For a small country, Ireland punches above its weight in attracting inward investment. This article explores why this is, and has some tips for potential investors.
Why consider Ireland?
- Ireland is a longstanding member of the European Union (EU), providing access to other EU markets. It is English-speaking, with a well educated workforce;
- The tax regime in Ireland is attractive to investors;
- Ireland has tax treaties with all major Asian jurisdictions including China, Hong Kong and Singapore;
- Track record – the ever growing list of multinationals located in Ireland shows the long-term strategic benefit of being there.
- Business minded lawmakers – the legal and tax regime in Ireland is suited to the needs of investment into the country.
- The tax rate for trading companies in Ireland is 12.5%. Most businesses in Ireland enjoy a low effective tax rate, generally with no withholding on repatriation of profits or interest from Ireland to China. The especially favourable tax treaty between China and Ireland, combined with Irish domestic tax rules are attractive for investors.
- For a Chinese investor taking shares in an Irish company, the shares can generally be sold by a Chinese investor free from capital gains tax. In addition, there is no dividend withholding tax on dividends and interest paid from Ireland to China. In reverse, the treaty also enables a reduction of Chinese withholding tax on dividends where the shareholder has at least 25% of the voting power.
Opportunity: real estate
Banks need to dispose of their real estate and loan portfolios. Investors (especially in US private equity) are buying up these Irish assets, either by acquiring the properties themselves, or a portfolio of loans.
Top tip for acquiring Irish real estate. While there are many ways to structure these types of acquisitions, for the larger deal – say for a portfolio value in excess of €50 million (US$65 million) – a particularly attractive structure is to use a qualified investor fund (QIF). A QIF is regulated by the Irish Central Bank, takes only one day to be approved, and is very favourable for tax purposes.
Generally, profits from real estate (rent, or gains on a disposal) are subject to tax in the country where the real estate is located. A QIF, however, can accumulate income and gains free from Irish tax, and non-Irish resident investors can receive this from the QIF, free from Irish tax. It can be used for other assets as well as real estate.
Opportunity: individual residence permits
High net worth individuals are often interested in residence permits in other jurisdictions. Ireland has several such programmes:
- Business Permission Residence Scheme (requires investment of €300,000)
- Immigrant Investor Programme (requires investment of between €500,000 and €2 million); and
- Start-up Entrepreneur Programme (for investment of not less than €75,000 for a high-potential start-up in the innovation economy).
Top tip for residence permits. The investments can be made in start-up and expanding companies that may have innovative IP or other business aspects that provide access to Irish companies with the comfort of the joint venture of the other shareholders. While these schemes will only provide residence permits to the investor (and in most cases their family and staff) a person is entitled to apply for an Irish passport after five years. The Department of Justice is overseeing these projects, and it is important to ensure that any investment is approved by the department to ensure that the residence benefits are obtained.
Already a number of Chinese leasing companies have set up aircraft leasing platforms in Ireland. The companies will usually avail of the 12.5% trading tax if they use operating leases, or the specialised financing regime for financing companies, where the rate is technically 25%. However, there is no requirement to leave a profit, so the effective tax rate is zero.
Top tip for leasing and financing. The favourable regime already used in aviation can also be used for general equipment leasing, and vendor financing. There is no withholding tax on equipment rental payments outbound from Ireland, and the tax treaty network also usually allows lease rentals to be received into Ireland free from withholding tax. With limited financing generally available, those with funds to invest can access attractive financing deals and also use the Irish leasing platform to access the EU and beyond.
The tax and legal regime in Ireland make it an attractive place to house intellectual property (IP). There is generous tax depreciation for the acquisition of IP, and significant allowances given for research and development expenditure. These combine to make Ireland a popular place for multinationals to house and develop their IP. Examples of this include Google, Microsoft, Citibank and Accenture.
Top tip for IP. Many multinationals locate their IP in Ireland, and some use the “Double Irish” structure, which is particularly attractive for US companies. This uses an Irish incorporated company (IrCo 1) resident in a tax haven (say, Cayman Islands) and an Irish incorporated subsidiary tax resident in Ireland (IrCo 2). IrCo 1 owns the IP and licenses it to IrCo 2, which carries on an active trade in Ireland. IrCo 2 pays tax on its profits (less the licence fee it pays to IrCo 1). Tax is managed in Ireland to a low effective rate (less than 3%). In the US, with proper filings, the controlled foreign corporation rules do not apply, so an overall low effective tax rate is achieved.
These are some of the reasons why trade between Ireland and China continues to expand at a rate exceeding all other EU jurisdictions. Other examples include “green tech” and agriculture. Investors will find Ireland an efficient and welcoming environment.
Caroline Devlin is a senior tax and leasing partner at Arthur Cox, one of Ireland’s leading law firms, and the head of the firm’s China Group. She can be contacted on + 353 1 6180585 or by email at [email protected]