Scope & Residence

Entities Covered

Corporation tax applies to companies and most other legal bodies, whether formed in Ireland or abroad. A foreign incorporated company may be subject to Irish Corporation Tax, if it is resident in Ireland. Formerly, a company incorporated in Ireland, could be outside of the scope of Irish corporation tax if it was managed and controlled from  outside Ireland and satisfied certain other conditions.

Corporation tax applies to companies and order corporate bodies.  For the most part it applies to companies formed under Irish law.  It may also apply to other corporate entities funded under the laws of other jurisdictions which are deemed resident in Ireland.

Profits & Gains

An Irish corporation or company is taxed on it worldwide profits or gains irrespective of where they are incurred. In contrast, a non-resident company is only subject to Irish tax in respect of trading income arising through a branch or agency in the State or income derived from property used or held or owned by the branch or agency.

Capital gains for companies are subject to corporation tax.  Gains and losses in the accounting period are calculated in accordance with the capital gains tax rules.  The capital gains tax rate is then adjusted (where necessary) so that the corporation tax rate applies.  A 33% rate applies to capital gains.

Corporates & Other Tax

Gains and losses incurred by companies on development land are subject to capital gains tax and not corporation tax.  They do not form part of the company’s tax calculation and are calculated separately.  The filing and payment requirement are different.

Development land gains are those referable to land whose value carries developmental potential.  See our separate section on capital gains tax.  Any land where part of the value is attributable to a prospective change in the permitted use is development land.

The effect of categorising development land profits otherwise, is that losses and gains on development land cannot be offset against other profits and gains.  Development land was subject to a special windfall tax of 80% until 2014.

Income received by a non-resident company other than from the above sources is subject to Irish income tax and not Irish corporation tax. This applies to Irish source income, which is usually withheld at source.

Residence /liability to tax

There are two alternative bases upon which an Irish company can be resident for Irish corporation tax. The first is the place of central management and control. The second is the place of incorporation. Significant changes were made in the period 1 January 2015 to 1 January 2021. There were transitional rules that apply to companies incorporated before 1 January 2015  which applied until 1 January 2021.

Generally a company is resident in Ireland if it is incorporated in or managed and controlled in  Ireland. Irish resident companies are charged to Irish corporation tax on their worldwide income and capital gains. Dividends received from other resident Irish resident companies are not counted as taxable income. Otherwise there would be multiple layers of taxation in company groups.

Dividends received by Irish resident individuals, which are paid through or ultimately emanate from subsidiaries and other companies, are  taxed at the point in time when the dividend is declared by the company of which the individual is a shareholder.

Non-Resident

A non-resident company is liable for trading income and gains of a branch or agency of the company in the State or from property or assets used by the branch.

A non-resident company is subject to income tax (not corporation tax) on other Irish source income. It is subject to capital gains tax on disposal of non-branch / agency assets, land and mineral rights (i.e. specified assets, principally real property).

See the sections on income tax and Irish source income.A  company may be resident or not resident,  if so deemed under a Double Taxation Treaty.

Branch/ Permanent Establishment

Whether or not there is a  branch or agency turns on the degree of presence. It usually requires a place of business. The presence of employees is very significant but is not necessarily sufficient.

No formal legal right to use the place is required. Where there is a place of business, it need not be exclusively available. If there is a sufficient presence within the state to undertake the activities on a stand-alone basis, there is usually a branch. Having employees within the State can be an indication of a branch.

It is the profits and  gains of the branch that are taxable. There may be a branch or agency but the  particular profits or gains may not be attributable to it.

The concept of a branch is similar to that of a permanent establishment which is used in double taxation agreements. In this latter context, it defines the degree of presence in a state sufficient to make the income and gains of a company (and also an individual) taxable there. Double taxation agreements commonly set out a detailed definition to the concept of permanent establishment.

Double taxation agreements commonly indicate that permanent establishment may include a branch place of management office factory et cetera. They commonly include and exclude particular degrees of presence. There is a great deal of guidance on the concept of a permanent establishment for the purpose of double taxation agreements.

This topic is dealt with  in more detail in the section on double taxation agreements and the multilateral instrument.

OECD Branch Rules

Finance Act 2021   provide a for the application of an OECD-developed mechanism (the “authorised OECD approach”) for the attribution of income to a branch of a non-resident company operating in the State.

For this purpose, the amount of any trading income arising directly or indirectly through or from a branch and any income from property or rights used by, or held by or for, the branch (the “relevant branch income”) is an amount that is attributable to the branch in accordance with the provisions. The relevant branch income which is attributable to a branch is the amount of income which it would have earned if it were an independent and separate enterprise.

Attributing relevant branch income to a branch shall be done in accordance with the OECD’s Guidance on the authorised OECD approach. There are additional documentation requirements to assist in ensuring relevant branch income has been computed in accordance with the provisions.

It provides for proportionate penalties for taxpayers who fail to comply with a request to provide relevant branch records to the Revenue Commissioners.

It provides for protection from tax-geared penalties where a taxpayer prepares such documentation and provides it to the Revenue Commissioners on a timely basis and the documentation demonstrates reasonable efforts to comply with the section.

The authorised OECD approach, for the attribution of profits to a branch, applies to accounting periods commencing on or after 1 January 2022. Small and medium enterprises are to come within the scope of the new provision in the future on the making of an order by the Minister.

Anti-Double Irish

Provision was made by the Finance (No.2) Act 2013 to ensure that an Irish Incorporated company cannot be stateless in terms of tax residence.  This may result from  to incompatibility between Ireland’s tax residence rules and those of a treaty partner country.

In order to mitigate the so-called double Irish structure, it was provided that unless the double taxation agreement otherwise provides, a company incorporated in Ireland is to be as tax resident in Ireland for Taxes Act and Capital Gains Tax Act.  The legislation is not to prevent a foreign incorporated company centrally managed and controlled in Ireland from being Irish resident.

The provision applied immediately to companies incorporated after 1 January 2015. It applied from 1 January 2021 in respect of companies incorporated on or before  31 December 2014.

Where there was both a change in ownership of a company and a major change in the nature or conduct of the business in the six years commencing one year before hand, the company was regarded as Irish resident from the date of change in ownership.

Treaty exemptions apply when the  double taxation treaty between Ireland and the relevant country (if any) deem the company not to be resident in Ireland.

Finance Act 2014 Reforms

A company which is incorporated in the State is  regarded for the purposes of corporation tax (and  Capital Gains Tax) as resident in the State. A company which is regarded under a double taxation agreement  as resident in a territory other than the State and not resident in the State is regarded  as not resident in the State.

This does not prevent a company that—

• is not incorporated in the State, and
• is centrally managed and controlled in the State,

being resident in the State for the purposes of corporation tax and capital gains tax

The above provisions apply from 1 January 2015. However, as respects a company incorporated before 1 January 2015, they apply  until  31 December 2020. If  after 31 December 2014, of a change in ownership of the company where there is a major change in the nature or conduct of the business of the company within the relevant period, they apply from an earlier date.

After 1 January 2021 companies are resident for Irish corporation tax purposes if they are incorporated in Ireland and do not qualify for exemption under a double taxation agreement or if they are not incorporated in Ireland but are centrally managed and controlled in Ireland.

Central Management and Control

Subject to the above, the principal test of residence in Ireland is that the company’s central management and control is undertaken in Ireland. There is no single determining factor; it is composite assessment based on the entirety of the manner in which the company is run and controlled. It is said to be a matter of fact and is therefore specific to the company circumstances.

There have been numerous cases on the topic. Key factors include;

• where directors meetings are held;
• where the majority of directors reside
• where the key business at the highest level of control is undertaken
•  where strategic management decisions are made
• where shareholders meetings are held;
• where major strategic decisions and policies are made
• where the head offices is
• where key books and records are held

Equally  important is the question of where the company is not resident. Just because a company is resident in Ireland for tax purposes, it does not follow that it might not be resident in another country under its corporation tax law. This is commonly the case and the matter may be governed and determined by the relevant double taxation treaty.

Trading Exemption

The trading exemption was relevant prior to 1 January 2021. It deemed companies incorporated in Ireland, which were not otherwise resident, to be Irish resident unless they satisfied the trading exemption test.

This basis was  introduced in 1999 due to perceived abuse by companies using Ireland as a place of  incorporation. A company “incorporated” in Ireland is one formed and registered in Irish Companies Registration Office. An Irish incorporated company was deemed resident even if it is not centrally controlled and managed in Ireland, unless the  trading or treaty exemptions applied.

The exemption applied where the company or a related company carried out a trade in the State and was  ultimately controlled by persons residing in an EU country or in  a Double Tax treaty country. This is intended to exclude companies resident in tax havens. There is an exemption for certain companies related to stock exchange quoted companies.

Sufficient Presence

If a company seeks to be within the charge to Irish Corporation tax and outside that of another country, it will need to consider the tax rules and the Irish Double Tax treaty with the other state where it might also be deemed to be resident. Most countries base corporate tax liability principally on the place of management and control. Other factors, such as the place of incorporation also commonly apply.

Issues may arise for foreign enterprises seeking to establish a trading  base in Ireland in terms of what is sufficient to constitute an Irish trade.  The Revenue has issued guidance on the existence of a trade.    Some activities clearly constitute trading such as provision of services, manufacturing etc.  In other more marginal cases where activities are largely outsourced, the question may arise as to whether there is generally a trade.

Relevant factors include:

• Whether there is real value added;
• Numbers of employees with sufficient skills to carry out the trade concerned;
• Commercial rationale;

The issue of whether there is a trade is distinct from the issue of whether the trade is controlled and managed from Ireland.