Ireland’s Industrial Policy has been a key part of its economic strategy for over 60 years. A key element has been the attraction of foreign direct investment by various supports and incentives, in particular, taxation incentives. The Industrial Development Authority was first established in 1950 and has played a central role in industrial policy.
IDA Ireland deals with international businesses, while Enterprise Ireland deals with domestic businesses generally those with more than 10 employees. In the Gaeltacht Areas, Udaras na Gaeltachta undertakes the functions of Enterprise Ireland. In the Midwest region, Shannon Development formerly undertook the same functions, which have since been resumed by IDA Authority and Enterprise Ireland.
Other state agencies provide enterprise support services. Fáilte Ireland provides services in the area of tourism. Fas / Solas provides services in relation to employment and training.
Enterprise Ireland assists manufacturing and international traded services which employ more than 10 persons. It advises and supports companies. It is particularly focused on innovation and the internationalisation of the business of domestic companies. Its supports include a range of grant and equity investments.
Shannon Development was originally focused on the Shannon free trade airport. It was the enterprise body for the Shannon region until 2014 when if enterprise support functions in relation to both indigenous and overseas enterprises were assumed by the Enterprise Ireland and IDA Ireland. The remaining parts of Shannon Development became part of Shannon Group plc. In order to emphasis a more commercially focused property remit, it was renamed Shannon Commercial Enterprises Ltd, trading as Shannon Enterprises.
Údarás na Gaeltachta was established as the enterprise body Gaeltacht regions on the western seaboard.
Tax incentives have played a critical role in attracting foreign direct investment. Export sales relief provided for zero corporation tax on profits on exports sales. Relief for manufacturing provided a special 10% corporation tax rate, approximately one quarter of the then applicable rate, in respect of profits attributable to a manufacturing trade. During the 1980s and 1990s, the 10% rate was extended to a variety of other non-manufacturing businesses, including in particular businesses in the financial services sector.
Ireland’s accession to the EU Treaties limited the extent to which the State could assist private industry. The EU treaties provisions on state aid, prohibit assistance to private enterprises, unless justified on certain development and other grounds and specifically approved by the EU Commission. This is critical part of the EU’s competition policy. See the section on competition law anon state aid rules.
Certain forms of state aid are potentially compatible with the EU Treaties. Broadly speaking, aid to promote economic development in areas with below average standards of living may be approved. Aid which facilitates the development of economic activities which do not adversely affect competition and trading contrary to common interest, may be approved.
The State is obliged to notify new state aids, as well as changes to existing state aids. The EU Commission considers the matter and may prohibit the aid, permit the aid, or permit it on a revised basis. The Irish special tax rate for manufacturing, software and financial services related to businesses, were permitted on a transitional basis after Ireland joined the EEC under state aid rules, but were required to be phased out.
Export sales relief (total exemption) was phased out by 1980. The 10% “manufacturing” rate (and the variations benefiting the software and financial services industries) were due to be phased out by the end of the last century. Ireland obtained EU Commission approval in 1997 for a general corporation tax rate of 12.5%. Since then, this low headline tax rate, has been the cornerstone of Irish industrial policy.
It is a general principle reflected in most tax systems and in the standard form of OECD taxation treaties that non-resident shareholders are not taxed on dividends and income received from a resident company. Therefore, the 12.5% taxation rate is particularly favorable to non-residents.
Income that is distributed by a company to Irish resident individuals, is taxable as personal income under income tax rules. Certain passive and other income is subject to surcharge if not distributed within period of 18 months of year end. In contrast, income distributed to a non-resident shareholders, personal or corporate is not generally subject to Irish taxation at all. See generally, the sections on Corporation Tax.
Non-resident shareholders of Irish resident companies may be taxed in another jurisdiction on dividends received. However, the immediate shareholders are commonly organised as corporates, who arrange that dividends are received in a tax efficient manner in another jurisdiction or jurisdictions. Some countries allow relief or exemption in receipt of foreign dividends.
Ireland has, itself, taken steps in the last number of years to enhance its location as a holding company base. There is a wide ranging relief from Corporation Tax on the sale of interests in subsidiaries. The levels of relief from taxation for holding companies in respect of foreign dividends and foreign income received have been significantly enhanced.
Ireland has enacted a research and development tax credit over the last number of years. See the article on this relief in the section relating to Corporation Tax. Capital allowances have been expanded in relation to expenditure on the acquisition of intellectual property assets.
Companies and businesses established in Ireland, enjoy the freedom to trade within the European Union. A company or other entity established in the EU may also provide services and trade across internal borders and establish other places of businesses within the EU. See the section on European Union Law and the various rights and freedoms provided.
The European Union commenced as a customs union, the Common Market. Goods may be freely exported through the European Union without customs or equivalent barriers to trade. The European Economic Community developed on many levels, ultimately evolving to become the European Union. Since 1993, most remaining physical customs checks and barriers have been removed.
The European Union provides for harmonized standards in many goods. Where there is no common standard, the general principle is that goods may only be forbidden to enter on the market on regulatory or technical grounds if there is a very cogent justification.
There are comprehensive EU wide laws in relation to financial and other services. A company or business established in one EU State may do business into or establish businesses in other EU states.
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