at 6.25%. A potential 30% uplift in the qualifying expenditure is available, capped at the total amount of acquisition costs and group outsourcing costs.

Finance Act 2022 confirmed the extension of the knowledge development box relief for a further four years.

Capital Allowances on Provision or Acquisition of Intangible Assets

Capital allowances (tax depreciation) are available for companies incurring capital expenditure on the provision of intangible assets for the purposes of a trade. The relief applies to a broad range of intangible assets (eg, patents, copyright, trade marks, know-how) that are recognised as such under generally accepted accounting practice, and are listed as "specified intangible assets" in the Irish tax legislation. The relief is granted as a capital allowance for set-off against profits arising from the use of the intangible assets. The write-off is available in line with the depreciation or amortisation charge in the accounts or, alternatively, a company can elect to take the write-off against its taxable income over a 15-year period.

Where the intangible asset is acquired prior to 14 October 2020 and held for more than five years, there is no clawback of the allowances on a disposal (unless the asset is sold to a connected company that wishes to claim allowances). If an intangible asset is acquired on or after 14 October 2020, a clawback or "balancing charge" will only arise on the disposal of that asset if the sales proceeds are in excess of the "tax written down value" of the asset. The allowance can be surrendered by way of group relief or carried forward if unused.

Digital Gaming Tax Credit

At the start of 2022, Ireland introduced a new tax credit for the digital gaming sector, which will operate as a refundable corporation tax credit for qualifying expenditure incurred in the design and development of digital games. The tax credit will be available at a rate of 32% of qualifying expenditure, with a maximum limit of EUR25 million per project. A per project minimum spend requirement of EUR100,000 will also apply.

2.3 Other Special Incentives

Certain reliefs and incentives may apply for companies involved in shipping, financial services, property development, forestry, farming, film production and mining businesses.

2.4 Basic Rules on Loss Relief

Ireland distinguishes between losses arising from trading income and losses arising from non-trading income. Trading losses are computed in the same manner as trading profits. Trading losses may be offset against non-trading profits, but are adjusted on a "value basis" so that they do not reduce the non-trading income more than they would have reduced the trading income.

Broadly, the following actions apply to trading losses, in the following order:

  • trading losses can be set off against other profits of the company (before charges) in the same accounting period;
  • trading losses can be set off against profits (before charges) of the previous accounting period of corresponding length, if the company carried on the trade in that period;
  • trading losses of one Irish company (or of an Irish branch of an EU company) can be set off against the profits of an Irish resident company or Irish branch of an EU company in the same corporate group as the company that has excess trading losses; and
  • trading losses can be carried forward on an indefinite basis and set off against future profits derived from the same trade.

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