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EUROPEAN HOLDING COMPANIES

The Irish Holding Company

Overview Related Resources Ireland Key Elements

HOW TO PROCEED

OVERVIEW

An Irish Holding Company is a company which falls within the scope of general tax law and may benefit from the double taxation treaties concluded by Ireland and the European tax directives.

There are no limitations on the activities of the company.

Legal Form

An Irish Holding Company can be constituted as a Private Limited Company (Ltd) or a Public Limited Company (PLC).

Formation

The minimum share capital for incorporation of an Irish “PLC” is €38,100 25% of which must be paid up. There is no minimum share capital for a “Ltd” company. However the share capital must be fully paid and a 0.5% capital duty is payable on issued share capital which increases to 1% for transfers and subsequent capital increases.

Taxation

  • Resident companies are subject to tax on their worldwide profits (being income plus capital gains). Dividends are subject to dividend withholding tax except where these are made to qualifying non-resident persons or excluded persons. Dividends paid by Irish resident companies to other Irish resident companies are not chargeable to Corporation Tax.
  • A company is deemed resident if its management and control is exercised from Ireland or if it is incorporated in Ireland.
  • Non-resident companies are also subject to corporate tax if they carry out trading activities in Ireland through a branch or agency.
  • The standard corporate income tax rate levied is 12.5%. A 25% tax rate is levied on passive income. Such income includes capital gains, foreign dividends, interest and royalties if not earned as result of an active business carried out in Ireland. A rate of 20% applies to dealing in undeveloped residential land in Ireland.
  • Capital gains, other than gains from development land, are included in a company's profits for Corporation Tax purposes and are charged to tax under a formula that normally means that tax is paid at a rate equivalent to the standard rate of income tax.
  • Gains by companies from disposals of development land are chargeable to capital gains tax and are not included in profits chargeable to Corporation Tax.

Income

Taxable income is based on the annual financial statements prepared in accordance with generally accepted accounting principles and subject to adjustments.

Expenses incurred exclusively for the purposes of the business are deductible while expenses incurred with exempt income are not deductible.

Dividends Exemption

Dividends and other profit distributions received by an Irish company from another Irish company are exempt from tax.

Dividend and other profits received by an Irish company from its foreign subsidiary are liable to tax as passive income at a rate of 25%. However, credit against Irish corporate tax for tax paid abroad is available.

Credit not used in a certain fiscal year may be carried forward to offset future dividends received.

Capital Gains Exemption

Capital gains from disposal of shares of foreign companies are exempt from tax if the following conditions apply:

  • The company holds the shares in the subsidiary for a minimum period of 12 consecutive months.
  • The disposal takes place while or within a 2 years period after meeting the holding requirements.
  • The shares are in a company resident in an EU or treaty country.
  • The subsidiary engages a trading activity or the companies together form a trading group.
Interest and Royalties

Patent royalties received by Irish resident companies from patents created in Ireland are exempt if certain conditions are satisfied.

Advantages of the Irish Holding Company

Besides the common advantages of a holding company, the Irish Holding Company may also enjoy from the following:

Exemption from Withholding Tax on Payment of Dividends

Dividends paid by resident companies are exempt from withholding tax if:

  • The recipient is an individual resident in the EU or a treaty country.
  • The recipient is a company resident in the EU or a treaty country in which Irish Residents hold 50% or less of the share capital.
  • The recipient is a company that is under the ultimate control of an EU resident or a treaty country resident.
  • The recipient is a non-resident company whose shares are listed on a recognised stock exchange in another EU or treaty country.
  • A company resident in another Member State of the EU and covered by art. 2 of the EU Council Directive of 23 July 1990 which owns at least 10% of the payer for a minimum period of 1 year.
Exemption from Withholding Tax on Payment of Interest

Interest paid by Irish holding companies to an EU or treaty country resident company is exempt from withholding tax if connected with a trade or business carried on in Ireland.

Interest Deduction

Irish companies may claim interest relief on borrowed funds for acquisition of foreign subsidiaries if such funds provide from a parent resident in an EU or treaty country.

RELATED RESOURCES

Double Tax Treaties

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IRELAND KEY ELEMENTS

Formation
Legal Form: Private Limited Company (Ltd);
Public Limited Company (Plc)
Minimum Subscribed Capital: €38,100 (Plc)
€1 (Ltd)
Minimum Paid-Up Capital: €9,525 (Plc)
€1 (Ltd)
Number of Shareholders: 1 (Plc)
1 (Ltd)
Type of Shares: Registered or preference (Plc)
Registered (Ltd)
Substance Requirements: Nil
Taxation
Capital Duty: 0.5%
Net Worth Tax: 0%
Corporate Income Tax: 12,5%;
25% for passive income
Double Tax Treaties: 48
Dividends Exemption: 0%
Holding Requirements:
Capital Gains Exemption: Yes
Holding Requirements: 5% with €50M value or 10% with €15M value;
trading company or group
Tax Credit: Yes
Relief of Losses: Carried back 1 year;
Carry forward indefinitely
CFC Rules: No
Debt-to-Equity Ratio: No
Withholding Taxes
Dividends: EU Parent Co- 0%2
Treaty Countries- 0%=10%11
Others- 25%
Interest: EU Parent Co- 0%14
Treaty Countries- 0%-22%15
Others- 20%15/td>
Royalties: EU Parent Co- 0%16
Treaty Countries- 0%-22%17
Others- 15%17
Liquidation: 0%17

11 If the recipient is not a company controlled by residents

14 Interest paid to an EU or treaty country company is usually exempt from withholding tax.

15 The higher rate applies to rental payments.

16 Withholding tax applies only to patent royalties or annual payments.

17 Unless shares derive from land in Ireland and are owned by Irish residents.

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