Irish Non-Resident Companies

The Finance Bill, 1999 proposes to render all Irish incorporated companies tax resident in Ireland. This will apply to all companies incorporated on or after 11th February 1999, and to companies incorporate before that date as on and from 1st October, 1999. There are certain exceptions to this general rule.

An Irish incorporated company which is resident in a treaty company for the purposes of the treaty between that country and Ireland, and which is not resident in Ireland will continue to be regarded as not resident in Ireland.

A second category of exemption exists to facilitate the use of Irish incorporated non-resident companies in structures adopted by multinationals investing in Ireland.

Under the second exception, an Irish incorporated company which is

1. under the ultimate control of a person or persons resident in an EU member state or in a country with which Ireland has a double tax agreement, or which itself is, or is related to, a company whose principal class of shares is substantially and regularly traded on a stock exchange in an EU country or a treaty country,

and

2. which carries on a trade in Ireland or is related to a company which carries on a trade in Ireland

will continue to be able to be non-resident under the management and control test.

For the purpose of this exception, a company is related to another company if one owns at least 50% of the ordinary share capital of the other company, or if both companies are each at least 50% owned by a third company.

The question of control is determined by the application of the Irish rules which attribute the rights of shareholders to related parties and associates.

The Bill also proposes some additional reporting requirements for Irish incorporated non-resident companies. The pertinent additional information is as follows:

1. The country in which the company is by virtue of its laws resident for tax purposes.
2. Where the exception in relation to a company carrying on a trade in Ireland applies, the name and address of the trading company concerned.
3. Where the exception in relation to a company resident in a treaty country is concerned, the name and address of any quoted company which controls it, or else the name and address of the ultimate beneficial owners.

The Minister for Finance has also announced Company law measures which are to be included in a proposed Companies Amendment Bill which will work in tandem with the proposed tax provisions in the Finance Bill.

1. It will be a pre-condition for incorporation that the proposed company intends to carry on an activity in Ireland.
2. Every Irish company will have to have at least one Irish resident director, or alternatively provide a IR£20,000 bond against company law and tax requirements. This will apply to new companies and also will in due course apply to existing companies after a transitional period.
3. An individual will not be able to hold more than 25 Irish directorships, although it is indicated that there may be some exceptions for certain circumstances.
4. There will be enhanced strike-off provisions for companies failing to make the appropriate annual returns and failing to register with the Revenue Commissioners for tax purposes.
5. There will be enhanced notification procedures for the Companies Office for directors resignations, whichwill include strike-off for companies which appear to have no director.

To compliment these company law changes, it is proposed to provide in the Finance Bill, by a committee stage amendment, that where there is a failure by an Irish incorporated company to supply information, pay a penalty or file a tax return, penalties may be recovered from the secretary, or alternatively, if the secretary is not resident in Ireland, from any agent or representative of the company in Ireland or from any Irish resident director.

The use of Irish incorporated non-resident companies is by no means ended by these proposed provisions. In many instances, an existing or proposed Irish incorporated non-resident company will, by virtue of the wide attribution provisions concerning control, be under the ultimate control of several persons separately, one or more of whom will be a person or persons in an EU member state or in a treaty country. If the non-resident company or its subsidiary conducts a trade in Ireland, then it will find itself within the exemption and may continue to be regarded as non-resident for Irish tax purposes if it is managed and controlled out of Ireland.

A trade can be conducted in Ireland by the establishment of a branch or agency through which certain business transactions are done, for example buying and selling. There is no requirement that the trade must be the primary activity of the Company and therefore it would be possible for a trade to be established on a relatively small scale, precipitating a small degree of profit which would be subject to Irish taxation by virtue of deriving from a trade carried on in Ireland.

Alternatively an Irish company could become resident under the management and control test in a treaty country in order to retain non-resident status in Ireland. The tax consequences ensuing in that treaty country would have to be analysed in the context of a particular company’s circumstances.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.