Ireland is a leading location for establishing holding companies and in recent years has been favoured by many public and private multi- national groups as a location of choice. In this briefing we headline the main tax attractions of Irish holding companies.
- Irish holding companies are subject to a low rate of corporation tax (12.5%) on (a) trading profits (b) dividends from trading companies resident in the EU or in double tax agreement ("DTA") countries and (c) dividends from shareholdings of less than 5% from companies resident in the EU or in DTA countries. Dividends received from Irish resident companies are exempt from tax.
A 25% rate of corporation tax applies to profits from non-trading (passive) activities and dividends from non- trading (passive) companies.
- Ireland operates a generous and flexible foreign tax credit system which usually eliminates or reduces any Irish tax liability on the receipt of dividends. Under this regime, Irish holding companies can claim credit for underlying overseas tax and withholding tax suffered in respect of dividends from foreign companies, where the holding company has (directly or indirectly) a minimum 5% shareholding in the foreign company for 12 months or more, within the previous two years.
- There is no capital gains tax ("CGT") on the disposal of ordinary shares, or assets related to ordinary shares (such as options or other securities) in a trading company or part of a trading group, resident in the EU or a DTA country where the Irish holding company has (directly or indirectly) a minimum 5% shareholding for 12 months or more, within the previous two years where certain conditions are met.
- Irish holding companies can be financed principally by means of debt. Interest is deductible (on a paid basis) where it is used to acquire ordinary shares in (a) a trading company (b) a real estate company or (c) a holding company holding shares in or, lending to trading or real estate companies. Certain conditions must be met to ensure the lending arrangements do not fall foul of Irish rules governing the recovery of capital. There are generally no thin capitalisation rules in Ireland. However, interest can be re-characterised as a distribution and therefore as non- deductible in certain circumstances, such as, where it is paid to a 75% parent. This particular re-characterisation can be avoided where the parent is resident in the EU and, in other instances, where it is resident in a DTA and the terms of the DTA permit this.
- The expenses of management of holding companies are generally deductible for tax purposes.
- Ireland operates a 20% withholding tax on interest and dividend payments but there are many exemptions available, including, where the interest or dividend payment is made to a company resident in the EU or a DTA. There are also exemptions from withholding tax for interest payments on listed bonds and commercial paper and, from dividend withholding tax on payments to a listed company or a 75% subsidiary of a listed company, or to a company that is controlled by EU/ DTA residents.
- There are no controlled foreign companies ("CFC") rules in Ireland.
- Generally speaking, Irish holding companies are not subject to transfer pricing rules and related reporting requirements. However, Ireland has introduced ‘Country by Country’ reporting measures for multi- national groups with consolidated revenues of more than €750m from 1 January 2016, in line with BEPS Action 13, which can apply to Irish holding companies depending on the circumstances.
- Ireland has an extensive DTA network, currently there are 72 tax treaties which include treaties with all the major trading countries.