Doing Business In: Ireland
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Beauchamps has been at the heart of business in Ireland for over 200 years and, as one of Ireland’s top law firms, we are well placed to advise on the practical realities of doing business in this jurisdiction. Whether considering establishing in Ireland for the first time, expanding into Europe, or if you already have an established European presence and are looking to future expansion, we hope this article serves as a helpful resource. This is, however, an edited and shortened version of a more detailed pamphlet we have produced, “Doing Business in Ireland“. There is, of course, a huge amount to be taken into account when considering operating in a new territory, but as a full service law firm with around 200 staff, Beauchamps has the resources and know-how to advise businesses of all sizes and across all sectors when making this decision.
As one of the world’s most open economies, Ireland continues to be one of the favoured global locations for investment. There were 206 foreign direct investments in Ireland in 2018, up by 135 on the previous year. Total employment at overseas companies now stands at over 200,000 people, the highest level on record.
There are over 1200 overseas companies with internationally focused operations in Ireland, many of these are the top technology, pharmaceutical and financial services companies in the world.
Our pro-business environment, low corporate tax rates and the availability of a young, well-educated and skilled work force have helped us attract hundreds of foreign companies to locate here. In addition, costs in property, rents, services and labour have fallen over the last five years, significantly increasing our cost competitiveness.
Ireland has a common law legal system which is also influenced by our written Constitution, legislation and our membership of the European Union. It is similar to the UK and US legal regime. While the President is the constitutional Head of State, the office is mainly ceremonial. The Government controls the legislative and political processes.
Until 2008 the Irish economy enjoyed rapid expansion and was hailed internationally as an economic success story, epitomised by reference to the “Celtic Tiger”. The bursting of the property bubble and the international recession and banking crises at the end of the last decade had a dramatic impact on the economy and the public finances. More recently Ireland has been hailed as an example of a country successfully addressing its problems. It exited the lending programme previously agreed with the IMF / EU / ECB in December 2013, allowing Ireland to restore full market access and provided a reputational boost internationally. The Irish economy grew by 6.7% in 2018 – the fastest growing economy in the Euro zone.
Ireland is a parliamentary republic and has a written constitution. The president has limited powers and executive authority is exercised by the prime minister (Taoiseach) and a cabinet of ministers. The president is directly elected every seven years and the last presidential election took place in November 2018.
The national parliament (Oireachtas) is divided into two houses known as the Dáil (House of Representatives) and the Seanad (Senate). Elections to the 158 member Dáil is by popular vote where candidates are elected from multi- seat constituencies using the electoral system of proportional representation based on the single transferable vote. The second or upper house known as the Seanad is composed of 60 members elected from different bodies and institutions including the universities and vocational panels. Seanad elections are held within 90 days of the election to the Dáil. Elections must be held at least every five years. The most recent election was in February 2016.
Since the 2016 UK referendum on exiting the European Union, uncertainty has surrounded European member states’ relationships with the UK. Nowhere has this been felt more acutely than in Ireland, largely due to Ireland sharing the only UK/EU member state land border, the importance of the all-island economy in certain sectors such as agriculture, and the significant longstanding economic relationship between the two nations.
As such Brexit, and specifically the threat of a no-deal Brexit, has been the single biggest driver of Ireland’s economy through 2019 and while there is uncertainty as to the future UK/EU relationship, that will continue to be the case. However, economic predictions in the second half of 2019 suggested that even in the worst case scenario of a no-deal Brexit, the Irish economy would avoid falling in to recession.
Despite the uncertainty surrounding Brexit, the 52% FDI increase in 2018 demonstrates the counteracting opportunity presented, with a large amount of this FDI coming from Britain. As the first stage of Brexit concludes and the process moves on to the future trade deal, any future opportunities for the Irish economy, as the only remaining English-speaking gateway to the Single Market, will become clearer.
Ireland’s track record:
- Ireland is first in the world for inward investment by quality and value. Ireland is the fifth most attractive country in the world for foreign investment. This is a jump of two places and Dublin has been named the number one large city in the world for foreign direct investment (BDO and Global Cities of the Future 2019)
- Home to 9 of the top 10 global software companies and 9 of the World’s top 10 pharma companies and 15 of the World’s top 25 financial services companies
- A workforce that is: young, capable, English speaking, highly adaptable, educated, flexible, productive, innovative and committed to achievement
- Globally experienced senior management
- Ireland has one of the most educated workforces in the World: according to the OECD 52% of 25-34 year olds have a third level qualification – 10% higher than the OECD average
- Strong and diverse multilingual skills – 12.2% of Ireland’s population is international and over half a million (612,018 people) Irish residents speak a foreign language fluently,
- One of the highest percentage proportion of graduates in math, science, engineering and computing in the EU
- 12.5% corporate tax rate, attractive R&D credits, beneficial holding company location
- Attractive intellectual property regime, extensive double tax treaty network
- double tax treaty network
Ease of Doing Business:
- Consistently ranked as one of the best countries in the world to do business in (Forbes, 2018)
- Gateway to Europe and beyond
- Free movement of goods and services within EU and its 500 million plus consumers
- English speaking and member of EU / Eurozone
- Large number of cities and towns with proven ability to attract FDI Innovation
- Some of the world’s most cutting-edge companies have invested in Ireland – 5 of the top 10 companies on Forbes’ list of The World’s Most Innovative Companies have Irish operations
- Ireland is one of the world’s leading Research, Development and Innovation (RDI) locations
- Ireland ranked 10th out of 126 countries in the 2018 Global Innovation Index
Establishing a legal entity in Ireland
Irish law caters for several types of company structures which are easy to establish. Non-Irish nationals or non-Irish residents may hold shares in an Irish company. There are, for the most part, no minimum share capital requirements. Incorporation can typically be achieved within five days.
Branches: A foreign limited company, and a foreign unlimited company which is a subsidiary of a limited company, which carries on business in Ireland can establish a branch in Ireland without incorporating an Irish company subject to filing certain information in the Irish Companies Registration Office, including copies of the company’s constitutional documents, accounts, details of its directors and company secretary, and the name of the person resident in Ireland authorised to accept service of process on behalf of the company.
Representative offices: A foreign company may establish a representative office in Ireland, but they should be passive and not sell or engage in business.
To incorporate an Irish company, the following documents have to be filed with the Irish Companies Registration Office (CRO):
- the company’s constitutional documents
- a Form A1
A new private limited company can be incorporated at a minimal cost within approximately five days.
The minimum capital requirement for an Irish private company is nominal and shares can be denominated in any currency.
Every Irish incorporated company is required to have one EEA resident director unless it holds a surety bond to the value of approx. €25,000 or the Irish Revenue Commissioners have certified it has a real and continuous link with one or more economic activities in Ireland. A corporation is not eligible to be a director but may be the company secretary.
Ireland has a favourable tax regime which includes a low corporate tax rate of 12.5% for trading income, generous tax depreciation allowances for capital expenditure and an extensive tax treaty network.
Residence: The scope and remit of Irish corporation tax is largely dependent on the residential status of a company. Broadly speaking, a company that is tax resident in Ireland is subject to Irish corporation tax on its worldwide income and gains although specific exemptions do exist for certain income such as distributions from other Irish resident companies and patent income. Non-resident companies operating in Ireland through a branch are subject to Irish tax on the profits of that branch and on disposals of assets used in that branch.
Rates: The rates of corporation tax are 12.5% and 25%. In general, the trading profits of a company are liable to the 12.5% rate. Non-trading or passive profits earned by a company are taxed at a rate of 25%. There is no actual definition of what constitutes trading to be found in Irish tax statute although dealing in or developing land, working minerals and petroleum activities are expressly excluded. Guidance published by the Irish Revenue Commissioners expressly includes development and exploitation of intellectual property, investment management activities, activities relating to R&D and corporate treasury functions as constituting trading.
A rate of 12.5% also applies to foreign dividends repatriated from foreign traded income where certain conditions are satisfied. Credit for foreign tax suffered is also available.
Assistance in tax matters: Relief for foreign taxes suffered on the dividend may be available to reduce any Irish tax payable and this is usually given by way of credit. Under foreign tax credit pooling rules, an excess tax credit arising in respect of a foreign dividend may be offset against the corporation tax arising on other foreign dividend income. Excess tax credits arising in an accounting period may be carried forward indefinitely for offset against corporation tax on foreign dividends in later periods.
Tax treaty network: Ireland has concluded tax treaties with 74countries, of which 73 are in effect. Different rates of withholding tax can apply to interest, dividends and royalties, depending on the terms of the particular treaty. It has concluded Tax Information Exchange Agreements with 26 countries, 5 of which are in force.
Payroll: A company which engages employees must register with the Irish Revenue and follow the procedures for the deduction at source of employees’ income tax, known as Pay As You Earn (PAYE), Universal Social Charge (USC) and Social Insurance (PRSI) contributions. Companies are required to operate this on both cash payments and benefits in kind and it applies whether the employment is an Irish employment or a foreign employment. Since 1 January 2011, certain equity-based compensation has also to be processed through the PAYE system.
Income tax: Individuals resident, ordinarily resident and domiciled in Ireland are liable to Irish income tax on their worldwide income.
An Irish resident and domiciled but not ordinarily resident individual is also liable to Irish income tax on their worldwide income.
Non-Irish domiciled individuals who are resident in Ireland are liable to Irish income tax on Irish source income, foreign employment income to the extent that the duties are exercised in Ireland and foreign income to the extent it is remitted to Ireland.
- A person will be deemed to be tax resident in Ireland if they spend:
- a total of 183 days (any part of a day) in Ireland in any tax year or
- a combined total of 280 days (any part of a day) over two consecutive tax years (assuming a minimum of 30 days in each tax year)
If a person is resident in Ireland for three consecutive years, they will become ordinarily resident for tax purposes.
A person’s domicile is, initially at least, their domicile of origin but you can prove you have abandoned your domicile of origin and acquired a new domicile known as a domicile of choice.
The Irish income tax system is progressive and there are two rates. The current standard rate of income tax is 20% and the higher or marginal rate is 40%. The 20% rate is available in respect of the first €35,300of income of a single person. Higher bands are available for married couples, but the actual bands are determined by whether one spouse or both spouses are earning income. These taxes are either deducted by employers under the PAYE system or collected via a self-assessment System.
In addition to income tax, employees are also obliged to pay PRSI and USC.
Capital gains tax: Irish resident individuals are liable to capital gains tax of 33% on their worldwide gains.
There are a number of notable exceptions and reliefs available including an individual’s principal private residence, tangible moveable assets with a life of less than 50 years and retirement relief.
Persons who are not resident in Ireland are liable to Irish capital gains tax on the disposal of certain specified assets such as Irish land or buildings, Irish mineral or exploration rights, assets used for a branch activity conducted in Ireland, or unquoted shares which derive their value or a greater part of their value from Irish land or buildings or exploration/exploitation rights.
In general, capital losses can be offset against capital gains arising in the same year or carried forward.
Pay Related Social Insurance (PRSI) and Universal Social Charge (USI): PRSI is a payroll tax, based on earnings, which funds various State benefits including unemployment assistance, retirement pensions, and certain medical benefits.
Both employees and employers are obliged to make PRSI contributions. Employees pay 4% of total earnings in the form of this social security contribution. </p.
An employer is obliged to pay 10. 95% of each employee’s remuneration.
There is also a USC which is payable on income at the following rates:
- The first €12,012 – 0.5%
- The next €7,862 – 2%
- The next €50,170 – 4.5%
- The remainder – 8%
USC at a rate of 11% is payable on non-PAYE income in excess of €100,000.
Holding Company Regime: Irish tax legislation provides that:
- a participation exemption whereby capital gains which are made by a company (the “investor company”) on the qualifying disposal of a substantial shareholding in a subsidiary (the “investee company”) are exempt from tax
- a 12.5% corporation tax rate on foreign dividends repatriated from foreign traded income where certain conditions are satisfied
- no relevant thin capitalisation
- onshore pooling of tax credits for certain foreign interest, branch profits and dividends; effectively this means that it will be usually possible to eliminate any Irish tax cost on the repatriation of profits to Ireland and
- extensive treaty network
Intellectual Property (IP) regime: Ireland’s IP regime combined with the tax incentives already outlined make Ireland an attractive location for establishing an IP holding company to effectively manage and exploit IP.
Research and Development tax credits: In addition to allowing a tax deduction in computing trading income, Ireland also provides a tax credit of 25% of capital and revenue expenditure (including, to a certain extent, sub-contracted R&D spend) on qualifying research and development expenditure. Consequently, the effective value of the tax deduction and tax credit is 37.5%. The credit may be used in a variety of ways, including to reward key employees by effectively giving them the benefit of credit.,/p>
R&D tax credit claims must be made within 12 months of the end of the accounting period in which the expenditure is incurred.
Knowledge development box: From 1 January 2016, Irish registered companies that generate profits as a result of qualifying research and development activities on certain intellectual property assets including copyrighted software and patented inventions qualify for an effective corporation tax rate of 6.25% which is half the usual rate.
Executives coming to Ireland – Special Assignee Relief Programme (SARP): The SARP targets the assignment of key foreign based individuals to their Irish based operations. The relief operates by exempting from income tax 30% of qualifying employment income in excess of €75,000. It should be noted:
- This relief applies to employees assigned to work in Ireland for a minimum period of 12 months and can be availed of for a maximum period of five years
- Assignees arriving in 2012 to 2020 are eligible
- New hires are not eligible – the employee must have been a full-time employee of a company incorporated and resident in a Double Tax Treaty
- Country and must have exercised the duties for that employer outside Ireland for the 6 months prior to arrival in Ireland. In addition, the individual must not have been tax resident in Ireland for the 5 tax years preceding the year of arrival (Irish domiciles/citizens are not excluded)
Generous fiscal incentives are available to foreign companies looking to invest in Ireland.
These packages are flexible and vary from project to project. A summary of the primary grant aids available is as follows:
- capital grants contributing towards the cost of fixed assets, including: site purchase and development, buildings and new plant and equipment
- where a factory building is rented, a grant towards the reduction of the annual rental payments may be available instead
- employment grants to companies which will create jobs. Normally, one half is paid on certification that the job has been created and the balance one year later, provided the job still exists
- training grants to cover the full cost of certain training initiatives. Covered costs include trainees’ wages, travel and subsistence expenses and engagement of instructors, consultants to train
- research and development grants in respect of approved research and development work, including product and process development, feasibility studies and technology acquisitions
In addition, Enterprise Ireland has a significant support packages for entrepreneurs and start-ups.
The Central Bank of Ireland is responsible for banking and financial regulation. As Ireland is a member of the euro zone, some central bank functions are shared with other members of the European System of Central Banks.
The two main Irish banks are Allied Irish Banks plc and Bank of Ireland. RBS / Ulster Bank, HSBC, KBC and Barclays also have a retail and / or business presence in Ireland.
Copyright, trade marks, patents, designs and ancillary rights such as confidential information are all capable of being protected in Ireland.
The Copyright and Related Rights Act 2000 transposed certain EU directives into Irish law and provides protection for specific works such as computer programs and original databases as well as literary, dramatic, musical and artistic works during the lifetime of the author and for 70 years thereafter. A new Copyright Act 2019 was enacted earlier this year. This Act (which has not yet been implemented) aims to make better provision for copyright and other intellectual property protection in the digital era.
Trade marks are protected under common law by way of action for passing off and also under statute by the Trade Marks Act 1996 (as amended), which implements European legislation aimed at harmonising trade mark law throughout the EU. It is possible to register a trade mark which would only have effect in Ireland. Trade marks which are granted are registered for ten years and are renewable indefinitely for successive periods of ten years subject to the applicable legislation.
The Irish patent system is governed by the Patents Act 1992 (as amended) and there are two types of patent protection available:
- a full-term patent
- a short-term patent
The full-term patent lasts for 20 years from the date of filing, provided that annual renewal fees are paid and the patent is not revoked at any stage. The term of a patent can be extended via a supplementary protection certificate for a maximum of five years where the patent is for a medicinal product for human or animal use or for plant production. The short-term patent lasts for ten years and as with full-term patents supplementary protection certificates may be obtained.
The Industrial Designs Act 2001 is the main legislation in Ireland governing design rights. The Act provides that a design must be new and have individual character to be registrable and a registered design is capable of being protected for a maximum period of up to 25 years.
Ireland has implemented the Electronic Commerce Directive which applies to almost all organisations who offer commercial services to customers online. The legislation addresses and legitimises electronic contracts and signatures. It provides that certain information must be provided by an online service provider in a manner which is easily, directly and permanently accessible to recipients of a service.
There is a range of legislation that provides protection to consumers when concluding contacts online. For example, the European Union (Consumer Information, Cancellation and Other Rights) Regulations 2013 (SI 484 of 2013) provides that before a binding contract for distance selling can be entered into, a trader must supply certain information to a consumer (including the price of the goods, taxes and delivery costs). It also gives consumers the right to cancel a distance contract.
Data protection in Ireland is governed by the EU General Data Protection Regulation (EU 679/2016) (GDPR) and the Data Protection Acts 1988 – 2018 (the Acts). The GDPR came into force on 25 May 2018 and standardised data protection laws across the European Union.
Businesses must adhere to data protection principles specified in the legislation and must show that the processing of the data is necessary for a particular reason(s), known as a “lawful basis”, eg to perform a contract with the data subject or to comply with another legal obligation. The GDPR increased standards and sanctions as well as introducing the principles of accountability (eg business must be able to demonstrate compliance with the GDPR) and transparency (eg any information / communication provided by businesses relating to the processing of personal data must be easily accessible, easy to understand and be in clear and plain language).
There are restrictions on the transfer of personal data to a country outside of the European Economic Area. Such a transfer may not take place unless that particular country or territory ensures an adequate level of protection for the privacy of its data subjects in relation to the processing of personal data. It is possible to transfer data to an “unapproved” state provided binding corporate rules or an EU approved model contract is put in place. The GDPR has extra-territorial effect, applying to controllers and processors based outside the EU.
Employment law in Ireland is largely based on EU law.
The Basics – What are the Obligations of Employers in Ireland?
From March 2019 employees must be provided with a statement of 5 core terms of employment within 5 days of starting employment. These terms include hours of work, manner of calculating pay etc. The remaining terms must be furnished within 2 months.
The national minimum wage rate for an experienced adult is €9.80 per hour. Since 4 March 2019, wage rates are based solely on age: 70% of adult rate for under 18s; 80% of adult rate for 18 year olds and 90% of adult rate for 19 year olds.
Employers are not legally obliged to pay sick leave.
Employers should establish certain policies and procedures – including disciplinary, grievance and dignity at work (including bullying and harassment,) data protection, absenteeism policies.
In order to work in Ireland a non-EEA National, unless they are exempted, must hold a valid employment permit. In 2016, the Department of Jobs, Enterprise and Innovation launched the employment permits online system with the aim of establishing faster turn-around times and facilitating easier online submission of supporting documents. The Department has published a very helpful user guide on its website.
The main forms of permit are still the same – namely the Critical Skills Permit, the Intra-Company Transfer Employment Permit, the General Employment Permit and the Contract for Services Permit.
There are also other forms of permit for specific situations. Applying for the most appropriate form of permit should be carefully reviewed at the outset to reduce the risk of refusal and time delays.
Property ownership in Ireland is broadly divided into two categories – freehold (where a property is owned outright) and leasehold (where a tenant holds the property subject to the terms of a lease). A lease may be a long lease, for example for 999 years, or alternatively a shorter “occupational lease”, typically for a term between ten and 25 years.
In general, there are no restrictions on non-Irish or non-EU persons or companies acquiring or leasing commercial property in Ireland. When buying, selling or leasing property in Ireland, it is prudent to consult a solicitor as early in the process as possible. It is also prudent for purchasers and tenants of property to have the property surveyed to determine its physical and structural condition. This is because the principle of Caveat Emptor (“let the buyer beware”) applies in Ireland so that a purchaser or tenant takes property in its actual condition with no requirement on the seller or landlord to ensure that it is free from defects.