Under current UK tax rules, a group which has a UK incorporated tax resident holding company and has UK income and non-UK businesses, pays UK corporation tax and is taxed at the local rate on its non-UK profits. As well as this, a company incorporated in the UK is presumed to be UK resident and under UK law, it is not possible to redomicile a company in its current form.
Therefore to move a company to Ireland, an Irish company is incorporated and becomes the new holding company of the group. The transfer of shares is done through a scheme of arrangement whereby existing shares in the current UK holding company are cancelled and the resulting reserve arising from such cancellation is applied in issuing new ordinary shares to the new Irish holding company. In consideration for the issue of such ordinary shares, the new Irish holding company issues ordinary shares to the former shareholders of the UK holding company. Essentially shareholders are swapping their shares in the former UK holding company for shares in the new Irish company. Similarly, a company can relocate to Ireland by way of a merger or takeover of an Irish company with the new company being registered and based in Ireland. In the case of public companies, they may move to Ireland by registering as “Societas Europaea” or “SE” (the new form of European public company) and moving its registration to Ireland.
The process of the scheme of arrangement when incorporating an Irish holding company:
To ensure the group is not subject to UK law on its foreign income, the UK income/ assets/liabilities are separated from the non-UK income/assets/liabilities. This may involve the transfer of subsidiaries or other income-generating activities so that they are directly owned by the new Irish parent/Irish subsidiary. This is because a tax charge can arise when transferring assets as such.
The UK shareholders must also agree to the move in a shareholder’s meeting and amend the company’s constitution where necessary to ensure compliance with Irish company law.
The Finance Act 2014 introduced a number of new measures to ensure companies resident in Ireland were exactly that. The most important consequences of these rules are;
- To maintain its tax status and to be recognised as resident by the Irish Companies Registration Office, the new holding company must be centrally managed and controlled in Ireland. This is generally defined as the place where board meetings occur, as the board exercises control over the strategy and operational management of the company, therefore all board meetings and major decisions should take place in Ireland. It should be noted however, that the board may delegate to others the management of certain aspects of the company in Ireland and abroad.
- The company must ensure that it acts in a way to avoid being treated as resident in another country, the UK for instance, as this will lead to the Irish CRO recognising the company’s residency in that state rather than in Ireland.
- All general meetings of the new Irish holding company shall be held in Ireland
- At least one director should be tax resident in Ireland, meaning he/she is resident in Ireland for 183 days in a tax year or 260 days in 2 tax years.
- Ireland is a member of the OECD and the EU and is the only English speaking jurisdiction in the Eurozone. Registering a company in Ireland from the UK will allow it to continue trading without barriers to the EU market, thus allowing companies to massively negate the impact of Brexit on their company.
- Ireland’s low corporation tax rate (corporation tax on trading profits is 12.5%) and the ability to repatriate profits to Ireland without tax costs.
- Ireland has signed comprehensive double tax treaties with 68 countries, including the U.S. and all EU member states.
- Like the UK, Ireland is a common law jurisdiction and its legal concepts will be recognised by most investors; in addition, the laws relating to personal property and the transfer of assets and the concepts of legal and equitable title are similar to those in the UK.
- The Irish Stock Exchange (ISE) currently has responsibility for the approval of any public offer prospectus required to be issued by an Irish company. The ISE provides an efficient and comparatively speedy approval procedure for prospectuses.
- Takeover bids for public companies incorporated in Ireland are regulated by the Irish Takeover Panel whose rules are based on the Takeover Code of the UK Takeover Panel as well as incorporating the EU Takeover Directive 2004/25/EC.
- Ireland has an experienced and efficient Commercial Court which can resolve disputes speedily in a cost effective manner.
- Dublin is an established international financial centre.
- Ireland has a skilled and well educated labour force.
- 12.5% rate of corporation tax applies to trading profits and trading dividends. A rate of 25% applies to passive income.
- Capital gains tax is 33% however the sale of shares by a non-Irish resident is usually exempt from capital gains tax. An exemption also exists for disposals of 5%+ corporate shareholdings held for at least 12 months in trading companies/groups that are EU resident/tax treaty resident.
- No dividend withholding tax applies to dividends paid to persons resident in an EU or an Irish tax treaty country or on U.S./Canadian listed shares held through ADRs (subject to collection of relevant forms). It is also possible to implement structures using income access shares where it is necessary to allow shareholders to continue to receive non-Irish dividends.
- Dividends received by an Irish incorporated company are taxed at 12.5% or 25% but a flexible credit system usually eliminates any tax liability on receipt; also other tax free cash repatriation techniques are available.
- No interest withholding tax applies to interest paid (i) to persons resident in an EU or an Irish tax treaty country or (ii) on listed bonds or commercial paper.
- Tax credits are available in Ireland for the purpose of research & development
- Ireland currently has a comprehensive framework of double taxation agreements. The agreements generally cover income tax, corporation tax and capital gains tax (direct taxes)