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Taxation
Corporation Tax
As and from the 1st January 2003, the standard rate of Corporation
Tax of 12.5% appies to all trading profits and 25% for non trading
profits. The low rates of Corporation Tax maintained by successive
Irish governments in recent years have contributed enormously to
the creation of a favourable fiscal climate for business in Ireland.
An Irish tax resident company is liable to Corporation Tax on its
total profits. Companies which are not tax resident in Ireland,
but which operate in Ireland through a branch or agency, are only
liable to Corporation Tax on profits generated by the Irish branch
or agency.
Profits are determined by applying the generally accepted principles
of commercial accounting, subject to any necessary adjustments as
provided for by tax law. It is possible to offset trading losses
against total taxable profits for the current year or the previous
year. Unutilised trading losses can be carried forwarded indefinitely
to be offset against future trading income from the same trade.
Currently, Ireland operates 36 double taxation treaties with other
countries, including almost all OECD countries.
In the context of e-business, one of the most important taxation
issues to be addressed is whether the enterprise in question has
a presence in Ireland which amounts to a permanent establishment.
It may not always be possible to clearly establish whether or not
the enterprise concerned has such a permanent establishment in Ireland.
As a general rule of thumb, the more substantial the activities
which the enterprise carries out in Ireland, the greater the likelihood
that it will be considered as having a permanent establishment in
Ireland for taxation purposes. If the enterprise in question trades
in Ireland with its own staff and equipment, it will almost inevitably
be regarded as having a permanent establishment.
Whilst there is no agreed international approach to the application
of the permanent establishment concept in the context of e-business
operations, it is unlikely that the mere use of computer equipment
in Ireland, such as a server, would be sufficient to create a permanent
establishment for Irish taxation purposes.
VAT
Value Added Tax (VAT) is a tax on consumption, rather than on production.
VAT is charged on goods and services supplied in the course of a
taxable business. Credit is given for VAT to registered traders.
VAT rates currently range from 0-21% depending on the classification
of product or service being provided.
The Finance Act 2003 has amended Irish VAT legislation to amend
the place of supply rules following the implementation of the VAT
on E-Commerce Directive (2002/38/EC) concerning the provision of
digitised products and services over the Internet, or as they are
termed in the legislation "Electronically Supplied Services".
As from 1st July 2003 the place of supply of electronically supplied
services will be deemed to be the member state where the customer
belongs. Suppliers of electronically supplied services from outside
the EU to customers within the EU will be subject to VAT at the
prevailing rate of the Member State concerned. Suppliers of electronically
supplied services from within the EU to customers outside the EU
will no longer have to charge VAT.
Under the new rules it will be possible for non EU businesses (not
otherwise registered within the EU) selling electronically supplied
services to customers in Ireland to electronically register with
the Irish tax authorities and then to account for VAT electronically
to the Irish Tax Authorities.
Customs and Excise Duties
Goods, which are imported from outside the EU, are liable to customs
duty at the appropriate rate specified in the EU’s common customs
tariff (CCT). Following the creation of the single market, goods
imported into Ireland from elsewhere within the EU are not subject
to customs duties. Excise duties are chargeable on a limited range
of goods such as petrol and diesel, LPG, beer, spirits, wine and
tobacco products. In addition, specific Vehicle Registration Tax
applies to all road vehicles, calculated at rates set as a percentage
of the open market selling price for the vehicles in question. Special
reliefs may apply to vehicles imported temporarily into Ireland
by non-residents of Ireland or vehicles imported on the transfer
of residence to Ireland from outside of Ireland.
Capital Gains Tax
Gains from the disposal of capital assets (adjusted for inflation)
made by individuals resident or ordinarily resident in Ireland are
subject to Capital Gains Tax (CGT) at the current standard rate
of 20%. Losses arising in the same year may be offset against gains,
which would otherwise be taxable. There are a number of exemptions
and reliefs available. Rollover relief will apply where companies
re-invest the proceeds from the disposal of capital assets into
new qualifying business assets within a specified period. Capital
assets may also be transferred between Irish resident group companies
without triggering a liability to CGT.
Capital Acquisitions Tax
In broad terms, Capital Acquisitions Tax (CAT) applies both in the
case of gifts and inheritances. CAT arises when the person receiving
the gift or the inheritance, as the case may be, becomes beneficially
entitled to the property for less than full consideration. There
are technical rules, governing how the tax is calculated and depending
on the date of the gift or inheritance, certain thresholds or exemptions
may arise. The rate of tax for gifts and inheritance is taken on
or after the 1st December 1999 is currently 20% on the appropriate
taxable amount. There are a number of relevant exemptions and reliefs.
Stamp Duty
Stamp Duty is payable on a transfer of land and buildings or on
the creation of leases of real property and also on certain other
legal instruments such as Stock Transfer Forms. Rates vary from
between 1% - 9% of the relevant consideration or open market value.
There are various exemptions and reliefs. Transfers between associated
companies where the necessary 90% beneficial ownership relationship
exists are exempt from stamp duty, provided the asset transferred
is retained within the same group relationship for a period of two
years. If it is not, a claw-back will apply and stamp duty will
arise.
Transfers on certain reorganisations takeovers and mergers are exempt.
Almost all transfers made by a liquidator to a shareholder attract
stamp duty at a nominal rate. Most transfers of foreign shares or
of foreign real property and a wide range of financial investment
services are exempt, as are transfers of Irish Government stocks
or transfers arising on foot of a Will or between spouses, including
certain transfers arising as a consequence of divorce. Normally
speaking, transfers of property, other than stocks and shares between
related persons, attract stamp duty at half the normal rate of duty.
Personal Taxation
Income Tax is charged on an annual basis. As and from the 1st January
2002, the tax year is now the same as the calendar year. For a liability
to Irish Income Tax to arise, the individual must be tax resident
in Ireland in the particular tax year for a period of 183 days or
more, or 280 days or more in that and the preceding tax year with
at least 30 days in each year.
Taxable income is calculated as the aggregate of income from all
sources in the current tax year. Income Tax due on taxable income
is reduced by certain tax credits and reliefs, which are available
to each taxable individual.
National Social Insurance
In Ireland, social security is provided by means of social welfare
insurance and associated levies known as Pay Related Social Insurance
(PRSI). It is compulsory for all employees aged 16 years and upward
to be covered by social insurance. Both employers and employees
contribute towards the scheme and contributions are calculated as
a percentage of earnings. Broadly speaking, most employed persons
would contribute at the rate of 2% on the first €551.00 of
income per month and at the rate of 6% thereafter. Employers presently
would contribute at the rate of 12% with no ceiling.
Local
Taxation
There
are no provincial, municipal or local taxes on company profits.
The only applicable local tax is a commercial property tax levied
by the appropriate local authority on an annual basis.
For further information or general enquiries contact: -
Patrick Ryan
Email: pryan@kilroys.ie
Telephone: +3531-439 5600
Fax: +3531-439 5601/439 5602
© Kilroys Solicitors 2002 - 2003
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