Company Set Up In Ireland “Taxation”

Company Residence

A Company resident in the State is liable to corporation tax on its worldwide profits, not just its Irish source profits. A company not resident in the State is not within the charge to corporation tax unless it carries on a trade in the State through a branch or agency and, where it does so, the company is chargeable to tax on all of its branch or agency profits, wherever arising. Foreign profits, within the charge to corporation tax, that suffer double taxation may be entitled to relief under Part 35 TCA.

The general rule for determining company residence is based on principles set out in case law, in accordance with which a company’s residence for tax purposes is determined by the location of its central management and control. Under this rule, a company is resident in the State for tax purposes if it is centrally managed and controlled in the State. This rule applies both to companies that are incorporated in Ireland and companies that are incorporated in other jurisdictions.

The general residence rule based upon management and control is supplemented by the provisions in Section 23A Taxes Consolidation Act (TCA) 1997 (inserted by section 82 Finance Act 1999). This section provides that in certain specific circumstances a company will, by virtue of being incorporated in the State, be regarded as resident in the State for tax purposes. Broadly, section 23A provides that where a company is incorporated in Ireland and neither it, nor any company related to it, carries on a trade in Ireland, the company will be regarded as resident in the State for tax purposes, unless it would be treated as not being so resident for the purposes of a double taxation treaty.

This specific incorporation rule does not apply where the company is a ‘relevant company’ that carries on a trade in the State or is related to a company that carries on a trade in the State. A ‘relevant company’ is a company that either:

• is ultimately controlled by persons resident in the EU (including Ireland) or in a country with which Ireland has concluded a double taxation treaty, or
• is, or is related to, a company the principal class of the shares of which is substantially and regularly traded on one, or more than one, recognised stock exchange in an EU Member State (MS) or in a tax treaty country.

Most Irish incorporated companies would be relevant companies carrying on a trade in the State or related to a company carrying on a trade in the State and for such companies residence continues to be determined by reference to central management and control.

Section 23A also provides that a company which is regarded, for the purposes of a tax treaty, as resident in a territory other than the State and not resident in the State, is to be treated as not resident in the State for tax purposes.

Changes in Finance (No.2) Act 2013 – Provision to address a mismatch in residence rules with those of a treaty partner country

Section 39 Finance (No.2) Act 2013 inserted a new subsection (5) in section 23A of the TCS 1997 to provide that, where an Irish incorporated company that is managed and controlled in a treaty partner country would not otherwise be regarded as resident for tax purposes in any territory for the reason that-

• the company would not be resident for tax purposes in the treaty partner country because it is not incorporated in the country, and
• the company would not be resident in the State for tax purposes because it is not managed and controlled in the State,

then the company will be regarded as resident in the State for tax purposes.

This change ensures that an Irish incorporated company will not be ‘stateless’ in terms of its place of tax residence, as a result of a mismatch between Ireland’s company residence rules and those of a treaty partner country.
Section 23A(5) of the TCA applies from 24 October 2013 for companies incorporated on or after that date and from 1 January 2015 for companies incorporated before 24 October 2013.

Tax deductible expenses

When computing the amount of profits or gains to be charged to tax under Case 1 of Schedule D (trading income) a company is, in general, entitled to deductions in respect of revenue expenditure wholly and exclusively incurred for the purposes of its trade (section 81(2)(a) TCA). It is not, however, entitled to claim a deduction in respect of business entertainment expenses nor is it entitled to claim a deduction in respect of capital expenditure.

Check our article on 10 benefits of the new companies Act 2014.