Reasons To Do Business In Ireland – Corporate Tax Rates and Tax Administration
While there are many factors which attract Foreign Direct Investment (FDI) to Ireland, our well publicised Corporation Tax Rate of 12.5% is considered as one of the most significant. Ireland’s rate of 12.5% is one of the lowest “onshore” Statutory Corporate Tax rates in the world; however, it is not an incentive regime, it is in fact the standard tax rate applicable to any active business or “trading” income from any industry or sector in Ireland.
Corporate Tax Rate of 12.5%
Ireland’s headline Corporate Tax rate has come under much scrutiny from both the USA and Europe in recent years. However, Ireland is the only country in Europe where our official tax rate was in line with our actual tax rate (12.5% V’s 12.4%), giving us the most effective tax rate in Europe. (Paying Taxes 2015)
While Ireland has been accused of creating a “race to the bottom” in relation to Corporation Tax, it is interesting to note that for many European countries there is a substantial difference between their official tax rate and their actual effective tax rate.
Furthermore, the Corporate Tax rate of 12.5% applies only to “trading” income, with passive income attracting a tax rate of 25%. Examples of passive income include investment income, rental income and net profits from foreign trades.
Overall Tax Rate
Included in the “Paying Taxes 2015” report, the overall tax of each country was also reviewed. Under this category Ireland ranked 4th globally, with Ireland’s overall tax rate amounting to 25.9%, which is substantially lower than other countries and the average rate of 41%.
The following is a breakdown of how Ireland’s overall tax rate compares with some of the key countries in Europe:
|Total Tax Rate||25.9%||48.8%||65.4%||66.8%|
Bureaucracy and Administration
Ireland ranks 1st in Europe and 6th in the world for ease of paying taxes, which takes into consideration the number of hours companies spend a year dealing with tax administration along with the average number of tax payments made by companies each year.
In Ireland companies spend an average of 80 hours per annum complying with tax administration, which is a very positive result when compared to Germany at 218 hours, Italy at 269 hours and the average number of hours coming in at 176 hours.
Ireland also compares very favourable under the category of number of taxation payments made by a company during the year. On average Irish companies only make 9 tax payments each year, with the average being 12.5 payments.
Taxes are a significant consideration for companies when considering a suitable location for their operations and Ireland continues to do well in this regard. It is therefore vital that Ireland retains a tax system that eases the administrative burden of tax compliance. The introduction and investment in electronic filing by the Irish Government has assisted in this regard, with the Revenue Commissioners making substantial advances in electronic filing in recent years.
Three Year Exemption From Corporate Tax For Start-Up’s
In the Irish Budget 2015, the Minister for Finance announced an extension to the exemption from Corporation Tax for Start-up companies. Such an announcement demonstrates Ireland’s commitment to encouraging entrepreneurship and employment creation.
For those companies which were incorporated after 14th October 2008 and commenced to trade between 1st January 2009 and 31st December 2015 relief is granted on profits of the new trade, including chargeable gains on disposals of assets used for the new trade
Where the total amount of annual Corporation Tax does not exceed €40,000, a full exemption may be available. Where the Corporation Tax is between €40,000 and €60,000 marginal relief is given.
The quantum of relief available is also linked to the number of employees and the amount of employers’ PRSI paid or deemed paid by the company in the relevant accounting period.
The Future Of Ireland’s Corporation Tax
In recent budgets the Minister for Finance has remained firm that Ireland’s Corporation Tax rate should remain at its current level. The “Paying Taxes 2015” report will also provide comfort for the Irish Government against any criticism on our Corporate Tax rate as it confirms that Ireland’s rate of 12.5% is not just a tax incentive. Our low Corporate Tax rate coupled with an efficient tax system and the relative ease with which companies can pay tax in Ireland are all factors which strengthen Ireland’s attractiveness as a location for FDI.
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