Ireland's standard rate of corporate tax is cited as one of the key reasons foreign companies decide to invest in Ireland. These tax regimes are part of a suite of incentives that are available to businesses locating in County Waterford. In this page we provide an overview of the taxes that apply to businesses in Waterford for illustrative purposes. We recommend that you seek independent tax advice and consult with the Irish Revenue.
Ireland's corporate tax rate is 12.5% on all trading profits and 25% on non-trading income. Certain companies have their profits taxed at an effective rate of 10%. This "manufacturing rate" is being phased out but remains in existence for manufacturing, IFSC and Shannon companies until 2010. Corporate tax is assessed on the profits of a company's accounting period at the rate of tax in force during the accounting period. The figure below illustrates the competitiveness of Ireland's standard corporate rate.
Central Government Corporate Income Tax Rate 2012 - Forfás
Ireland has had a 25% R&D Tax Credit scheme since 2004 (in addition to a tax deduction at 12.5% for R&D expenditure in Ireland). Its purpose is to encourage both foreign and indigenous companies to undertake new and/or additional R&D activity in Ireland. The R&D tax credit is available to Irish resident companies and branches on the incremental cost of in-house, qualifying R&D undertaken within the EEA, provided such expenditure is not otherwise eligible for tax benefits elsewhere within the EEA. Incremental spend is calculated in comparison to a base year of 2003; therefore, for new entrants to the R&D sector the credit is essentially volume-based.
There is also a certain degree of flexibility included in calculating the base year where an R&D facility has permanently ceased to operate as a consequence of economic conditions.
In order to qualify for the tax credit, it is necessary to seek to achieve scientific or technical advancement and involve the resolution of scientific or technological uncertainty.
Qualifying spend includes both revenue and capital expenditure. In practice, qualifying expenditure includes wages, related overheads, plant and machinery, and buildings.
The credit regime also provides that up to:
— 5% of the R&D expenditure can be outsourced to European Universities (includes Irish Universities); and in addition
— 10% of the R&D expenditure can be sub-contracted to unconnected parties (i.e., 15% in total).
The tax credit can be refundable where there is insufficient corporate tax liability to utilise the full credit in a particular year. The credit can be:
— carried back 12 months;
— carried forward indefinitely; or,
— claimed as a cash refund from Revenue (spread over three accounting periods).
Tax Deductions for Intellectual Property Costs
The Irish tax treatment of intellectual property (IP) is dependent on the nature of the IP rights. Allowances are made for:
- Scientific Research: revenue and capital expenditure on activities in the field of natural or applied science for the extension of knowledge is allowable as a trading expense.
- Patents: can be written off by a tax deduction generally claimed over 17 years on a straight-line basis.
- Know How (Industrial): can be written off fully as a trading expense in the year in which it is incurred.
- Software: is written off over 8 years on a straight-line basis.
- Trademarks & Copyrights: while no tax deduction is available for the cost of developing or acquiring trademarks, a deduction is available for the cost of obtaining the registration of a trademark.
- Other (including brands): it may be possible to obtain a revenue deduction for costs incurred to build a brand.
Other Business Taxes
Other taxes paid by businesses in Ireland include:
- Local Taxes: Waterford County Council does not apply taxes on profits of companies. Consistent with all other local authorities in Ireland, Waterford County Council applies a property tax or rates.
- Value Added Tax: which is a tax on consumption, is charged on goods and services supplied in the course of business. VAT is also payable on imports from outside the European Union. Credit is available to registered traders, thus is ultimately borne by the final consumer. Exports are zero rated for VAT.
- Customs & Excise Duties: As a member of the EU Ireland enjoys duty free importation of goods from other EU countries. The EU has preferential tariff agreements with certain countries and country groups. While generally excise duties are collected at point of entry, some arrangements are in place under which goods may be imported without payment of duty.
- Taxes on Capital: Profits arising from the disposal of capital are subject to capital gains tax. The standard rate of capital gains tax is 25%.
- Stamp Duty: is payable on the transfer of lands and buildings.
- Capital Duty: arises on the formation of a limited company. The rate of this duty is 0.5%.
- Capital Acquisition Tax: is applied to gifts and inheritance. There is a number of exemptions and reliefs available.
- Employer Social Insurance Contributions: Employers contribution to Pay Related Social Insurance is 10.75% of gross salary.
- Other schemes: are in place to attract employees such as profit sharing schemes, new share purchase relief, share ownership trusts and approved share option schemes.
Double Taxation Agreements
To facilitate international business, Ireland has generated a network of double taxation agreements. To date, Ireland has put in place 45 tax agreements with other jurisdictions, to provide for the elimination or mitigation of double taxation.
Employees pay income tax at a standard rate of 20% and a higher rate of 41% depending on their income and circumstances. In addition personal tax credits are available to each individual and married couple. Employees also contribute to National Social Insurance or Pay Related Social Insurance (PRSI). Outside of work, other taxes may apply to individuals such as Capital Gains Tax, Capital Acquisition Tax or Stamp Duty.
For more comprehensive information on the tax incentives available to businesses in Waterford please contact The Irish Revenue at www.revenue.ie.